Re-emergence of the City? Or - Mass Immigration to it? (Chicago: for sale, credit)

[BRU67]

Originally Posted by Drover

And yes, time is also a resource that has to be considered, which is why I said "[a]t some point those higher real estate costs in or close to the city will offset higher transportation costs (and higher time costs too) of commuting in from the suburbs."

You nailed it on the school issue. If Chicago and the inner-ring were able to provide comparable education to the suburbs, they would absolutely explode. Maybe our policymakers will start to see some value in that someday and adjust policy accordingly, who knows.

I do think, however, you're failing to take at least a couple of things into account with your cost/benefit argument. First, you're not factoring in consumer irrationality -- the "herd" mentality to be more blunt. Basic economic study tells us that people will not behave like little robots and stop moving to where everyone in their peer group is going the instant transportation savings are no longer offset by the higher real estate costs.

To use one very current example, people are paying $1-2k over MSRP for the rather slow and odd looking Toyota Prius. This car gets about 9 MPG more than a Toyota Yaris, which is also slow and unattractive but does it for $12.5k less than the Prius. Now, how long will it take to make up that $12.5k premium in fuel costs with the 9 MPG spread? I'm too lazy to figure it out right now but I'd wager a very long time -- probably just before the earth rams into the sun if you drive 30k miles per year. Yet, people aren't even thinking twice. To apply this to our hypothetical, there will be a "prestige" factor that keeps prices rising in the City and inner-ring even if they get saturated with affluence and start become out of balance in terms of real estate prices with ex-burbs.

Second is the thing that caused the flight to the suburbs in the first place -- demographics. The demographic composition of the exburbs and the City/inner-ring will not remain the same in a suburban flight situation. Presumably, low income people and their attendant social problems will be pushed away from the more expensive City and inner ring communities and migrate further out, putting a strong downward pressure on prices in the ex-burbs and pretty much eliminating all of their current benefits (homogony, good schools, amenities, low crime). So people will also be willing to pay a premium to avoid that, and enjoy the greater amenities that the more affluent City and inner-ring neighborhoods will be offering at that point.

[MannheimMadman]

RE: your second point,

I read something that said if this suburban flight were to happen, McMansions and such could become multiple family dwellings for the poor. Imagine these crazy houses in Naperville being rented to section 8's!

[Drover]

Originally Posted by BRU67

You nailed it on the school issue. If Chicago and the inner-ring were able to provide comparable education to the suburbs, they would absolutely explode. Maybe our policymakers will start to see some value in that someday and adjust policy accordingly, who knows.

I do think, however, you're failing to take at least a couple of things into account with your cost/benefit argument. First, you're not factoring in consumer irrationality -- the "herd" mentality to be more blunt. Basic economic study tells us that people will not behave like little robots and stop moving to where everyone in their peer group is going the instant transportation savings are no longer offset by the higher real estate costs.

To use one very current example, people are paying $1-2k over MSRP for the rather slow and odd looking Toyota Prius. This car gets about 9 MPG more than a Toyota Yaris, which is also slow and unattractive but does it for $12.5k less than the Prius. Now, how long will it take to make up that $12.5k premium in fuel costs with the 9 MPG spread? I'm too lazy to figure it out right now but I'd wager a very long time -- probably just before the earth rams into the sun if you drive 30k miles per year. Yet, people aren't even thinking twice. To apply this to our hypothetical, there will be a "prestige" factor that keeps prices rising in the City and inner-ring even if they get saturated with affluence and start become out of balance in terms of real estate prices with ex-burbs.

Second is the thing that caused the flight to the suburbs in the first place -- demographics. The demographic composition of the exburbs and the City/inner-ring will not remain the same in a suburban flight situation. Presumably, low income people and their attendant social problems will be pushed away from the more expensive City and inner ring communities and migrate further out, putting a strong downward pressure on prices in the ex-burbs and pretty much eliminating all of their current benefits (homogony, good schools, amenities, low crime). So people will also be willing to pay a premium to avoid that, and enjoy the greater amenities that the more affluent City and inner-ring neighborhoods will be offering at that point.

While I agree that not everyone are rational actors, taken as a whole, people do tend to produce rational economic results. And yes, some people will choose to pay a premium to live in the city for personal or aesthetic reasons (I'm guessing many on this board already do) just like people do to drive a Prius... but many will not. Those of us who are particularly attracted to urban living sometimes lose sight of the fact that there are plenty of people who simply are not -- and still wouldn't be even if the demographics shifted as you theorize they will.

And on that point, I really don't see the kind of complete reversal of demographics happening that some people are predicting (or hoping for with a hint of schadenfraude, for that matter). What you're talking about is a major social upheaval on pretty much the same scale that caused white flight to the suburbs in the first place. I don't think we're anywhere close to that.

[Lookout Kid]

Originally Posted by BRU67

To use one very current example, people are paying $1-2k over MSRP for the rather slow and odd looking Toyota Prius. This car gets about 9 MPG more than a Toyota Yaris, which is also slow and unattractive but does it for $12.5k less than the Prius. Now, how long will it take to make up that $12.5k premium in fuel costs with the 9 MPG spread? I'm too lazy to figure it out right now but I'd wager a very long time -- probably just before the earth rams into the sun if you drive 30k miles per year.

I like your thinking on this, but also realize that a Prius is much larger than a Yaris. As a guy who has to deal with an infant car seat on a regular basis, I couldn't imagine putting one in anything smaller than Prius (I've got a newer Civic, and even an inch or two less space would make it nearly impossible for anyone else to sit back there).

[aragx6]

And the Prius is getting not only bigger, but also far more fuel efficient not only next year, but apparently every year thereafter, including a much-anticipated PHEV feature (meaning you can plug into your wall at home and charge that baby up.) Most current PHEV's can go up to 40 miles per charge, so for most people with short to normal commutes you might not have to use any gas at all!\

http://www.hybrid-cars.org/prius/upcoming-2009-prius

[BRU67]

Originally Posted by Lookout Kid

I like your thinking on this, but also realize that a Prius is much larger than a Yaris. As a guy who has to deal with an infant car seat on a regular basis, I couldn't imagine putting one in anything smaller than Prius (I've got a newer Civic, and even an inch or two less space would make it nearly impossible for anyone else to sit back there).

Alright, fair enough, though if one was truly in frugal mode I would think such an individual would be willing to make sacrifices. A lot of these folks are going from a 900 square foot SUV into a Pious after all. So what’s a few more cubic feet, you know? But I wholly concede that you raise a valid point. So let's look at your Civic then. A Civic EX v. Civic Hybrid. Same size, same styling, same equipment level, same everything except one is a Hybrid with those neat little badges proclaiming your fiscal responsibility and concern for all that’s green and the other one is just, well, a Civic (no offense dude ;-)).

The Hybrid is selling for $23,500 per Kelly Blue Book now (assuming you’re lucky enough to find one – reportedly there’s a several month wait). It gets 45 MPG highway. The EX sells for $20,300. It gets 36 MPG highway. So, say you drive 15,000 miles per year and gas averages $4.25/gallon. Your annual fuel cost with the Hybrid would be $1,415 per year. With the EX, you would spend $1,770 per year. So you pay $3,200 to save $355/year in fuel costs. Ouch. At that rate, it would take one 9 years (!) to make up that price premium in actual fuel savings (not including additional interest costs on the higher purchase price). That's probably close to three times as long as the average American will keep the car.

So the Hybrid craze can’t be rationalized from a pure cost/benefit analysis. Yet they’re selling like hot cakes and demand shows absolutely no sign of slowing. There are other things driving this (no pun intended), and they aren’t rational. The same mentality will almost certainly play out should there be a mass push back into the City driven by energy costs. As Drover points out, it is entirely speculative that this will happen but, within the parameters of a hypothetical discussion about how it will go down if it does, I must conclude that the movement will not simply cease once the fuel savings and housing cost lines cross on the graph.

[aragx6]

Originally Posted by BRU67

and gas averages $4.25/gallon. Your annual fuel cost with the Hybrid would be $1,415 per year. With the EX, you would spend $1,770 per year. So you pay $3,200 to save $355/year in fuel costs. Ouch. At that rate, it would take one 9 years (!) to make up that price premium in actual fuel savings

You don't really think gas is going to be $4.25 9 years from now do you?

Do you know what gas cost in 1999? I'll give you a hint... it was less than a dollar. Obviously there was a lot going on at that time that caused those prices, but even 2 years ago what was gas?

[Lookout Kid]

BRU67, that's why I have a Civic EX instead of a Prius or Civic Hybrid. With the few miles I actually drive, the equation is even better for the regular Civic (which is still a low-emissions fuel-efficient vehicle).

[BRU67]

Originally Posted by aragx6

You don't really think gas is going to be $4.25 9 years from now do you?

Do you know what gas cost in 1999? I'll give you a hint... it was less than a dollar. Obviously there was a lot going on at that time that caused those prices, but even 2 years ago what was gas?

Well, I see what you are implying but can you say for sure that gas prices won't be lower 9 years from now? Compare gas prices in 1981 to 1990. They came down substantially. Due to many factors, I doubt that will happen again but it goes to show that no one can say, with 100% certainty, what's going to happen.

[aragx6]

Well you're right, I don't know, and they could go down.

But, I think it definitely is how many people justify those numbers when looking to purchase a new car right now, especially considering, if you're going to have a 60 month loan anyway, the price per month difference doesn't feel all that significant.

I'm not saying there's no "chic" factor at play, but I think that the concerns and uncertainty surrounding the future of gas prices helps justify for some that added expense.