Monday, April 28, 2008

Joe Cortright says that higher gas prices are hurting suburbs and places without strong urban cores

He writes:
...high gas prices are not only implicated in the bursting of the housing bubble, but that the higher cost of commuting has already re-shaped the landscape of real estate value between cities and suburbs. Housing values are falling fastest in distant suburban and exurban neighborhoods where affordability depended directly on cheap gas. In metro areas around the country, housing prices are down most on the fringe, while close-in neighborhoods are holding more of their value--or in several cases, still continuing to see price appreciation.
And the analysis also shows that those metropolitan areas with the strongest close-in neighborhoods--as measured by the core vitality index we developed in our 2006 City Vitals report--have weathered the housing collapse far better than other metros. House prices have performed best and foreclosures have been lower in those metropolitan areas with vibrant core neighborhoods.

Far from being a short term or transitory event, our view is that this shift in real estate market valuations implies a fundamentally different path for future urban development in the years ahead. As my colleague, CEO's for Cities President Carol Coletta puts it, "In short, vibrant cities just became a whole lot more valuable."

There are tremendous opportunities for the nation's cities to build on this shift in value, promoting redevelopment, mixed uses, higher densities and better transit. These strategies will also play a key role in helping reduce energy demand (and the trade deficit) as well as putting us on a path to dealing with the challenge of global warming.

The paper has lots of interesting pictures relating location to changes in house prices. But I think a key policy question is whether "strong urban cores" can be created by design, or whether they are organic phenomena.


AC said...

Let me posit an alternative theory:

Places with lots of subprime borrowers have seen the biggest decline in prices. In Cleveland and Detroit, that has been in central city neighborhoods. In Los Angeles and Atlanta, it has happened in the far-flung suburbs. The expensive areas have fared better because their customers have higher incomes and are thus less likely to be subprime. Since healthy, vibrant core neighborhoods tend to be expensive, they naturally have fewer subprime homeowners, and are less vulnerable to the subprime market collapse.

Cortright has not tried to disentangle the subrime collapse from the effect of rising gasoline prices.

I would like to an analysis based on rents rather than home prices. If gasoline prices are depressing demand for suburban living, suburban rents should be falling. If the subprime collapse is depressing demand for single-family homes (because would-be buyers can't get credit), then rents should be rising.

Without disentangling the effects of the credit crunch and spike in gas prices, Cortright's analysis seems like wishful thinkgin.

Anonymous said...

It looks like far flung large lots and hard to heat giant homes are not working out as advertised. Maybe citizens can convince foreign savers to buy securitized sub prime gasoline loans to go with the mega jumbo sub prime mortgages. Maybe the burbs will need easier to heat small homes on easier to drive to smaller lots to stay viable.

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