Richard Green Says $4 per Gallon Gasoline Raises the von Thunen House Price Gradient by $3,000 a Mile
His math looks good to me:
Richard's Real Estate and Urban Economics Blog: $4 per gallon gasoline and the urban land market: Over the past six years, the price of gasoline has risen about $2 per gallon. What does this mean for relative urban land prices?
Let's say the average household makes five one-way trips per day--for work, shopping, entertainment, etc. Let's also say that the average car gets 20 mpg in city driving. Each mile of distance to work, shopping, etc. is therefore now 50 cents per day per household more expensive than before. A household living immediately adjascent to work and shopping should then be willing to pay $5 per day more in rent than a household 10 miles away compared with six years ago, all else being equal. This becomes $150 per month, or $1800 per year. Assuming a five percent cap rate for owner occupied housing, this translates to $36,000 in relative change in value. Given that the median house price in the US is about $220k, this is kind of a big deal.
The assumptions here are pretty crude (particularly the ceteris paribus assumption), but if gas remains at its current real price, we will see the shape of US cities change.
Very good free ice cream. But I want more: how much more Europe-like will our cities become, and how fast?
