Transportation Costs Tip the Affordable Housing Equation

Transportation Costs Tip the Affordable Housing Equation

Whether you buy or rent, housing near a busy urban job center is generally expensive in most areas. That's one reason so many Americans choose to livein the suburbs: more land, more house, less cost.

photo of Atlanta freewayIt seems like an obvious call, right? The farther you live from the center of town, the closer you can come to affording your dream home. Maybe not. Recent research is challenging this conventional thinking.

The Center for Neighborhood Technology (CNT) has created a new tool to gauge the true affordability of housing by considering not only the price of a home or an apartment, but also the transportation cost associated with living there. Using the "Housing and Transportation Affordability Index," researchers have discovered a potential financial challenge lurking behind that suburban dream house: the increased cost of transportation for commuting to job centers swallows up the money saved by choosing a home on the urban fringe. CNT is hoping its research will change federal, state, and local housing and transportation policies to account for the true costs of housing.

Challenging old assumptions about who commutes
A Brookings Institute study conducted by CNT in collaboration with the Center for Transit-Oriented Development uses the Index to look at housing affordability in various metropolitan regions. The first phase of the two-phase "Affordability Index" study was an in-depth analysis of the St. Paul-Minneapolis metropolitan region.

Surprisingly, the study found that transportation demand is not necessarily determined by household income and size. Previous assumptions supposed that larger, more affluent families owned more cars and drove further distances than smaller, less affluent families. However, CNT's research reveals that neighborhood characteristics are the dominant force influencing transportation demand, not household income or size. Density, walkability, availability of quality transit, and access to amenities like grocery stores, schools and employment centers strongly influence the number of cars owned by a family and the miles they drive, regardless of family size or income.

Perhaps this finding should not come as a surprise after all. It seems reasonable that living far from employment and shopping centers in neighborhoods without sidewalks and public transportation would make it necessary for each adult living in the household to own and drive a car. Therefore, those considering the cost of renting or buying a home should consider living in a "location-efficient" neighborhood that can reduce the cost of transportation and thus alter the affordability range of housing.

map of Atlanta metro region home affordability measured by housing costs as percent of income
map of Atlanta metro region home affordability measured by housing and transportation costs as percent of income

Unfortunately, standards currently used to calculate housing vouchers, Low Income Housing Tax Credits, and even most home loans do not account for these living costs. Individuals and families can be placed in houses they should be able to afford, but not necessarily into neighborhoods they can afford. CNT is working with the Urban Land Institute's Terwilliger Center for Workforce Housing to create an individual H+T calculator to address the issue. This web-based calculator will make it possible for prospective renters and homebuyers to enter an address to determine the transportation costs associated with living there.

Transportation costs alter affordability picture
The second phase of the Brookings study gauged the housing affordability of 52 metropolitan regions in the United States. Traditionally, a home is considered affordable if payments consume no more than 30 percent of a family's income. The new measure of affordability includes the cost of transportation. According to the Index, housing is affordable when housing and transportation payments together consume less than 48 percent of a family's income.

Adding transportation costs to the calculation dramatically shifts the affordability landscape. Map 1 and Map 2 capture the significant impact of the new system for assessing housing affordability in the Atlanta metropolitan region. Map 1 shows the traditional affordability scale, based solely on housing prices. Map 2, on the other hand, indicates affordability when transportation costs are added to housing costs. The yellow shaded areas represent neighborhoods that are affordable, whereas the blue shaded areas show neighborhoods that exceed the affordability ceiling.

The Atlanta Metro counties most affected by transportation costs are also those that have seen the greatest spike in population over the last few years. Henry (southeast of Atlanta), Douglas (west of Atlanta), and Rockdale (east of Atlanta) counties grew faster than other counties during the last decade (ARC Regional Snapshot 2007). Map 1 illustrates why. By using the "drive until you qualify" approach to finding an affordable home, these three counties all appeared to be relatively affordable. But once transportation costs are considered, that affordability largely disappears, as exhibited in Map 2.

Climbing gas costs add to burden
If neighborhoods are designed largely for automobile traffic without public transit as an option, the transportation premium associated with living in these neighborhoods becomes highly dependent on gasoline prices. Over the last eight years, beginning in 2000, gasoline prices have risen markedly, shifting a drastic cost burden to those who rely on daily automobile travel. Map 3 and Map 4 show the stark contrast between transportation costs faced by Atlanta drivers in 2000 as compared with 2008.

Even though gasoline prices have dipped recently, they are expected to continue rising over the next 5 to 20 years. In 2000, no county in the metro had average gas costs exceeding $2700 per year, with most under $1800. As the 2008 map shows, average gas expenses per household topped $2700 for the majority of counties in the metro, with many exceeding $3600 annually.

map of Atlanta metro region household gasoline expenditures 2000
map of Atlanta metro region household gasoline expenditures 2008

Getting policymakers on board
Moving forward, CNT plans to expand its work with the help of funds from the Rockerfeller Foundation to analyze 337 of the largest U.S. metro areas. Further research will determine whether the relationship among factors such as location, density, city form and transportation costs holds for small cities as well as large ones. Maria Choca Urban, program director of CNT, hopes these findings will influence the next federal transportation bill. A more level playing field would make it possible for transit, walking and bicycling infrastructure to compete with roads and highways for capital funds.

The good news is that policymakers are paying attention to CNT's work and even beginning to act. In March, HUD Secretary Shaun Donavan and DOT Secretary Ray LaHood announced a new joint entity to coordinate housing and transportation planning and investment. In June, the U.S. Environmental Protection Agency came onboard.

This new integrated approach to understanding housing affordability may also have implications for the lending community, which is closely examining risk and the long-term sustainability of a borrower's ability to make mortgage payments. With many expecting continued volatility in energy prices, both location efficiency and home-energy-use efficiency may become increasingly important considerations.

This article was written by Jared Yarsevich, research assistant in the Atlanta Fed's community affairs division.