Thursday, April 26, 2012




          The ripple effects of high gasoline prices have been clear for decades, ever since the Arab oil boycott of the mid-1970s temporarily forced a form of gas rationing on California.

          These effects include more riders on public transit, less car vacations, fewer people visiting state and national parks and other outlying attractions, more sales of hybrid and electric cars and much more.

          But now comes a UC Berkeley study supplying reasons why this spring’s dramatic spike in gasoline prices could slow or even reverse the very tenuous California economic recovery that has been ongoing for the last seven months or so.

          Not that the economists who wrote the study, financed in part by the university’s Center for Energy and Environmental Economics, are making any predictions. Rather, their study covers the housing collapse of 2007 and the subsequent, ongoing wave of foreclosures, laying a large part of the blame on the doubling of gas prices between 2005 and 2008, when they peaked at $4.15 per gallon, with then-President George W. Bush unable or unwilling to do much about it.

          The study’s authors, Berkeley’s Steven Sexton and David Zilberman and JunJie Wu of Oregon State University, contend that “low energy prices during the housing boom…made suburban houses affordable to a new class of homeowners characterized by low incomes, high leverage, low credit worthiness and long work commutes.”

          That description is a close fit for many thousands of homeowners who bought during the housing boom in the Inland Empire portions of Southern California and in Central Valley counties like Merced, Madera, Stanislaus and San Joaquin, where many new homeowners of that period commuted regularly to jobs in the East Bay and Silicon Valley suburbs of San Francisco.

          The study does not dismiss financial chicanery, loan fraud and easy money as other causes of the Great Recession. “Lax lending practices and new mortgage products” are two major factors cited by the authors and many others.

          But no one else has fingered gasoline prices, which remained at a fairly constant $1.50 per gallon in 1976 dollars from the late 1970s into the mid-2000s.

          When gasoline spiked, the study contends, “the calculus of suburban living changed. High commute costs made typical homes less valuable and mortgages less affordable for homeowners with …(low) average incomes. Some households could no longer meet mortgage obligations and others walked away from mortgage debt.” In short, high gas prices became the last straw for many.

          No one knows the precise number of “under water” homeowners – their houses worth less than what they owed on their home loans – who were finally moved to action by high gasoline prices. What is known is that there was an increase in apartment rentals in urban centers as the foreclosure trend rose. This suggests many who walked away from under-water homes deliberately sought shorter commutes.

          There’s good news and bad news in all this for today’s California. Ironically, the fact that the housing market has not recovered much from the depths of 2008-10 makes the state relatively immune to some effects of this spring’s gas price spike, which has gone even higher than the damaging increases of 2008. So while all the other ripple effects seen in previous gas price spikes are likely to be repeated, at least there’s not likely to be much of a housing effect.

          Except for one aspect: The higher the price of gasoline goes, the more real estate prices near urban job centers could rise. For the trend when gasoline rises is for more and more people to seek short commutes.

          This, the study authors contend, “explains the disproportionate decline in suburban housing markets” during times like these.

          And for sure, as the authors note, “Those who reside in communities characterized by relatively high gas consumption (read faraway suburbs and ex-urban developments) suffer most” when gas prices rise. They also found that “as gas prices double, (housing) density also doubles.”

          All of which means this spring’s fast upward movement in gas prices will hurt, but should still not produce times as disastrous as those that accompanied the last previous upward move.

       Email Thomas Elias at His book, "The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, visit

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