Fuel Prices and Real Estate
C. Edward Boyle July 18th, 2008
What can we expect that gas prices will do to real estate? This is an interesting question, and the answers may prove to be “a great deal” over time.
A part of the reason for suburban sprawl comes from people trading high commute times and costs for lower home prices and a different quality of living in the ‘burbs. Many folks think it is better for variety of reasons. But now the cost of commuting is growing quite rapidly. Someone who drives from Marysville into Seattle on a daily basis not only contends with the growing congestion on I-5, but has had the monetary cost of their commute double over just a few years. Of course tires, oil changes, repairs and maintenance are all over and above this and driving more miles means more of these costs.
Diesel, for some reason, costs more than gas (it didn’t used to), and is tucked in there just under $5.00/gallon and rising. Truckers drive rigs that typically get 7 miles to the gallon. This meanins over $0.70/mile, just for fuel.
What are the reasonable guesses for the future?
1. More people will opt to ether stay in the city, near their jobs, or move closer to the job. This will, of course, increase demand for “close in property”. The opposite effect of lessening demand for properties that require long commutes can also be expected, but not to the equivalent degree so long as overall population growth continues. The trend toward attached housing will continue in order to create more density in the urban areas. People will accept condo, townhouse, and apartment living to a greater degree than at present.
2. The costs of shipping goods will be mitigated by more water or rail traffic, with trucks being used for shorter hauls. This may result in mega-distribution centers fading away in favor of smaller, more local distribution centers, as one example of a result. It could also mean that large suburban shopping centers would become less prevalent, with their functions taken over by smaller, more localized strip malls. It may also mean that west coast ports will see a reduction in growth as more efficient ships take goods directly to east coast ports rather than truck the Asian-made goods across country.
3. Free time activities will be more locally concentrated, and the popularity of “out of the way” places will diminish as they become less affordable to reach. It may well include a per capita reduction in flying due to rising airline costs and the plethora of reduced servies and higher fees coupled with increasing inconvenience.
4. Telecommuting, teleconferencing, and other electronic methods of meeting will continue to escalate at the cost of fewer face-to-face meetings in the businesses and industries that allow for it, and this includes more work-from-home activities (at least part of the time).
5. Some enterprises will alter the way that they do business, entirely. More and more businesses will charge their customers “trip fees”, and why not if it costs both time and a lot of fuel. Maybe your local Realtor will not spend a day hauling you around an area to look at a bunch of houses, but rather will have you select just one or two from video presentations before burning gas. Maybe there will be a dollar aded to the price of a home-delivered pizza. Lettuce and frit from California will permanently cost more. Home mail delivery could be reduced to fewer days per week. You might even finding yourself riding a bus or a light rail to some of your destinations, moving your home, and selling one of your cars. How will these changes impact real estate demand and land use?
The list of possible impacts is much longer than this, but these are just pointed out as a variety of diverse probabilities and possibilities. What is certain, though, is that people will naturally migrate toward a less energy consumptive lifestyle as energy costs rise.
The first changes to make will probably come from changing transportation costs. And the purpose of all transportation is to move someone or something from one piece of real estate to another. How, in your opinion, will the real estate be changed by transportation changes?
It will be interesting to see if the long commuters choose to move closer to their jobs. I think the difficulty for commuters moving closer to major cities is the rising cost in housing. If people choose to move inward versus commuting the price of homes will increase due to rising demand. This could cause people to choose the commute since the costs may offset each other. Rising home prices or rising commuting costs…which ever is cheaper.