Question

Questions: After reading the article. Explain how cheap gas can affect the suburban housing market. Use a graph to show how cheap gas affects the suburban housing market.

It’s no mystery why high gas prices can influence where people live. The more gas costs, the less consumers want to drive. That may explain why five percent of people who moved between 2012 and 2013 said they did so to get closer to work or cut down on commuting hassles. Now, there are studies suggesting that gas prices affect the housing market in other ways. They may influence where builders decide to build, one study concluded. They may even impact home values in substantial ways, according to another. And the authors say that’s true whether gas prices are rising or falling. These days they’re falling, of course. They have been for 11 consecutive weeks, tumbling to $2.55 per gallon as of Dec. 14, the lowest price since October 2009, according to the Energy Information Administration. Next year, the amount U.S. households spend on gas and motor oil is on track to be the lowest in 11 years. So how does all of this affect the housing market? Raven Molloy, a senior economist at the Federal Reserve Board, and Hui Shan, an economist at Goldman Sachs, analyzed the effect of gas price changes in hundreds of local markets from 1981 to 2008. They concluded that a 10 percent rise in gas prices leads to a 10 percent drop in construction after four years in areas that are far from job centers compared to closer¬in locations. Demand for homes in these outlying areas wanes when gas prices increase, and builders respond accordingly, recognizing that this will make it harder to sell homes there. Given that the study spans nearly three decades, it factored in the effects of sharp gas price increases (1980, 2000, from 2003 to 2005 and in 2008) as well as decreases (1986, 1998 and 2009.) It found evidence that a drop in gas prices will raise demand for homes in suburbs far from employment hubs. But the effects won't be immediate, if they take place at all, said Robert Denk, a senior economist at the National Association of Home Builders. "It would take time to play out," Denk said. "The builders would have to believe that this is a longer term phenomenon before they act on it." As for the impact on home values, that shows up only in areas where there are regulatory or land constraints, the study said. In other words, home values are affected in regions where builders can’t simply build wherever the demand takes them, whether that be far¬flung suburbs or closer in locations. A study released by the Brookings Institution earlier this month picks up on that front. The study delved into home sales that took place from 1978 through 2010 in Nevada’s Clark County – home to the Las Vegas metropolitan area, where 32 percent of the land is undevelopable, in part due to mountainous terrain. It found that a 10 percent increase in gas prices from the historical average can shift average home values within a range of about $13,000. Values rose by up to $5,600 for homes near the area’s urban centers, and dropped by about $7,800 on average for homes that are farther out, according to the authors Adele C. Morris of the Brookings Institution and Helen R. Neill of the University of Nevada. “What this means for today is that if people expect the low gas prices to persist, it’s going to make homes in the outer areas more attractive than they would be if gas prices had remained high,” Morris said in an interview. “The question we ask is how much more do people care about where they live when gas prices are high and how much less do they care when gas prices are low. We’re looking at relative changes.” Whether home values rise or fall in reaction to gas prices may not have to do solely with commuting times, Morris said. There are notable differences in the effect of gas prices across adjacent neighborhoods, which suggests other factors may be at play. It could be that higher-income neighborhoods are less concerned about commuting costs, and therefore the property values there are less sensitive to large changes in gas prices.

Answer 1

An increase in gas prices necessarily means that the consumers will prefer to drive less or only drive to the nearby places. And that's one of the main reasons why construction drops as the the site recedes away from job locations as people don't wish to drive that far and spend their savings on gases. On the contrary, decrease in gas prices increases the demand for suburban housing which are far away from job locations. This is mainly attributed because individuals can drive far and the homes in these suburban market are priced less due to them being far off from the job locations wherein consumers have the majority of recreational and business activities. Affluent consumers might not be very influenced by the change in gas prices, which means that the houseprices hardly have any effects. To enhance this, builders these days try to present luxurious homes which can entice these affluent buyers to suburban areas and make sure the market has least fluctuations with change in gas prices.

The graph below shows us the expenditure of US residents on gasoline.

Due to the decrease in oil prices, the expenditure for the same has been going down as shown above. Now, the households have more savings and can channelize the money in consumption of other goods.

Hope this helps. Do hit the thumbs up. Cheers!