Gas Prices Clobber McMansions, SUV Makers

[GRG55]

Re: Gas Prices Clobber McMansions, SUV Makers

"Wealth Evaporates as Gas Prices Clobber McMansions, SUV Makers" (Bloomberg)

Hard to imagine I know, but it could be worse. How would you like to live in an OPEC nation with gasoline rationing (and have your Toyota barred from a refill :eek: )...

Iran luxury cars to be barred from cheap fuel: report

Sun Jun 8, 2008 2:25am EDT

TEHRAN (Reuters) - Drivers of luxury cars in Iran will no longer be able to buy heavily subsidized gasoline from June 21, official Iranian media reported on Sunday.

It is the latest change of a rationing system launched a year ago under which motorists can buy 120 liters per month at the price of 1,000 rials per liter (around 11 U.S. cents), some of the cheapest fuel in the world.

Iran is the world's fourth-largest oil producer but lacks enough refining capacity for domestic needs, forcing it to import large amounts of gasoline and burdening its finances.

In a bid to curb consumption, it introduced rationing in June 2007. Until then, motorists could buy unlimited amounts of heavily-subsidized gasoline, forcing the state to spend an estimated $5 billion per year on imports.

From March this year, it allowed the sale of extra, higher-priced gasoline at 4,000 per liter outside the rationing system but all motorists still had access to the monthly quota of 120 liters at a quarter of that price.

But under the change announced by caretaker Interior Minister Mehdi Hashemi in the state Iran newspaper on Sunday, owners of luxury brands can from June 21 only buy the higher-priced petrol.

In addition, the price of higher-quality super gasoline will rise to 5,400 rials from 5,000 per liter previously, he said.

He said the new rules applied to Iranian-produced cars with 2,000 cubic-centimeter (cc) engines or more and imported cars of 1,300 cc.
"These are expensive cars that only rich people can buy," he said, adding they included brands such as BMW, Mercedes and Toyota.

Gasoline imports are a sensitive issue at a time when Iran is under increased Western pressure over its disputed nuclear program.

Iran, which rejects U.S. accusations it is seeking to build nuclear weapons, has been hit by three rounds of U.N. sanctions since late 2006 over its refusal to halt sensitive atomic work.

The government had until March been reluctant to implement a system that would offer higher priced gasoline, because of fears it would drive up inflation, which is already running at more than 20 percent.

An Iranian energy official last month said Iran expects to import about 20 million liters of gasoline per day during the 2008-2009 year, less than half the amount it would have imported had it not launched rationing.

But the figure was still 5 million liters higher than an import estimate given by another oil official in February.

[Guest]

Re: Gas Prices Clobber McMansions, SUV Makers

Maybe I missed a post, but I'm surprised no iTuliper thinker has seen it this way.

Middle class people are probably NOT going to sell their homes and move to the cities in significant numbers. Here's why I think so.

1. First of all, their home values are more depressed relative to closer-in homes, so that's a losing proposition that far outweighs gas savings.

2. The transaction and move costs of about 6% of the value of the home equates to about 25 years of gas savings by being closer to work, and are probably never recoverable if you factor in the time value of money. Maybe if gas goes to $12/gal, but even then it's a long term proposition, and Americans are not known for thinking that way.

3. People still WANT to live in Suburbia for various reasons. Crime, availability of their preferred activities, school quality, etc, etc. They will give up other things before moving to a a foreign environment.

4. Businesses will simply begin moving OUT to where the people live. Employees may still have to move, but the moves will be lateral from suburb to suburb, not centrally. The old fashioned concept of putting offices in the city center dates back to the days when messengers were required to move documents from office to office, roads were unclogged, and there was plentiful cheap housing close by. Cities have outgrown that concept and technology has made it obsolete.

5. We are not a manufacturing economy, and much of our manufacturing takes place well outside of cities. When you have an assembly plant you can't move the plant. But when all you're moving is desks, chairs, computers, and files, you can relatively cheaply move to where the work force wants to live. It's much more efficient than trying to entice workers to come work where you are. But if manufacturing does return, they won't be building the factories downtown.

6. Telework will continue to expand as employers wake up and see the cost savings. The advantages include less office space to provide, and the fact that employees will work for lower salaries due to commute savings and convenience, etc, and employees may be more productive due to saving 2-3 hours of dressing/commute time each day.

7. As government feels the pinch of lower tax revenues, they too may wake up and see that it's cheaper for them to encourage growth in the exurbs than to continue to spend vast sums on road projects to get a million workers from the burbs into the central city each day. High capacity roads are expensive.

8. Centralization of workforce in huge 3,000 employee buildings near major interstates is no longer technologically necessary. In many large offices workers interact all day with coworkers without physically seeing each other. Considering the lower office space costs further out, a decentralized series of satellite offices may be seen as the way to go. The ability to speak, text, or video conference a coworker in another office (or state) reduces the need for these mega offices.

9. As the economy tanks and things get ugly, do you think people are going to want to move to the city? They'll give up a lot before doing that. You may actually see a move even further out if things get really bad.

10. Suburbanites will probably sell the SUV and drive a diesel jetta or prius to work each day long before they'll uproot the kids from school and trade the big house with a yard in the safe burbs for an older, smaller,townhome close in. Cities/urban areas are for bar hoppers, young adults, and those who hate the outdoors.

[ASH]

Re: Gas Prices Clobber McMansions, SUV Makers

*Personal note: I grew up in small towns and suburbs, and had an apartment in a western suburb of Portland for six years before buying a house in a still low-income, but gentrifying neighborhood in the city. Now renting a house even closer in. Happy to leave suburbia behind, but no way would I would live in an overpriced apartment tower, much less condo, in our trendy Pearl District a few blocks from downtown. Everyone has their limits.;)

I agree, if one is away from population centers, one can have something like a bunker in which to hide and persevere.

I grew up in rural Oregon on a roughly 10-acre spread where we raised a lot of our own food (usually a pair of steers each year, chickens, vegetables, etc.). That probably influenced my thinking in the direction that Jim Nickerson suggests. I'd really like to stick to the rural margin outside the suburbs, where I could have a shot at near self-sufficiency if shtf.

zoog's post attracted my attention because I moved to Beaverton (south-west of Portland) for a job in the local semiconductor industry in 2004. I have been reading iTulip for about that long, and in particular the prediction about real estate prices dropping from the outer regions inward caught my attention. Portland lagged the nation on the way up the bubble, and has lagged on the way down, too -- the Case-Shiller index only recently showed the first year-on-year drop locally.

Here's the thing -- when I first started looking for 10-acre rural lots in 2004/2005, they were selling for about $225k. I actually made offers on a pair of lots in 2005/2006 for $250k and $330k; I presume that the people who won that bidding were land speculators, because the same lots showed up on the market in 2007 and early 2008 for $450k and $650k, respectively... and I assume that they sold at those prices, as they weren't advertised on the market very long. These days, properties similar to the 10-acre lots I was looking at in 2004/2005 are on the market asking $400k.

So, I guess what I'm saying is that according to the Case-Shiller index, the home prices in the urban center of Portland peaked in 2007 and have since started to drop, but it doesn't look like they were led by the rural land prices in my area.

What's your take, zoog? Are rural lots out Hillsboro way really going to face-plant because of high fuel prices, or are the land use laws so strict that demand from Intel and Nike execs is going to sustain them?

[phirang]

Re: Gas Prices Clobber McMansions, SUV Makers

Maybe I missed a post, but I'm surprised no iTuliper thinker has seen it this way.

Middle class people are probably NOT going to sell their homes and move to the cities in significant numbers. Here's why I think so.

1. First of all, their home values are more depressed relative to closer-in homes, so that's a losing proposition that far outweighs gas savings.

2. The transaction and move costs of about 6% of the value of the home equates to about 25 years of gas savings by being closer to work, and are probably never recoverable if you factor in the time value of money. Maybe if gas goes to $12/gal, but even then it's a long term proposition, and Americans are not known for thinking that way.

3. People still WANT to live in Suburbia for various reasons. Crime, availability of their preferred activities, school quality, etc, etc. They will give up other things before moving to a a foreign environment.

4. Businesses will simply begin moving OUT to where the people live. Employees may still have to move, but the moves will be lateral from suburb to suburb, not centrally. The old fashioned concept of putting offices in the city center dates back to the days when messengers were required to move documents from office to office, roads were unclogged, and there was plentiful cheap housing close by. Cities have outgrown that concept and technology has made it obsolete.

5. We are not a manufacturing economy, and much of our manufacturing takes place well outside of cities. When you have an assembly plant you can't move the plant. But when all you're moving is desks, chairs, computers, and files, you can relatively cheaply move to where the work force wants to live. It's much more efficient than trying to entice workers to come work where you are. But if manufacturing does return, they won't be building the factories downtown.

6. Telework will continue to expand as employers wake up and see the cost savings. The advantages include less office space to provide, and the fact that employees will work for lower salaries due to commute savings and convenience, etc, and employees may be more productive due to saving 2-3 hours of dressing/commute time each day.

7. As government feels the pinch of lower tax revenues, they too may wake up and see that it's cheaper for them to encourage growth in the exurbs than to continue to spend vast sums on road projects to get a million workers from the burbs into the central city each day. High capacity roads are expensive.

8. Centralization of workforce in huge 3,000 employee buildings near major interstates is no longer technologically necessary. In many large offices workers interact all day with coworkers without physically seeing each other. Considering the lower office space costs further out, a decentralized series of satellite offices may be seen as the way to go. The ability to speak, text, or video conference a coworker in another office (or state) reduces the need for these mega offices.

9. As the economy tanks and things get ugly, do you think people are going to want to move to the city? They'll give up a lot before doing that. You may actually see a move even further out if things get really bad.

10. Suburbanites will probably sell the SUV and drive a diesel jetta or prius to work each day long before they'll uproot the kids from school and trade the big house with a yard in the safe burbs for an older, smaller,townhome close in. Cities/urban areas are for bar hoppers, young adults, and those who hate the outdoors.

A 60 mpg Jetta TDI will solve America's problems .

[zoog]

Re: Gas Prices Clobber McMansions, SUV Makers

I grew up in rural Oregon on a roughly 10-acre spread where we raised a lot of our own food (usually a pair of steers each year, chickens, vegetables, etc.). That probably influenced my thinking in the direction that Jim Nickerson suggests. I'd really like to stick to the rural margin outside the suburbs, where I could have a shot at near self-sufficiency if shtf.

zoog's post attracted my attention because I moved to Beaverton (south-west of Portland) for a job in the local semiconductor industry in 2004. I have been reading iTulip for about that long, and in particular the prediction about real estate prices dropping from the outer regions inward caught my attention. Portland lagged the nation on the way up the bubble, and has lagged on the way down, too -- the Case-Shiller index only recently showed the first year-on-year drop locally.

Here's the thing -- when I first started looking for 10-acre rural lots in 2004/2005, they were selling for about $225k. I actually made offers on a pair of lots in 2005/2006 for $250k and $330k; I presume that the people who won that bidding were land speculators, because the same lots showed up on the market in 2007 and early 2008 for $450k and $650k, respectively... and I assume that they sold at those prices, as they weren't advertised on the market very long. These days, properties similar to the 10-acre lots I was looking at in 2004/2005 are on the market asking $400k.

So, I guess what I'm saying is that according to the Case-Shiller index, the home prices in the urban center of Portland peaked in 2007 and have since started to drop, but it doesn't look like they were led by the rural land prices in my area.

What's your take, zoog? Are rural lots out Hillsboro way really going to face-plant because of high fuel prices, or are the land use laws so strict that demand from Intel and Nike execs is going to sustain them?

Yeah, good question, and I'm not totally confident in any answer I might give you. Do you know that Metro is planning to expand the urban growth boundary? There will be a series of public meetings before they make a final decision sometime in 2009, but the proposed expansion west goes all the way out to Hagg Lake, south to Molalla, east to Sandy, etc. I imagine landowners in those areas are counting on the UGB inclusion raising their property values. These same people probably have no idea what kind of housing bust is coming though. The question is, which is the greater force? Housing collapsing (along with high fuel prices) vs. population growth in a metro that tries to regulate suburban sprawl by slowing down the expansion, thereby increasing density within the UGB. I imagine that the UGB combined with our extensive light rail system may provide some floor under land and home values out there. Anything within reasonable driving distance to the MAX line is going to have some appeal for commuters.

However, there is this quote from here:

Different home builders are going to have different amounts of liquidity. But anybody that has land is seeing deprecation of the land or not seeing an increase anyway. Most of them are seeing declines in land values. It's hard to sell bare lots now. You don't see any developable land, just raw land being sold at any kind of a price. It's just brought things to a standstill.

P.S. Don't know if you saw my post in a housing bubble thread recently with some charts for Portland.

[Starving Steve]

Re: Gas Prices Clobber McMansions, SUV Makers

Yeah, good question, and I'm not totally confident in any answer I might give you. Do you know that Metro is planning to expand the urban growth boundary? There will be a series of public meetings before they make a final decision sometime in 2009, but the proposed expansion west goes all the way out to Hagg Lake, south to Molalla, east to Sandy, etc. I imagine landowners in those areas are counting on the UGB inclusion raising their property values. These same people probably have no idea what kind of housing bust is coming though. The question is, which is the greater force? Housing collapsing (along with high fuel prices) vs. population growth in a metro that tries to regulate suburban sprawl by slowing down the expansion, thereby increasing density within the UGB. I imagine that the UGB combined with our extensive light rail system may provide some floor under land and home values out there. Anything within reasonable driving distance to the MAX line is going to have some appeal for commuters.

However, there is this quote from here:

P.S. Don't know if you saw my post in a housing bubble thread recently with some charts for Portland.

When you speak of the UGB ( the Urban Growth Boundary ), you speak about another bunch that I can't stand: the urban planners who conspire to limit land for development and thereby drive-up housing costs. And one of their tactics is to colour maps and make an UGB.

What do these urban planners do to make cities LIVEABLE? Do they make housing affordable? And sadly, the answer is NO.

High land prices destroy cities, but you can't explain this logic to many city planners.

[flintlock]

Re: Gas Prices Clobber McMansions, SUV Makers

I live in a suburb of Atlanta, about 40 miles from downtown. I honestly don't know anyone who drives to Atlanta to work anymore. Business is moving out to the suburbs. The growth of huge office parks have been moving steadily out from the city for as long as I can remember. I don't think the high price of fuel is going to affect the suburb to city commuter as much as its going to affect the guy who drives a lot for a living, like repairmen, salesmen, and suburb to suburb commuters.

I agree with Bruce in that business will go to where the people WANT to live. Suburbs will become more like satellites of the city. More independent, with their own central business districts. I predict crime will send people running from the "gentrified" areas in cities that have been making a comeback in the last decade. Some of those areas were scary in the best of times. In a severe recession they will become downright dangerous as criminals become much bolder and lower tax revenues produce big cuts in police budgets.

The real kick in the pants from the fuel situation will come in terms of the cost of heating and cooling these McMansions in the burbs. We'll see the biggest change in the suburban American way of life in that regard. $1000+ month gas and electric bills will make that extra $200 month in gas pale by comparison.

I also think the "car culture" of America is on the way out. We've been used to cheap gas that allows us the luxury of hopping in the car on a whim and driving to shopping, restaurants, ballgames, etc. Soccer Moms will be staying home in droves. Retailers will be hit hard. Businesses close to large residential developments will thrive.

I drive the roads of Atlanta every day and have already noticed a significant reduction in traffic. I'd guess most of that is due to a reduction of "non-essential" driving. People have to work, but they don't have to shop at trendy boutiques, or meet their tennis friends for lunch.

[zoog]

Re: Gas Prices Clobber McMansions, SUV Makers

When you speak of the UGB ( the Urban Growth Boundary ), you speak about another bunch that I can't stand: the urban planners who conspire to limit land for development and thereby drive-up housing costs. And one of their tactics is to colour maps and make an UGB.

What do these urban planners do to make cities LIVEABLE? Do they make housing affordable? And sadly, the answer is NO.

High land prices destroy cities, but you can't explain this logic to many city planners.

It doesn't surprise me that you're opposed to urban growth boundaries.

I have mixed feelings about them and the agencies that determine them. I agree that the most justifiable complaint is the lack of truly affordable housing. It is this failing on the part of city governments and planners that is pushing poor people out to the edges as closer neighborhoods gentrify. Portland has taken some steps to address this, as have many other cities I'm sure, but not enough.

However... since January 2000, Portland home values rose about 86%. Meanwhile, Phoenix went up 127%, Las Vegas 134%, San Diego 150%, Los Angeles 174%, Miami 180%. As far as I know, none of these cities have urban growth boundaries. If the UGB artificially raises home prices, why did Portland not go up more than these other cities?

[Starving Steve]

Re: Gas Prices Clobber McMansions, SUV Makers

It doesn't surprise me that you're opposed to urban growth boundaries.

I have mixed feelings about them and the agencies that determine them. I agree that the most justifiable complaint is the lack of truly affordable housing. It is this failing on the part of city governments and planners that is pushing poor people out to the edges as closer neighborhoods gentrify. Portland has taken some steps to address this, as have many other cities I'm sure, but not enough.

However... since January 2000, Portland home values rose about 86%. Meanwhile, Phoenix went up 127%, Las Vegas 134%, San Diego 150%, Los Angeles 174%, Miami 180%. As far as I know, none of these cities have urban growth boundaries. If the UGB artificially raises home prices, why did Portland not go up more than these other cities?

Hi Zoog:

As far as I know, most cities DO restrict urban growth, but they call that restriction by different names: for example, flood plain restriction, habitat preservation, farmland preservation, greenbelt preservation, water conservation restriction, urban growth boundaries, etc. Urban planners are masters of double-talk and hidden agenda.

One of the world's worst examples of high density planning is Hong Kong. And HK has most of its land in agriculture or mountain slope preservation. (Yes, mountain slope preservation is another planner-code for urban growth restriction.)

Take a look at Hong Kong's real estate prices, and look at what you get for the money. It is hilarious--- and tragic.

But HK is not the exception; it's the rule, just the most extreme example of what modern city planning leads to.

No wonder, people flee the cities. :rolleyes:

[c1ue]

Re: Gas Prices Clobber McMansions, SUV Makers

A 60 mpg Jetta TDI will solve America's problems

Only if gas prices stay at or lower where they are now.

Don't forget, we haven't yet seen the 'pig in the python' inflation hit yet.

60 MPG Jetta TDI only breaks even vs. a 20 mpg American car (not SUV) comparing 2002 vs. 2008 gas prices.

But should gas continue to increase - i.e. $10 gallon post-100% inflation by 2012, then all you're still going to be paying a lot more gas money out.

Then you'd need to find a 120 MPG car to compensate...:eek:

[ASH]

Re: Gas Prices Clobber McMansions, SUV Makers

Yeah, good question, and I'm not totally confident in any answer I might give you. Do you know that Metro is planning to expand the urban growth boundary? There will be a series of public meetings before they make a final decision sometime in 2009, but the proposed expansion west goes all the way out to Hagg Lake, south to Molalla, east to Sandy, etc.

Thanks, zoog!

I had only recently heard about the meetings on expansion of the UGB, and I knew nothing of the details. I had no idea they were planning to expand so far west. Hagg Lake? Wow. That certainly is a good theory for why the land prices have held up. That is also a good argument for waiting to see how things shake out.

[GRG55]

Re: Gas Prices Clobber McMansions, SUV Makers

I live in a suburb of Atlanta, about 40 miles from downtown. I honestly don't know anyone who drives to Atlanta to work anymore. Business is moving out to the suburbs. The growth of huge office parks have been moving steadily out from the city for as long as I can remember. I don't think the high price of fuel is going to affect the suburb to city commuter as much as its going to affect the guy who drives a lot for a living, like repairmen, salesmen, and suburb to suburb commuters.

I agree with Bruce in that business will go to where the people WANT to live. Suburbs will become more like satellites of the city. More independent, with their own central business districts. I predict crime will send people running from the "gentrified" areas in cities that have been making a comeback in the last decade. Some of those areas were scary in the best of times. In a severe recession they will become downright dangerous as criminals become much bolder and lower tax revenues produce big cuts in police budgets.

The real kick in the pants from the fuel situation will come in terms of the cost of heating and cooling these McMansions in the burbs. We'll see the biggest change in the suburban American way of life in that regard. $1000+ month gas and electric bills will make that extra $200 month in gas pale by comparison.

I also think the "car culture" of America is on the way out. We've been used to cheap gas that allows us the luxury of hopping in the car on a whim and driving to shopping, restaurants, ballgames, etc. Soccer Moms will be staying home in droves. Retailers will be hit hard. Businesses close to large residential developments will thrive.

I drive the roads of Atlanta every day and have already noticed a significant reduction in traffic. I'd guess most of that is due to a reduction of "non-essential" driving. People have to work, but they don't have to shop at trendy boutiques, or meet their tennis friends for lunch.

All of you are paying many multiples more for gasoline in nominal terms than your parents [or grandparents] paid for a gallon in 1965. I don't see a lot of econocars running around because of that. Why are predictions of the "end of America's "car culture" to be believed, or 120 mpg cars needed now? :rolleyes:

[flintlock]

Re: Gas Prices Clobber McMansions, SUV Makers

As far as the demise of the car culture, all I'm saying is that you are not going to see 20 year old guys working their $15 hour jobs continue to drive $35,000 F250s like I see around here a lot. You should see the huge number of almost new "luxury" pickups lined up at the local Walmart parking lot for sale by owner. Most Americans couldn't afford those vehicles even a $2 gallon. $4+ gallon just put the nail in the coffin for many.

You are going to see a lot less cars "cruising" the streets on Saturday night. There's a whole industry based on that. Fuzzy dice, curb feelers, etc. If you want a snapshot of the future, just look at how Europe has been for years. They've been paying a lot more for fuel for ages. Notice how few big trucks and SUVs you see there? A lot of europeans don't even own a car. In the US, our "poor people" usually own a car.

Not only fuel prices, but the demise of "easy" credit will ensure this. Simply put, a lot of the way Americans have done business in the past in regards to transportation had more to do with cheap fuel and easy credit than it had to do with actually being able to truly afford that way of life. It was artificial.
Sure our grandparents may have paid a little more in real terms for fuel. But they also didn't have three cars, a Harley, a boat, two 4 wheelers, drive their kids all over town for activities, and go to the mall twice week.

[kingcopper]

Re: Gas Prices Clobber McMansions, SUV Makers

U.S. cities are very different than most of Europe and Asian cities. The New York's, Boston's, and Miami's of the U.S. are rare and the ATL's are our Fuel economie's 20th century has beens. In the future, towns with condensed urban corridors will flourish economically because of the absense of carbon fuel shackles!;) SUVs and McMansions in the Burb's will wilt unfortunately and the piss poor planning of this last twenty-thirty years will be replaced with Eurocentric design.

[Starving Steve]

Re: Gas Prices Clobber McMansions, SUV Makers

U.S. cities are very different than most of Europe and Asian cities. The New York's, Boston's, and Miami's of the U.S. are rare and the ATL's are our Fuel economie's 20th century has beens. In the future, towns with condensed urban corridors will flourish economically because of the absense of carbon fuel shackles!;) SUVs and McMansions in the Burb's will wilt unfortunately and the piss poor planning of this last twenty-thirty years will be replaced with Eurocentric design.

I disagree.

Why would people move back to downtowns where they would have to pay outrageous housing prices or pay outrageous rents? And then add to that the higher upkeep costs and higher utility costs of older dwellings. Then add to that the higher grocery costs downtown. Then add to that the noise and the ugliness. Then add to that the costs of crime--- like, "Your wallet or your life."

City planners have tried to force people back to the urban core, back to the slums. But all that city planners have done is to drive-up land prices in the cities, and higher land prices have made housing costs even more outrageous.

People are not dumb. People have fled the cities because cities are not affordable nor are they liveable.

And people will respond to the energy shock by down-sizing their vehicles. Also, people will buy diesel-hybrid vehicles which will yield 60miles per U.S. gallon of gas.

Finally, nuclear power will help to solve the energy shock. More drilling for oil especially on the ocean floor will help to solve the crisis. More tar sand oil development, synthetic oil made from coal, and ethanol made from sugar cane will help to solve the current energy crisis, too.

People will never move back to the slums, no matter what city planners think.