Smart growth helps cut consumer costs, ULI says

Metropolitan areas with more compact growth, a wide mix of land uses, plentiful transportation options — and which were mostly developed prior to the use of the automobile – have generally lower combined costs for housing and transportation, according to an analysis of consumer expenditures by the Urban Land Institute (ULI).

The analysis, conducted by ULI senior fellow Robert Dunphy, examined consumer expenses in 28 metropolitan areas during 2001, using data released earlier this year by the U.S. Bureau of Labor Statistics. Overall, housing accounted for one-third of spending by U.S. households in 2001 — twice the amount spent in 1972 — reflecting “higher homeownership and larger and lavish homes,” Dunphy said. Transportation ranked a close second, at 19 percent of the average household budget, more than food and clothing combined. The average household spent more than $7,600 annually on transportation, of which $7,200 was for buying and maintaining cars and trucks. In comparison, an average of $400 was spent on public transportation, which included expenditures for airfares.

Together, housing and transportation costs accounted for 52 percent of annual consumer expenditures nationwide, with lower-income households spending an average of 53 percent and higher-income households spending an average of 49 percent. Percentages in different metropolitan areas, however, varied widely — reflecting local differences in costs for housing and transportation, as well as area incomes.

Two ways to lower costs

“The price of location works two ways,” Dunphy said. “One way to cope with the high cost of housing is by moving to a lower cost location and commuting. Another way is to bite the bullet, pay the cost of a prime location, and enjoy the savings in time and transportation costs conferred by being closer to work and entertainment and having travel options. Urban housing markets are composed of both kinds of consumers.”

The ten markets in which housing accounted for the highest share of household spending were: Los Angeles, San Diego, San Francisco, Atlanta, Washington, New York, Miami, Boston, Chicago and Denver, with the portion ranging from 36 percent in Denver to nearly 38 percent in Los Angeles. Markets in which housing accounted for the lowest share of household spending — between 29 and 32 percent — were St. Louis, Pittsburgh, Minneapolis/St. Paul, Kansas City, Cincinnati, Houston, Dallas, Tampa, Anchorage, and Honolulu.

The survey showed nine metro areas in which transportation spending accounted for at least 19 percent of household spending. Tampa, with a share of 25 percent, led the list for cities with high transportation costs, followed by Phoenix, Dallas, San Diego, Cleveland, Houston, Seattle, Pittsburgh, Cincinnati and St. Louis. Cities rating on the lower end for transportation costs — 17 percent or less of household spending — were New York, Boston, Washington, San Francisco, Philadelphia, Baltimore, Milwaukee, Portland (Ore.), Honolulu, and Atlanta. “Except for Atlanta, the rest ... are generally more compact places where there are many choices of transportation, and for those choosing to drive, most trips are short,” Dunphy pointed out.

The most expensive markets, in terms of combined spending on housing and transportation were San Diego, with a combined share of 58 percent; Tampa, 56 percent; Los Angeles, 55.7 percent; Miami, 55.1 percent; Denver, 54.9 percent; Atlanta, 54.7 percent; Phoenix, 54.3 percent; San Francisco, 54.1 percent; and Cleveland, 54.0 percent.

New York and Washington are prime examples of trading high housing costs for affordable transportation, moving those areas from the high housing cost category to the middle-cost markets for combined housing/transportation costs, Dunphy noted. Houston and Dallas, conversely, rank high for transportation costs but relatively low for housing costs.

“The study documents the pocketbook benefits of smart growth. The large cities with concentrated growth, mixed-use development and transportation options are places where high housing costs are somewhat offset by more affordable transportation, helping to bring down the combined location costs,” Dunphy said. “Moreover, homeowners in these higher- priced housing markets have the advantage of building wealth through home equity, rather than buying cars, which only depreciate.”

Dunphy recommends four public policy strategies to lower combined location costs:

• Create more affordable housing in accessible locations using financial incentives, tax advantages, special mortgage products, and other programs.

• Implement pay-at-the-pump insurance by including the cost of car insurance in the price of gasoline. This would make drivers more aware of their total driving costs and possibly encourage them to drive less.

• Create more opportunities for car-sharing services, enabling families to make do with fewer vehicles.

• Get users to pay for road extensions into new suburbs.