What Cheap Gas Means To Millennials For Housing, Car Sales And The Economy

In 2008, as gasoline prices crossed $4 a gallon across much of the United States, the ground on which much of the American economy was built began shifting. For years real-estate developers had been pushing further and further into the countryside in search of cheap land, and buyers had followed, following the adage to “drive until you qualify [for a mortgage].”

But then another factor intruded: In the era of the $75 fill-up, the radius of affordability was upended. If prices stayed high, wrote Christopher Leinberger, a senior fellow at the Brookings Institution, “[m]any low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and ’70s -- slums characterized by poverty, crime and decay.”

It wasn’t long after that the housing market collapsed and led the country into recession. Three years later, a trio of economists led by Steven Sexton, then of Berkeley, published an analysis linking the housing bust to the run-up in gasoline prices in the spring and summer of 2008. Sexton’s theory was the crisis began at the far edges of suburbia where commuting costs pushed marginally qualified homebuyers into default or prompted them to walk away from their mortgages as the value of their houses plunged.

“[C]heap fuel prices lead to urban sprawl, with low-income individuals located farthest from the city center and, thus, most exposed to energy price shocks,” he concluded.

But with gasoline now less than $2.50 in many places, are the trends in place for the last six years about to reverse? It’s worth noting just five months into the current price decline, American consumers already are shifting their behavior, buying more SUVs, crossovers and pickup trucks (sales up 13.9 percent in November while car sales increased by only 7.2 percent) -- vehicles that will still be getting 18 miles to the gallon 10 years from now.

For the economy, for the environment, for society, the question is: How and where will those vehicles be driven? Will the remote suburbs regain their appeal -- even at the expense of the gentrified downtowns where prices have been rising for the last decade?

Analysts who study American driving habits don’t think so. The standard measure of auto use, vehicle miles traveled per capita, peaked in 2004 at slightly more than 10,000, as suburban development began bumping up against the “Marchetti wall” -- the limit, roughly an hour, most people are willing to devote to commuting to and from their jobs.

Every year since 2004, the figure has dropped, to around 9,400 miles driven last year. “Unlike other past dips in driving, this recent downward shift has had no clear, lasting connection to economic trends or gas prices,” said Chris McCahill of the State Smart Transportation Initiative at the University of Wisconsin. American driving patterns “aren’t as responsive to gas prices as they used to be,” McCahill said. “There’s less elasticity in driving.”

One reason is with increasing fuel efficiency, buying gasoline is relatively a smaller part of the total cost of owning and driving a car, which the American Automobile Association pegs at $9,000 a year. If you drive 10,000 miles at 25 miles per gallon, a full dollar drop in the price of gas saves just $400. That’s a meaningful sum for low-income families that have better things to spend it on than gasoline.

For most Americans today, except the ones in car commercials, driving is a grim necessity, not an option to be weighed against other expenditures. “Low gas prices don’t do anything to solve the problems of time and congestion,” said Geoffrey Anderson, president and CEO of Smart Growth America, an organization that promotes sustainable development. Even if gas were free, how many people would choose to get on an interstate for pleasure?

The latter point gets at a secular shift in American culture, particularly pronounced among young adults. From 2001 to 2009, the average number of miles driven by 16- to 34-year-olds dropped by nearly a quarter while they increased their walking, bicycling and transit usage. Millennials aren’t even getting licenses at the same rate as their elders. More than a quarter of high-school seniors don’t have them, up from 15 percent in 1996.

They’ve gotten the message about texting and driving, Anderson said, and if they have to give up one or the other, it’s not going to be texting. And, like their older siblings and even their parents, they seem increasingly drawn to living in cities where they may not need to own a car at all, much less drive one to work every day.

Will the prospect of $2.50 gasoline lure them into cars? Anderson doubts it: “High gas prices are a spur for people to look for transportation alternatives,” Anderson said. “When prices fall, there’s some switching back to cars, but it never goes all the way back.” (It’s worth noting that cheaper oil hasn’t led to big cuts in bus or train fares -- or airline tickets, for that matter.) Leinberger agreed: “The short answer is no,” he said. “Lower gas prices will not change what is a structural change in lifestyle and economic development decision-making.”

Sexton, who is now an assistant professor of public policy at Duke, is one of those who says the millennials’ aversion to the suburbs has been overstated. He said it has more to do with deferred marriage and childbearing than a preference for subways over cars, and he expects the trend to reverse itself when young people start having families.

The leading defender of suburbia in academia is sociologist Joel Kotkin of Chapman University.

“The whole thesis that everyone is going back to cities was based in part on this ‘peak oil’ idea that we’ve now flushed down the toilet,” he said. “Whenever you get economic expansion you get dispersion [into the suburbs]. When people can afford to buy a house, they do it.”

Of course, for the last 40 years, the one constant in energy prices has been their variability. “When prices were rising, the media was saying oil is only going to get more expensive, so plan for that world,” said Alan Pisarski, a consultant on transportation policy. “Now gas is inexpensive, but it’s hard to make the case that it’s going to be $2 forever. Decisions about where to live are affected by gasoline, but other things are more important. It’s a lifestyle choice.”

So how do you make plans at all? About the only thing it’s safe to say is that anyone buying a house today based on $2.50 gasoline, shouldn’t be buying a house.