CALIFORNIA FOCUS
FOR RELEASE: FRIDAY, MAY 4, 2012, OR THEREAFTER
FOR RELEASE: FRIDAY, MAY 4, 2012, OR THEREAFTER
BY THOMAS D.
ELIAS
“WILL GAS PRICES STUNT THE CALIFORNIA
RECOVERY?”
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.
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Email Thomas Elias at tdelias@aol.com. 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 www.californiafocus.net
Email Thomas Elias at tdelias@aol.com. 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 www.californiafocus.net
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