Wednesday, March 22, 2006

The Tradeoff in Housing and Transportation Costs

As a follow up to the KSI story, it's worth noting a Brookings Institution initiative, The Affordability Index, which explores the trade-offs between housing and transportation costs. The conventional definition of "affordable" housing includes down payment, mortgage, interest, taxes and insurance. But that narrow definition omits the reality that houses in certain locations impose higher transportation costs upon their owners. While housing costs typically run around 30 percent of household income, transportation costs vary widely, from 10 percent to 25 percent.

Says the report: "Even among wealthy households, neighborhood characteristics such as density; walkability; the availability and quality of transit service; convenient access to amenities such as grocery stores, dry cleaners, day care and movie theaters; and the number of accessible jobs shape how residents get around, where they go, and how much they ultimately spend on transportation. Neighborhoods with the above characteristics are considered 'location efficient', providing convenient access to shopping, services, and jobs, and low-cost transportation alternatives to the auto."

It seems clear that KSI's marketing efforts will focus on housing + transportation costs. If so, it could represent a paradigm shift in real estate marketing and citizen's understanding of their self interest.

2 Comments:

At 4:43 AM, Blogger Larry Gross said...

The conventional argument is that people will need a car anyhow whether they commute long-distance or live locally so that unless one gives us the car completely (like some folks in NYC) do - that some costs are fixed anyhow.

But the article puts actual dollar amounts on the transportation costs which confirm that many folks spend a considerable percentage of their total income on transportation.

But I wonder if the analysis addressed two more important cost considerations.

1. - First is that if one commutes 50-100 miles a day or more that they can literally reach 100K in 3-4 years.

Locally, in Fredericksburg, it is not unusual at all to see 2003 used cars for sale with 100K on their odometers.

2. - Second, is the issue of external costs for long-distance commuting - highway infrastructure capacity.

Note this article:

"The public comment period for the intercounty connector ends today,

The connector is planned as an 18-mile, six-lane highway that would cost about $2.4 billion and could rise to $3 billion with financing costs"

http://www.washingtonpost.com/wp-dyn/content/article/2006/03/22/AR2006032202130.html

Now take a closer look. That number works out to about $150 million per mile (rural interstate costs are on the order of $10 million a mile)

This is ONE 18-mile road segment of dozens that are on NoVa (and Tidewater) wish lists.

The Virginia General Assembly is fighting over whether to generate 500 million or 1 Billion a year in new money.

A Billion for the entire state and one 18-mile segment in the metro DC area will cost between 2-3 Billion.

Is anyone paying attention to the numbers and their financial implications?

And the relevant point with respect to the Brookings Article, is that there ARE very real financial consequences even beyond one's own personal finances when making a decision to drive further to seek more affordable housing.

Essentially folks are utilizing existing highway capacity to subsidize lower housing costs - with the premise that the highway capacity is "free" AND will, of course, be expanded when the capacity is used up.

Folks actually think this. They are often quoted as saying "I pay my taxes and I expect more roads".

TOLLs could dramatically change the equation and people's perceptions about who should pay for new infrastructure.

That's in essence the ongong argument in the Va Ga. "Who will pay" - taxpayers, auto owners, or commuters or.. pick your poison.

 
At 4:35 AM, Blogger Ray Hyde said...

Larry, I think you are overblowing the 50 and 100 mile commuters. Sure, there are some nut cases, I've been one on occassion, but I got it straightened out ASAP.

The average Virginian only drives 27 minutes to work, as compared to 25 minutes nationally.

These housing costs plus travel cost studies have been done many times, and they ususally find that people are, in fact behaving rationally, given the costs at hand.

Part of KSI strategy may be that it is all that is open to them.

You also have to figure that low cost alternatives to the auto are also low in convenience, flexibility, and carrying capacity. You would have to provide a lot of alternatives to make up for the loss of opportunity provided by the car.

 

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