Housing and Transportation Costs

There is rarely such a thing as a free lunch:

Relocating to Cheaper Housing May Not Help Low-Wage Families - WSJ.com: By JAMES R. HAGERTY> Moving to an area with lower housing costs often doesn't pay off for low-income Americans... transportation costs in places with cheaper housing are often so high that they wipe out the savings from lower rent or mortgage payments. Such places tend to be farther from employers or short on public transportation, which makes commuting costlier.

The study found that housing and transportation costs combined eat up an average of 57% of annual income for "working" families, which the study defines as those with incomes of $20,000 to $50,000 a year. The combined costs ranged from 54% of income in Pittsburgh to 63% in San Francisco; in 25 of the 28 metro areas, the combined total was within three percentage points of the 57% average.

The findings contradict the common notion that many people would be better off financially if they moved from areas with high housing costs, such as California, to states like Texas or Georgia, where housing is much cheaper. The median house price in San Diego, at $613,000, is four times that of Dallas. But the study found that working families in San Diego spend 59% of their income on housing and transportation, only slightly more than the 57% they spend in Dallas. Families in Dallas spent just 26% of their income on housing, compared with 31% in San Diego, but the Dallas families spent more on transport.

The study also found that moving to an inexpensive outer suburb, but continuing to work near a city center, often backfires. Typically, a move that adds more than about 12 miles to a one-way commute will result in a rise in transport costs that outweighs the savings on housing, the researchers found...

Comments

[trostky]

Of course, faced with the costs of living in the core of San Diego, working families might not feel that living there is an option at all. The housing isn't expensive because the transit is cheap; the housing is just expensive -- perhaps forcing working-class residents to ride the bus because they can't afford both an apartment and a car.

[save_the_rustbelt]

There is plenty of cheap housing in the rustbelt, but of course there are few jobs and the job pool is declining.

Except for some cases involving moves from an extreme high area to a more moderate area, my anecdotal information says to move to the job and let housing take care of iteslf.

[trostky]

And for that matter, 31 percent of their income on transportation (in Dallas)! What do they drive? My wife and I both have paid-off cars and a short commute, which makes life easy -- I doubt we're more than 10 percent -- but someone else is out there keeping the average up.

[a different chris]

>will result in a rise in transport costs

And nobody values their time.

Given an 8-hr day, adding slightly more than an extra 15 min each way on a commute costs you a day's vacation every three working weeks.

Every three weeks.

[me]

Mankiw, wrong yet again.

[bakho]

Living in cheaper urban areas may mean sending kids to poor schools or expensive private schools. We are underinvesting in urban renewal and affordable housing.

Percent transporation costs often depend more on how little people make, and less on how much they pay for the ride.

[JonF]

In most areas where I have lived or visited long enough to be aware of local housing costs, the most expensive areas are to be found in the exurban fringe, which is far from jobs, and poorly provided with public transport, while the cheapest areas are in the inner city or the inner ring of suburbs where, in many cases, some form of public transportation does exist. In a few places geography has dictated exceptions (Manhattan, San Francisco, S. Florida) and most big cities do contain a sizable "high rent" district, but the preceding does seem to hold true everywhere that sprawl is possible.

[burritoboy]

"while the cheapest areas are in the inner city or the inner ring of suburbs where, in many cases, some form of public transportation does exist."

Or, uh, not. You're talking about the very, very biggest few cities. But it's simply not true of places like Detroit, Houston, Oklahoma City, Vancouver WA and many others. Also notable in most inner city areas is that public transportation is massively worse there than in the wealthier districts of the same city (compare public transport on the South Side of Chicago vs. the North; the public transit in Hunters Point SF vs. Pacific Heights and so on)

[Rebecca Allen, PhD, ARNP]

Another important consideration here is the strain long commutes put on families. Time spent commuting is time parents aren't spending with each other or with their children. This can cause all kinds of problems: marital strain, kids not doing their homework and watching too much TV, kids getting out of control when they're unsupervised. This issue doesn't get nearly enough attention.

[david]

No free lunch, but there is such a thing as sane regulatory policy, infrastructure investment, and housing subsdiy policy. You could do it all for the cost of a crappy mass-slaughtering war in the Middle East.

[Ding dong]

JonF, obviously I don't know where you've lived and traveled, but I've never been there.

[Bruce Webb]

What Rebecca said with an economic twist.

Models that do not measure the economic value of time spent commuting understate the offsets for those longer commutes. Your workday starts when you leave your house and ends whenever you reach your evening destination, discounted by whatever pleasure you get from listening to the radio or reading the paper. Your true compensation per hour needs to take that extra 'uncompensated' time into effect.

Time has a value. Chyanov's Theory of the Peasant Economy showed that clearly. Most peasant families at most life stages had the ability to generate more income, a fact that is proved by the fact that at some life stages they had to do so, the prime example being the family with children too young to look after themselves, to say nothing of making an economic contribution. But as this family labor started coming on line rather than exploit it to its fullest the peasant family would adjust its effort down somewhat to maintain a certain acceptable standard of living.

The concept of work for work's sake is pretty much a product of the Protestant Reformation and not a human universal.

[RedCharlie]

mmm, I just don't buy it. I find it hard to believe that transportation costs offset the savings of moving from $400/ft2 housing to <$100/ft2 housing.

If you save $200K on a house, that can buy a heck of a nice car and a whole lotta gas, with plenty left over. That seems like common sense.

Of course, I'm not arguing that the study's authors got their conclusions wrong, just that they blame the wrong thing. As 'savetherustbelt' mentions above, if housing is cheap in any one region, wages are also likely to be lower, and jobs not as plentiful as where housing is pricey.

Housing is expensive where there are lots of jobs, as there are lots of people competing for those jobs.

Also, I'm curious as to how the study's authors compared actual costs. If they regarded each $1000/mo towards interest-only mortgages or ballon-note ARMs (for million-dollar SoCal homes) as equivalent to each $1000/mo for 15 or 30 year fixed-rate mortgages on ($150K middle american homes), well, that's just patently bogus.

[Homebody]

Commuting's a strain, but so is life renting a crowded, crappy apartment.

Bobby owns a fine five-bedroom home in the rust belt, pays X on his 15-year mortgage, and spends Y minutes a day on his rust-belt commute. His twin brother Robby spends Y/2 minutes a day on his Palo Alto commute but pays 2X to rent a crappy one-bedroom apartment.

Both are married with two children. Which family is happier today? Which will be happier fifteen years from now?

Stay tuned ...

[wkwillis]

Palo Alto lost most of the children in the eighties. I live in the area. I think the newspaper quote was 85%, but don't trust me on that.
Some people with children move in because they want their teenagers to go to Palo Alto High. As my friend put it, his daughter needed to learn what it was like to not be the smartest kid in the classroom.

[jim]

Redcharlie: The $200K is amortized over 30 years. In that time a married couple might go through 5 to 8 cars. That's just common sense.

What's surprising about the study is the costs came out so close. You would expect (warning: here comes basic economics 101) that the total cost of living in an outer suburb less the total cost of living in an inner suburb (or central city) would equal the utility from living in a larger house on a larger lot (with a larger view of the sky and so on) less the disutility of the stress of the longer commute. If that's so then the study says the psychic rewards of life in the outer suburbs are essentially balanced by having to commute.

[Jon Fernquest]

The biggest factor that I've observed is a cultural one. The resistance to high density (but high quality) apartment buildings near city centers. The unwillingness to consider alternatives beyond the low density single family home with a small plot of land. People are willing to make ridiculously long commutes to get this.

Take Seoul, Korea, for instance, tower apartment buildings allow more to live in urban centers and those who aren't in the urban centers are usually living in a tower apartment building near a subway system that goes absolutely everywhere. This system is very kind to the middle and lower classes. In fact, a certain degree of high density housing makes mass transport possible.

Urban and city planning in many affluent areas of the United States enforces these norms to the long term detriment of the middle and lower classes.

Given these cultural constraints, probably more self-service and automation for those who can afford to live there. In the San Francisco Bay Area a large fraction seems to have moved to the Sacramento to Reno area.

[Gene O'Grady]

Those who believe the concept of work for work's sake came in with the Protestant Reformation need to read the rule of Saint Benedict.

I have to say that the notion of a one room apartment in Palo Alto with parents and two children seems excessively hypothetical. Also, I believe the decline in the child population came in the 70's, not the 80's.

[JonF]

Re: But it's simply not true of places like Detroit

??!!?I grew up in metro Detroit, and I beg to differ. Detroit itself has housing at fire-sale prices, if you want to live in a thoroughly FUBARed city of course. And with the exception of the Grosse Pointes (an old money enclave) the inner ring suburbs are often quite affordable: Ferndale, Hazel Park, Warren, Inkster, Redford, Westland, Wayne, to name some (I lived in Westland; bought a 60 year old house there for 70K 10 years ago; it’s now assessed at about 125K). As you move outward though the priciness increases: Ann Arbor, Plymouth and the Bloomfields are very expensive places to live. The prices only fall off when you reach the truly rural areas of (western) Washtenaw, Livingtone and Monroe counties.
I have also lived in Cleveland-Akron, where much the same pattern holds; and even Tampa FL is somewhat similar.

Re: JonF, obviously I don't know where you've lived and traveled, but I've never been there.

We must live in different realities—or maybe you’ve lived in places like NYC, San Francisco etc. most of your life? Inner cities, and older inner-ring suburbs, have hollowed out almost everywhere, leading to very cheap housing, if you are willing to put up with bad schools, failing infrastructure, corrupt institutions and the like. My current home in Fort Lauderdale is the first place I’ve lived where this rule did not hold—but the area is geographically (by the ocean and the Everglades) constrained and cannot sprawl, thereby keeping housing sky-high everywhere. And even Lauderdale has a surprisingly large inner-city slum district. Ask yourself where you see the upper middle class living in most areas: usually it’s in pricey, over-sized houses out in the exurbs, while the poor and the working class are stuck in old, rather run-down housing in the cities and older suburbs. To be sure there are some very new growth cities (e.g., Phoenix, Vegas) where this pattern does not seem to exist—yet. But I suspect that as the cities age you will see much the same thing happening.

[RT]

I'll toss in my own datum.

My wife and I live about 24 miles SE of the Capital Beltway, and 28 miles from our office just inside the Beltway. Our commute takes us about 40 minutes inbound, and 35 minutes outbound. We fill up the tank of our Honda Accord about once a week. At 12-14 gallons per fill-up, that's about $40 when gas is at $3/gal., which it isn't now, but that's clearly temporary. If we lived closer in, we could probably go two weeks between fill-ups, which would mean a savings of $20/week, or about $85/month.

We bought our rather nice house 'way out here for about $170,000 back then. We were paying slightly over $1300/month, everything included, with a 7% fixed-rate mortgage. What could we have afforded, much closer in, for $1400/month?

A. Either a house in Prince George's County which has terrible schools, or in a bad section of D.C., or a hovel in an iffy neighborhood along U.S. 1 south of Alexandria. Or maybe a 900 sq.ft. condo. Forget Montgomery or Arlington counties altogether.

True, we could have been 25 minutes from work, instead of 35-40 minutes away. That would have been the big benefit, but we would have had to pay through the nose for it. Hell, we couldn't have even afforded it back then, and now we're where we are, and we like it out here.

I'll admit that the SE quadrant of DC has the last remaining corridors of easy travel between outer 'burbs and the Beltway, so my example isn't typical. But the thing is, it's still *available* to D.C. area residents such as those the story talks about. I'll be damned if I know why everybody's buying out in Manassas and Gaithersburg, when on my side of the area, there are farms - farms! - right outside the Beltway. It's a mystery.

[Randolph Fritz]

Well, why do you think poor people live in the denser city core? It's not because they like the crime. It's cheaper, much cheaper, especially if you don't own a car. To which it's worth adding that I believe (except for areas caught in the housing bubble) that middle-class housing rents (including ownership costs) are largely Ricardian--tracking incomes. I suspect people actually do better in many places with high housing costs, provided those people have work.

RT, consider the cost of wear on the car; fuel costs are still not the main expense of car ownership.

[joan]

The same numbers are pretty much true for higher income people too. Its in the utility function. You decide how much you can spend on housing and then compromise between neighborhood, the amount of space occupied, and commute time. For decades Americans have spent about 30% on housing and 20% on transportation. Only the very rich spend less and the very poor spend more, where what is rich and poor is measured relative to housing prices.

[Mr Tele]

Just move to India and telecommute. Housing is cheap, you can own a car, and not commute.

It's so wastful that businesses are willing to let employees in India telecommute but not Americans.

[Jon Fernquest]

"It's so wastful that businesses are willing to let employees in India telecommute but not Americans."

Why not? It's already been done and being done as we speak. Beautiful Chiang Rai province in northern Thailand is an telecommuting alternative to India. I can see local governments in places like Chiang Rai promoting themselves in the future for just this sort of unoutsourceable personal service. They are already promoting themselves to the Japanese for retirement.

[JonF]

Commute times are somewhat unpredictable since there is no guarantee that you'll be commuting to the same place. You may have to change jobs, or your current worksite may change location. I've had the latter happen three times in the last 10 years, on one occasion the office moved closer on two others it moved slightly farther away. And my step-sister's workplace moved from two miles from her home out to a distance of 30 miles away. Choosing your abode based on commuting distance is something of a crap-shoot.

[mds]

"To be sure there are some very new growth cities (e.g., Phoenix, Vegas) where this pattern does not seem to exist—yet."

Um, actually, portions of Phoenix and its inner ring communities are decaying even as the bulldozers continue nonstop further and further throughout the Valley. The decay cycle is accelerated in part by just how recent the AC-fueled boom is; fast 'n' shoddy has been the motto of modern Arizona developers.

[Johnny]

Every problem is clearly going to be local to a degree, but the Japanes model for most parts of California seems the only alternative. There just isn't much more land to develop, so going higher density is inevitable. The only question is, will governments plan the development around improved public transportation centers or not. It's slowly happening in the LA area to a degree. Apartments near subway stops are naturally going to an added draw to tenants... The big change will be when the middle class are forced to these higher density areas. The plain simple truth is, the AMerican dream of the house with the yard is becoming unfeasonable in Southern California for the middle class. Fortunately, their are benefits to high density if the amenities and public transportation are good.

[Bruce Webb]

"The biggest factor that I've observed is a cultural one. The resistance to high density (but high quality) apartment buildings near city centers."

"Inner cities, and older inner-ring suburbs, have hollowed out almost everywhere, leading to very cheap housing,"

Except where they haven't. I lived in the SF Bay Area in the seventies and eighties and in the Seattle area now and have seen the same phenomenum twice: inner city areas gentrifying and driving poor people out. Twenty years ago you went to Belltown in Seattle's downtown to score heroin and victimize homeless streetkids, heck they made a famous documentary about street life near Pike's Market. Now you go to Belltown to buy your $650,000 condo.

It is a cultural thing, in both senses. At some point, either early in your life or late the draw of having bookstores, cafes, restaurants, museums and high end retail outweighs the joys of mowing the lawn. Because the reality is that if you don't have kids at home your interest in safe schools and availability of ball fields tends to drop considerably.

Two there is a tipping point when single-family detached just prices itself out. In the Seattle area the McMansions on the postage stamp lots are being shoved so close together that they might as well have common walls. In that context that sixth floor condo with a Puget Sound view and a Starbucks in the lobby just starts sounding better and better.

And a little OT, there is also a little something known as the reverse commute. I live downtown and until recently worked downtown. I walked to work (16 minutes door to door) and ended up selling my car. Now I work about eight miles away and had to buy a car. And my commute got shorter. Ten minutes door to door and the same going home and this travelling some of the most congested streches of highway in the country (those of you who recognize the terms "Hewitt Trestle" and "I-5 through Everett" will know what I am talking about). Every morning the cars are lined up bumper to bumper - going the other way. I sail by at the speed limit. This strategy doesn't work indefinitely, in Seattle enough twenty something techies live in the City and commute to the Eastside (Redmond) that the floating bridge in a nightmare both directions but while it works it is pretty sweet.

[Bruce Webb]

"Those who believe the concept of work for work's sake came in with the Protestant Reformation need to read the rule of Saint Benedict."

Gene, not everyone is ready to take vows and go to prayers six times a day. I am not saying that Luther invented the concept of work for work's sake, only that the Protestant Reformation valorized it as a societal norm.

For the record I have read the Rule of Saint Benedict. It lays down the Rule for running a Benedictine Monastary, it is not a tract for reording society as a whole.

[Jon Fernquest]

Johnny: "Fortunately, there are benefits to high density if the amenities and public transportation are good."

In South Korea, counter to what you might expect, being affluent and upwardly mobile is associated with the highrise apartment buildings because they are clean and surrounded by gardens with parking, near mass transportation, has high speed internet, safe for women, and has a view. I've lived in the little down the alleyway house too, has none of the above desirable features.

The one thing I don't hear many talking about, but I see many doing, that could be a trend in the future, is **telecommuting from foreign countries**, especially the beautiful rural parts. Sales skills, maintaining connections and networking in whatever you specialize in, is the main skill/problem here.

I live in rural Chiang Rai, Thailand (but work for a newspaper in Bangkok). Chiang Rai is the most beautiful, idyllic place I've ever lived in, the Astoria, Oregon area is a close second. For those astute enough, **living place-work place arbitrage** could be wonderful. I know someone who did this sort of thing from Alaska many years ago. I think some shrewd people will eventually catch on to this and implement in foreign countries too.

Telecommuters like this might eventually be able to help with capturing outsourcing business in local economies when local authorities catch on to the benefits of having people with specialized skills around, right now the educational institutions tht be, are clueless and aren't able to exploit what they already have. Fo instance, a Cambridge educated engineer working as a business consultant in Singapore own a farm with his wife near the local uni. The dean of management simply could not understand the project evaluation and management skills he was teaching his students. There were overly qualified Europeans with specialized technical skills in all sorts of disciplines willing to work for almost nothing whose applications were being rejected all the time. After seing this for two years, I feel universities in developing could be engines for development if they were more innoative and flexible.

[albatross]

These costs look really different depending on whether or not you have kids. A couple with no kids can live somewhere with moderately high crime, not much outside area where it's safe to play, and horrible schools, and they can adapt pretty well to it. (This is especially true of gay male couples, since men are less attractive targets for mugging than women.) With kids, this all changes--you need either a yard or at least some nearby safe park where the kids can play outside, if the public schools are rotten, you have to come up with tuition for a private school, while carrying a baby around you're routinely not in a position to be aware of your surroundings and react to dangers, etc. Steve Sailer has written a lot about these issues, and how they affect politics.

I wonder how much having kids effectively changes the calculations of where to live. And also whether there's some kind of perverse political incentive not to improve (say) schools in some cheaper area, since that would decrease the value of housing in more expensive areas.

[The Black Monk]

I made the move from San Diego to Dallas back in 1993.

Our housing and transport costs remained about the same, but our house doubled in size...

[szara]

University of Virginia researchers William Lucy and David Phillips have brought out another interesting issue. They point out a much overlooked drawback to exurban living: the ghastly traffic death toll resulting from dumping huge quantities of commmuters and shoppers onto overcrowded former rural road networks that you must use to do anything or get anywhere. If you combine the traffic death toll with the violent crime death toll, and then compare exurbs with inner cities, exurbs are far more dangerous places to live, simply because traffic deaths are far more common than death from crime, and traffic deaths are more likely in exurbs. Older suburbs do best with relatively little violent crime, and comparatively safer road networks.
see
http://arch.virginia.edu/exurbia/death-in-exurbia.pdf

[JonF]

Re: This is especially true of gay male couples, since men are less attractive targets for mugging than women.

Um, gay guys make very attractive targets for gay bashing muggers, which is why gays tend to clump together in gay ghettos. The creation of a "gayborhood" is usually the first step of gentrification inside a decaying city or suburb. For examples see North Halsted in Chicago which is so far down the path now that few gays can afford to live there, and more recently Wilton Manors just outside Fort Lauderdale.

Re: They point out a much overlooked drawback to exurban living: the ghastly traffic death toll resulting from dumping huge quantities of commmuters and shoppers onto overcrowded former rural road networks that you must use to do anything or get anywhere.

Most of that death toll occurs at night when intoxicated people are returning home from boozing it up, or else involve teenagers joy-riding at unsafe speeds on poorly designed roads. During the daytime accidents in these areas tend to be more of the fender-bender variety.