The economics blog, Knowledge Problem on how prices effect individuals incentive to conserve: Conservation of resources: Prices change everything
Steven Stoft, at the EU Energy Policy Blog, observes that market driven conservation is a slow process:
Conservation is the main way consumers respond to high market prices. When price goes up, consumption comes down–but it takes a while for the full price effect to play out.
The market eventually shifts demand in the long run, as individuals adjust their behaviors in reaction to higher prices. To what extent will sustained high gas prices cause people to shift their location preferences towards a less gas-dependent urban lifestyle? (assuming high prices are here to stay) How long will it take for us to see a difference in where people prefer to live?
Graph from the NY Times
So: Gas prices double and miles driven declines by less than 1%. Or, put another way, 2008 miles driven is over 99% of 2007 miles.
It can almost make one conclude that gas prices are a negligible part of location selection. #1 criteria, I am convinced, is who your neighbors will be, which is related to who your children will be going to school with. Then, it’s the amount of living space. And the city fails pretty miserably on those counts — unless you have buckets of money.
Incidentally, fueling an SUV is about 20 cents per mile — that’s $2400 per year, up from $1200 per year. That’s less than the difference in average grocery bills between the city and the suburbs (where you can drive to competing supermarkets).
So: Gas prices double and miles driven declines by less than 1%. Or, put another way, 2008 miles driven is over 99% of 2007 miles.
It can almost make one conclude that gas prices are a negligible part of location selection. #1 criteria, I am convinced, is who your neighbors will be, which is related to who your children will be going to school with. Then, it’s the amount of living space. And the city fails pretty miserably on those counts — unless you have buckets of money.
Incidentally, fueling an SUV is about 20 cents per mile — that’s $2400 per year, up from $1200 per year. That’s less than the difference in average grocery bills between the city and the suburbs (where you can drive to competing supermarkets).
Demand is relatively inelastic in the short-run. We are just beginning to see the effects of the long run shift due to behavioral changes.
For me, space is not so much an issue. I prefer the agglomerative advantages of being close to many people, and haven’t found my city neighbors to be less pleasant than suburban neighbors of my childhood. So, I wouldn’t agree that cities fail me on those counts. I do agree, cities have not been too successful at education.
Demand is relatively inelastic in the short-run. We are just beginning to see the effects of the long run shift due to behavioral changes.
For me, space is not so much an issue. I prefer the agglomerative advantages of being close to many people, and haven’t found my city neighbors to be less pleasant than suburban neighbors of my childhood. So, I wouldn’t agree that cities fail me on those counts. I do agree, cities have not been too successful at education.
No doubt, your personal preferences do not have to match what I consider to be average preferences. But I contend that space is an important average (not universal) priority only because when you control for all other influences, more space = higher price. Just check the real estate listings.
Similarly, there are many city neighborhoods where you will find better neighbors than in the suburbs. But people tend to stick with “their own” (as they define it; i.e., Russians with Russians, “hipsters” with “hipsters”, West Indians with West Indians, educated people with other educated people, etc.)
And that is why I contend that neighbors and space have far more influence on where people live than do gas prices. No one in Scarsdale is going to move to Gravesend because of gas price increases.
Also, I don’t fully blame cities for lousy schools. Public school teachers are fairly uniform in quality across different schools, but the student outcomes are not. Therefore, I place much of the blame on children from dysfunctional “urban” cultures who have no interest (and possibly ability) to learn. More bluntly, it’s hard to learn much in schools where teachers are attacked by your fellow pupils, students are robbed, and fighting is continuous.
No doubt, your personal preferences do not have to match what I consider to be average preferences. But I contend that space is an important average (not universal) priority only because when you control for all other influences, more space = higher price. Just check the real estate listings.
Similarly, there are many city neighborhoods where you will find better neighbors than in the suburbs. But people tend to stick with “their own” (as they define it; i.e., Russians with Russians, “hipsters” with “hipsters”, West Indians with West Indians, educated people with other educated people, etc.)
And that is why I contend that neighbors and space have far more influence on where people live than do gas prices. No one in Scarsdale is going to move to Gravesend because of gas price increases.
Also, I don’t fully blame cities for lousy schools. Public school teachers are fairly uniform in quality across different schools, but the student outcomes are not. Therefore, I place much of the blame on children from dysfunctional “urban” cultures who have no interest (and possibly ability) to learn. More bluntly, it’s hard to learn much in schools where teachers are attacked by your fellow pupils, students are robbed, and fighting is continuous.
More space always = higher prices. But, space in the suburbs is usually cheaper/square foot, which is why you can get more space for your money.
No one in Scarsdale is going to move to Gravesend because of gas price increases.
Someone in Scarsdale may choose to move to a place where there is a commuter train. (maybe there already is. I don’t know Scarsdale) Most people wouldn’t drastically change their lifestyle, but little shifts of individuals make large overall shifts. Locations near transportation that were previously considered undesirable, may become desirable. Vice versa.
More space always = higher prices. But, space in the suburbs is usually cheaper/square foot, which is why you can get more space for your money.
No one in Scarsdale is going to move to Gravesend because of gas price increases.
Someone in Scarsdale may choose to move to a place where there is a commuter train. (maybe there already is. I don’t know Scarsdale) Most people wouldn’t drastically change their lifestyle, but little shifts of individuals make large overall shifts. Locations near transportation that were previously considered undesirable, may become desirable. Vice versa.
Actually, there is a train in Scarsdale, but as in any railroad suburb, most people heading to the city have to drive to the station. Of course, most people in Scarsdale (or just about anywhere outside Manhattan) do not work in Manhattan anyway, so the train is useless for them.
Now I have a question:
Isn’t it possible that very high gas prices would simply lower the value of existing homes and have no effect on living patterns? Perhaps a $800K home might instead go for $750K. Yes, present owners would lose some of their capital value, but the overall cost of suburban living would remain constant.
I bring this up because gas price increases have been nothing compared to real-estate tax increases. But despite the tax increases, long-term suburban vacancies (in middle-class areas) are about 0% — and home prices aren’t even declining.
At least in the NY area, a the value of a suburban house (the actual house, and not the property), at most, about 40% of the total worth. Move a $800K house from NYC to Charlotte, and it is now worth $320K. That $480K provides a lot of negotiating room to compensate for even a $1K annual increase in fuel prices.
Actually, there is a train in Scarsdale, but as in any railroad suburb, most people heading to the city have to drive to the station. Of course, most people in Scarsdale (or just about anywhere outside Manhattan) do not work in Manhattan anyway, so the train is useless for them.
Now I have a question:
Isn’t it possible that very high gas prices would simply lower the value of existing homes and have no effect on living patterns? Perhaps a $800K home might instead go for $750K. Yes, present owners would lose some of their capital value, but the overall cost of suburban living would remain constant.
I bring this up because gas price increases have been nothing compared to real-estate tax increases. But despite the tax increases, long-term suburban vacancies (in middle-class areas) are about 0% — and home prices aren’t even declining.
At least in the NY area, a the value of a suburban house (the actual house, and not the property), at most, about 40% of the total worth. Move a $800K house from NYC to Charlotte, and it is now worth $320K. That $480K provides a lot of negotiating room to compensate for even a $1K annual increase in fuel prices.
Isn’t it possible that very high gas prices would simply lower the value of existing homes and have no effect on living patterns? Perhaps a $800K home might instead go for $750K. Yes, present owners would lose some of their capital value, but the overall cost of suburban living would remain constant.
Prices alone would change to the extend that denser development is prohibited. However, if denser development is allow, especially near transportation hubs prices will adjust.
Move a $800K house from NYC to Charlotte, and it is now worth $320K.
Yep. You are already paying a location premium for the NY home. It’s really land that’s the difference. Labor costs may be higher making the replacement cost high, but most of that premium is land.
If you are allowed to build denser, that higher land cost is spread among more built square feet.
Isn’t it possible that very high gas prices would simply lower the value of existing homes and have no effect on living patterns? Perhaps a $800K home might instead go for $750K. Yes, present owners would lose some of their capital value, but the overall cost of suburban living would remain constant.
Prices alone would change to the extend that denser development is prohibited. However, if denser development is allow, especially near transportation hubs prices will adjust.
Move a $800K house from NYC to Charlotte, and it is now worth $320K.
Yep. You are already paying a location premium for the NY home. It’s really land that’s the difference. Labor costs may be higher making the replacement cost high, but most of that premium is land.
If you are allowed to build denser, that higher land cost is spread among more built square feet.
The hard part of these predictions is that there are so many variables, known and unknown, quantifiable and unquantifiable, that no one really knows how changing input X affects output Y. Perhaps that’s one reason why many free-market people fall back on the ethics of free markets than attempting to predict what would actually happen.
A good illustration would be the immediate effect of a a gas-tax “holiday”, where informed people can apply economic theory to predict the outcome; i.e., would retail prices go down, or will retailers/wholesalers have increased profits?
In a NY Time op-ed, Prof Bryan Caplan says (in a “that’s a trivial question” tone) that the prices would remain constant. Now, he is clearly an educated person with expertise in economics, but in a real-life case of a partial tax holiday (high-tax NY vs. low-tax NJ), the retail prices are vastly different on the two sides of the Hudson River (though they’re about the same on the two sides of the East River).
So, if an intelligent economics professor misses something that plain, how can anyone possibly predict how the implementation/removal of “X” would not only directly affect “Y”, but how would it indirectly affect “Z”?
I say: Try it on a limited basis and find out. Study whether people in trans-fat prohibited NYC are getting any thinner than in trans-fat heaven Syracuse. If so, then the idea might have some (dubious) merit. Otherwise, revoke the law.
Yeah…that would be the day…
…just like the “congestion pricing” experiment…
The hard part of these predictions is that there are so many variables, known and unknown, quantifiable and unquantifiable, that no one really knows how changing input X affects output Y. Perhaps that’s one reason why many free-market people fall back on the ethics of free markets than attempting to predict what would actually happen.
A good illustration would be the immediate effect of a a gas-tax “holiday”, where informed people can apply economic theory to predict the outcome; i.e., would retail prices go down, or will retailers/wholesalers have increased profits?
In a NY Time op-ed, Prof Bryan Caplan says (in a “that’s a trivial question” tone) that the prices would remain constant. Now, he is clearly an educated person with expertise in economics, but in a real-life case of a partial tax holiday (high-tax NY vs. low-tax NJ), the retail prices are vastly different on the two sides of the Hudson River (though they’re about the same on the two sides of the East River).
So, if an intelligent economics professor misses something that plain, how can anyone possibly predict how the implementation/removal of “X” would not only directly affect “Y”, but how would it indirectly affect “Z”?
I say: Try it on a limited basis and find out. Study whether people in trans-fat prohibited NYC are getting any thinner than in trans-fat heaven Syracuse. If so, then the idea might have some (dubious) merit. Otherwise, revoke the law.
Yeah…that would be the day…
…just like the “congestion pricing” experiment…