Effect of High Gasoline Prices on Low-Density Housing Development

Abstract

Real estate development in suburban and exurban fringe areas defined the latest housing boom in the United States. The development of vast subdivisions of greenfield parcels in counties distant from urban cores and employment centers led to an upward trend in driving distances. A gradually developing and then dramatic run-up in the price of oil from 2003 to 2008 precipitated a gasoline price shock. The convergence of rising gasoline prices and a glut of newly constructed, low-density tract housing led to an equally dramatic decline in new housing starts in areas far from center cities and the older suburbs. Whereas the gasoline price shock affected the number of housing starts, the recession is responsible for the decline in housing prices; the two concepts act independently of one another. By correlating gasoline prices, housing starts in rural counties as compared to urban centers, vehicle efficiency, and vehicle miles traveled data, I have determined that the demand for sprawl development declines substantially as the price of gasoline rises over time. Households not seeking to move are not likely to move purely because of changes in gasoline prices; however, people who have plans to change residence take gasoline prices into account when choosing a new neighborhood. The recent global peak oil production milestone acknowledged by the International Energy Agency (IEA) has significant implications for transportation costs and, therefore, the future efficacy of auto-oriented suburban housing development. Whether these emerging trends continue into the future remains to be seen.