Getting Real about Gas Prices

Bruce Katz and
Bruce Katz Founding Director of the Nowak Metro Finance Lab - Drexel University
Robert Puentes

October 10, 2005

In a recent speech at the Department of Energy, President Bush outlined his strategy for reducing gasoline prices in the wake of the twin tragedies in the Gulf Coast.

Bush clearly surprised many with his plea for conservation and request that Americans drive less—at least until the production pipeline is back online. This demand-side approach was a notable counterweight to his predictable supply-side call for tapping strategic oil reserves, suspending environmental regulations, waiving certain homeland security measures, and importing more oil from Europe.

But what the President doesn’t get when he asks Americans to curtail their “non-essential travel” is that a half-century of government policies have fueled and subsidized the growth of sprawling, haphazard metropolitan communities and have dramatically increased the amount of “essential travel” required for people to live their daily lives. Driving may not be the best option, but it is often the only option for Americans to get around.

Americans venture out in their cars to find housing they can afford because housing opportunities closer-in are thwarted, while new developments on the suburban fringe are subsidized. Taking transit, biking, or walking to the corner market or to jobs located off the highway exit is neither safe nor feasible because of policies that segregate uses and cater to the car rather than the pedestrian. Federal and state policies make highways easy to build and relegate transit and other alternatives to second-class status.

These policies come with a huge hidden price tag for families, in the form of higher local taxes (to pay for needed infrastructure) and the ever-rising costs of buying, driving and maintaining cars.

Facing the average working family, then, is a complicated set of decisions regarding time and money. Do they accept jobs in those few places where options are available and they might drive less but spend more money on housing? Or do they spend more money and time in the car and obtain a house far out on the suburban fringe?

Emerging evidence on these important trade-offs show that the combined cost of housing and transportation for households living near transit or in well-designed, central locations is lower than for those who live and commute from remote neighborhoods. For example, new research finds that families living in parts of Central Los Angeles save hundreds of dollars each month in vehicle costs compared to the average suburban family simply because they drive less and are not tethered to their cars. Similar savings exist in and around Seattle, San Francisco and Chicago.

Fannie Mae and other lenders recognize these cost savings and underwrite higher mortgages for families that purchase homes in communities with greater transportation options. Their logic is simple: people who spend less on driving have more to spend on housing. These mortgages are available in places with intensive transit service (like Washington and Portland) as well as traditional car-oriented places (like San Antonio and Fargo.)

Therefore, the message is simple but profound: A sure-fire way of reducing the impact of higher gasoline prices is to lower consumer demand. And the best way to lower demand is to build more sensible communities that give families greater transportation choices. So rather than fixating on cosmetic remedies, America needs to think broadly about three strategies to make sensible development patterns the norm:

First, focus new development in existing places that sorely need it rather than spreading it out over large lots on the suburban fringe. Single use zoning that separates uses and forces residents into their cars for routine tasks should be the exception—not the rule.

Second, accommodate all types of housing closer-in so average families are not banished to the suburban fringe where they have to “drive to qualify” for a home they can afford.

And third, spend infrastructure dollars in ways that offers choices for how households travel. Data shows that when quality options are offered, travelers take advantage of them.

Taking these actions will not, of course, lower gas prices as the President is seeking to do. But it will allow families to mitigate the burden on their household budgets.

After all, isn’t this really what we should be talking about?