As I argued back in 2005, the housing market is going kerpuffle. No surprise there. But what’s *next*? I have had a couple of quick predictions that are starting to see fruit – one of which is that suburbs and exurbs are doomed.
We’re seeing the beginnings of this now, as noted by the folks at Freakonomics. Suburb house prices are dropping about 7% faster than urban houses – and largely due to transportation costs. Add in the senior effect (where senior citizens tend to move out of single-family houses) from aging boomers over the next decade or so, and I think the concept of the “bedroom community” is going to just up and die. Either we’ll re-concentrate in cities, or bedroom communities will become self-sustaining… or both.
The key determinant (aside from political things like zoning laws in bedroom communities) is transportation costs. We forget how much of our current economy is based on cheap transportation. For a variety of reasons, fuel prices are very high... but even if they’re higher than expected due to negative interest rates, we still know oil is a finite resource. There are indications that both Russia and Saudi Arabia have hit their peak, and new fields would only stave off the inevitable.
So the question becomes – how do we smartly transform the current business structure into something that is sustainable in a high-transport-cost world?
In one sense, this is exactly the sort of thing that the free market is good at. Smart businessfolks will jump on this *now* and make billions. Those who are dinosaurs will fail.
Unfortunately, it’s also the sort of thing (like the Bears-Stearns bailout) where natural market failures would end up pulling down everyone else. And if the free market can’t touch it…
That means it’s a government job to do. And sooner rather than later.