The Price of Oil, Suburban Sprawl, and the Bursting of the Housing Bubble

Toxic loans are the target of most crash analysts. However although they locate the areas where these toxic loans were mostly taken up, they rarely show why these particular locations were so much more vulnerable to mortgage foreclosure. These locations were invariably in peri-urban areas which were often quite distinctly removed from the main metropolitan areas that developers assumed for the jobs and services of those living there. Whilst the post war suburbs are often called urban sprawl these areas could only be called urban scatter. These areas invariably had nothing other than houses, they had no real employment, shops or services, and transit was non existent. These were highly car dependent places where people had to travel long distances for anything. – Peter Newman

Was one of the tipping points for the current financial crisis a combination of high oil prices and suburban sprawl leading to an implosion in housing at the suburban fringe?  Did a combination of rising transportation costs coupled with adjustable rate mortgage resets  become the perfect storm for household budgets at the outer limits of a daily commute?  Peter Newman, author of Resilient Cities makes the case that sub-prime loans combined with our sprawling patterns of development are part of the toxic soup that helped to create our current economic crisis.

traffic-jam

In the age of cheap oil, driving out from the city until you could afford the mortgage payment seduced families into the great suburban experiment of post WWII America.  Fueled by cheap gas and government subsidized water, sewer, power, and highway infrastructure investments, the early promise of suburban home ownership devolved into mind-numbing commutes and complete auto dependency.  In many suburban developments, household transportation costs came to exceed healthcare, food, and in some cases housing costs.  Newman goes on to say that:

The shift in oil prices has exposed the underlying vulnerability of highly car and oil dependent urban development …. Once the fuel price increased, the loans which were used to form these suburbs became toxic. At the same time a more global limit was reached with climate change and the cities of the world faced a new limit whereby they must phase out all fossil fuels. Although not yet part of the main market place, the undermining of confidence in the long term future of heavily-fossil fuel dependent industry and land development, was already underway. The crash of September 2008 signals the end to the urban economy based around oil in particular but all heavily fossil fuel-dependent urban development as well.

Newman may be right, or least on to something.  The following chart plots the rise in foreclosure filings (from RealtyTrac) alongside the rise in oil costs.  The rising price of a barrel of oil may not be absolutely causal, but it had to be additive to the foreclosure problem especially at the fringe of suburban development, where transportation costs were most effected.

filings-and-oil-prices

add to del.icio.us : Add to Blinkslist : add to furl : Digg it : add to ma.gnolia : Stumble It! : add to simpy : seed the vine : : : TailRank : post to facebook

Advertisements

2 responses to “The Price of Oil, Suburban Sprawl, and the Bursting of the Housing Bubble

  1. The price of oil is tanking…..Even with opec cutting 2 m barrels the price still declined

  2. Demand destruction caused by the current financial meltdown is causing a sharp price reduction. It is also causing significant “supply destruction” as investment in exploration and development of new supply comes to a halt. As we begin to recover economically and demand increases, this “supply destruction” will trigger oil shortages and price shocks around the world.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s