Peak Oil and the Fall of Suburbia.

Last week I diaried on Kunstler’s The Long Emergency (Wikipedia), first here and then at Big Orange … and the day after this went up here, a slightly shorter version of this essay became a diary at Big Orange.

One aspect of Kunstler’s work, and the one where he is on strongest ground, is the argument that the coming explosion in crude oil prices, as we pass peak oil and start descending down from the peak, is the end of Suburbia.

Of course, one reason I was so quickly persuaded by this argument is that I had already come to the same view. The 1950’s to 1970’s were Suburban Spring, the 1980’s to the Naughties have been Suburban Summer, and now we can look forward to Suburban Autumn.

Or, since I come from a northern climes with deciduous trees, the Fall of Suburbia.

Car Suburbs Came from Rail Cities and Will Give Way To … ???

I mean by “Suburbia” the Car Suburbia that has come to dominate the development of US settlement, and to a slightly lesser extent Western Europe and Australasia since the end of World War II.

I come at this with two premises:

• Any new dominant settlement system will, of course, emerge from an already existing pattern of settlement; and,
• Any new dominant settlement system will, of course, have to be able to grow into a dominant position within the context of the previous dominant system.

These two general premises will be required twice … once to understand the supplanting of the Rail City with the Car Suburb, and a next to understand what settlement systems might come to replace the Car Suburb, which is the process that creates the decline, and eventual collapse, of Car Suburbia.

The Evolution of the American Frontier Settlement system

At the start of the Agricultural Revolution, human populations faced rising population densities and lack of unpopulated areas to allow the splitting of hunter-gatherer bands in the face of intra-band conflict. The first pressure forced hunter-gatherers to start investing more and more effort into promoting the human food productivity of ever smaller territories, until population pressures became so high in some areas that they were forced to become full time  cultivators … and therefore forced to settle where they could tend their fields.

And the settlement combined with the lack of option of heading off to neighboring unpopulated territory meant that when intra-band political conflicts were fought through to the point of winners and losers, the losers had to remain subject to the coercive power exercised by the winners.

People become acculturated to the social settings that they experience, and develop folkviews to explain to each other … and, importantly, to their children as they grow up in the social setting … the social rules by which they live. So the patterns of political dominance become entwined with other social institutions, including religion.

And so on top of the settlement system of cultivator villages emerges a network of towns, where villagers come to pay taxes, trade surplus product, and if they are lucky benefit from some of the additional range of goods and services available in the towns.

Sometimes these towns can provide the basis for the emergence of larger cities … sometimes the pressure of warfare makes it more difficult to populate and defend a complete network of towns, and local strongmen in forts exercise their sway over most of the villages, with towns emerging only at especially favorable locations … but anyway, through to the 1500’s, this sketches out the background settlement system of cultivator villages, market towns, and administrative cities that was in place from the high income core of the Old World system in East Asia, all the way through to poorer “developing country” backwaters like Western Europe.

And, of course, in the 1500’s, the European backwater in particular stumbled onto mountains of silver in the New World, and could start buying their way into the wealthy trading systems in the core of the Old World system, with China at its center, and India, Southeast Asia and Japan as primary high income nations with trade deficits with China but at a substantial step above Europe.

These mountains of silver were in the hands of the Spanish, and so it was critical for other nations to find and develop sources of luxury goods to use to get the Spanish to part with their silver. Key luxury goods for the European occupation of the New World included sugar, tobacco, cotton textiles … and furs.

So, from the start of European settlement on the eastern seaboard of North America, the focus was on production or acquisition of export goods. In the mid-Atlantic states, for example, the key export goods were furs and wheat. The furs were obtained by trading with Native Americans, which brought European agents into territory, while the wheat was obtained by occupying Native American farming lands. This was sometimes aided by the impact of European cattle and other farm animals grazing on unfenced cornfields, making the neighborhood of existing European farmland an unappealing place for Native American agriculture … but two of the biggest keys were disease and guns, both of which led to substantial declines in Native American populations at keys points in the colonization process.

And from this type of process emerges the “frontier” settlement system, in which settlers obtain frontier land very cheaply, and work to establish a farmstead with an eye to building a steady export base. The proceeds of this export base then can help subsidize the movement out to the new frontier, either with the less successful selling out now more valuable land, or with the next generation of the families raised by successful farmers.

As an area developed, market towns emerged where the exportable surplus was brought for sale, and the network of market towns formed the hinterlands of commercial cities. Concentrated resource could be exploited for the production of industrial goods also contributed to the establishment of towns and cities based on the industrial workforce … but as long as markets were primarily regional, there was a limit on the population of industrial workers that could be supported in a given town or city.

The Evolution of the Rail Cities

By the 1870’s, the Railroadification of America was seriously underway. One consequence was the knitting together of a larger number of national markets, where previously there had been a series of regional markets. The rise of national markets meant that industrial workforces could expand. While international agricultural exports continued, a growing share of agricultural output was “exported” domestically to the growing urban populations.

As the frontier closed, one of the sources for the growth in urban populations was a growing internal migration from the countryside to the city … and an ever growing share of immigrants ended up working in the cities rather than settling on the frontier. A fifth or less of the population was urban before the Civil War … by World War I, a majority of the population was urban.

One of the features of urban life in this period was the lack of zoning, which meant that no matter where you lived in the city, it was possible for some noisy, filthy, polluting, and/or stinking enterprise to be established in the next block over, undermining the value of your urban townhouse. And combined with the rise of the electric interurbans … as light rail was called at the turn of the 20th century … this led to the emergence of the Rail Suburb.

A rail suburb grows up in the vicinity of a train station or along an interurban line, giving access to employment in the city, without the downside of living cheek to jowl with noisy, filthy, polluting, and/or stinky industrial enterprises. Indeed, interurbans were often developed at a loss as a means of making a profit from the development of land.

However, “Rail Suburbia” cannot emerge as a new form of settlement. The train station, or the junction of light rail lines, provides a core for the suburb through which much of the suburban population passes twice a day. That makes that a prime commercial zone. Now, zoning in the US is driven by the interests of people making money from property development, and so if there is money to be made from creating a commercial center for the rail suburb, by hook or by crook, a commercial center will be developed.

So a rail suburb development grows into a town. It is a peculiar type of town, in which the base export activity involves the direct sale of labor power in the neighboring city … but its still a town. If it continues to grow, the commercial center will spill over into the closest residential neighborhoods, new enterprises will become established, and eventually its own urban activities may be the primary source of income, and it may sprout rail suburbs of its own. If the base for the the settlement system remains stable, the residential areas closest to the commercial core will be driven by higher values per acre either into the highest status neighborhoods, higher density of settlement or, possibly, an intensive or extensive combination of both.

The Evolution of the Peculiar Local Economics of Car Suburbia

However, the US turned away from reliance on rail. In the 1920’s, much of the roar in the Roaring Twenties was provided by the surge in road works, in an explosion of mileage of paved road in the US. This was driven in large part by the replacement of horse transport with car transport, complementing the rail transport system with a local transport technology that did not leave horse shit lying all over the road.

And then in the 1930’s, National Policy in the US turned against rail and toward the establishment of highways for regional and interstate transport. There was a hiatus during World War II, with rail reaching its high point in terms of general passenger and freight service … but with the exigencies of war, this could not be leveraged into infrastructure expansion. And then postwar pattern was established of subsidies for air and road, while for the most part, rail was funded on the YOYO principle … you’re on your own.

The system that has emerged rests on a tripod of supporting elements:

• first, a long term trend to rising suburban property values, which combines with the tax-subsidy of deducting mortgage interest payments to encourage most households to treat home ownership as their primary means of wealth accumulation;
• second, substantial subsidy of the road transport system, where direct taxation is focused on funding roadworks which encourage residential, commercial and industrial development, and the bulk of external costs of the road transport system are born by third parties; and,
• third, a zoning system which requires separation of residential, commercial and industrial properties, together with substantial subsidy of decentralized commercial and industrial development by localities attempting to encourage development to cope with the excessive public costs of suburban residential development (in large part because of their high external costs per resident).

How Does Peak Oil Impact On Car Suburbia

A crude reading of the impact of Peak Oil on car suburbia is that people will be unable to afford to drive, so suburbs will transition from “cultural wastelands” to uninhabitable hellholes.

That’s not where I am coming from. I focus on the changes on behavior at the margin, and then how those changes impact upon the system, and then on what changes on behavior are implied by those impacts. In other words, while my training in economics was not limited to the traditional marginalist economics that forms the entire universe of the traditional mainstream economist … it certainly did include marginalist analysis, and I am happy to trot it out where it does, in fact, apply. I certainly am critical of traditional mainstream economists for only having a single tool at their disposal … in the aphorism, of only having a hammer, and seeing a screw as nothing but an awkward nail. However, when it is time to drive in nails, a hammer does the job nicely.

Impact of Peak Oil on Residential Property Values. Peak oil has two direct lines of impact on residential property values. First, a larger share of the car suburb household budget must be devoted to transport, so a smaller share is available for everything else … including housing. Second, unless there is a national policy shift against the car transport system, peak oil implies an ongoing decline in US income per person, as an every increasing share of national income must go to pay for energy imports. Both of those declines imply a decline in property values compared to otherwise.

This could be exacerbated if national monetary policy focuses on attempting to constrain imported inflation through increases in the cash rate (in the US, the Federal Funds rate) … which would then further decrease the cash price that could be paid from a relatively smaller share of a relatively smaller real income.

Impact of Peak Oil on Public Road Subsidy. At first blush, it would seem that peak oil would increase roadworks funding, by increasing the take from percentage fuel taxes. However, the reality is likely to be the reverse.

For one thing, only a part of roadworks is funded by fuel taxes, and only a part of fuel taxes are levied as a percent of the purchase price. The balance is funded out of income and sales taxes, which will both be squeezed by the squeeze on both total income and income available for spending on something other than transport. And further, as people’s real incomes are squeezed by the cost of transport, there will be public pressure to reduce fuel taxes, as a direct government policy that can “do something” about the rising cost of fuel.

Turning to the supply side, we use oil to build roads. We use heavy equipment that is fueled by oil, and we pave with asphalt. So the cost of roadworks will rise with the increase in price of oil … and the funding for roadworks is unlikely to rise to keep pace.

Impact of Peak Oil on Single-Use Zoning. As I have already indicated, I take it as a premise that zoning in the US is driven by the economic interests of property development. And at the margin, those interests will shift with Peak Oil.

An onsite residential population will become more and more valuable to commercial properties as the per mile costs of transport rise. The benefits of locating in close proximity to other traffic drivers will also increase, as the rise in transport costs increase the incentive on motorists to pool multiple tasks in a single trip.

For office and industrial parks, the transport costs of the workforce of the industrial park become a growing problem. One impact is an increase in demand for housing that is closer to the industrial park. On the other hand, industrial parks that are better integrated into public transport systems will have less difficulty in recruiting workers from a wider area.

Both commercial zones and industrial parks will also face increasing costs of road-based freight, driving an increasing reliance on rail freight. That implies a commercial advantage for commercial zones and industrial parks that are integrated into the national freight rail network. That implies a commercial benefit for other commercial zones and industrial parks to gain the infrastructure to connect into the national freight rail network, via branch lines or light rail systems interconnecting with the freight rail network.

Growth or Decline … Its Much the Same. Now, I have made this all relative to the status quo … and the status quo has been rising real incomes, both before and after the share of income devoted to transport. However, I would argue that the main development driver will be much the same whether the impact of Peak Oil is slower growth of real incomes, or is in fact actual declines in real incomes. In the first case, the values of residential, commercial and industrial properties will accelerate if they feature mixed used and integration into the freight rail network. In the latter case, these are the properties that will best retain their values while the values of properties with less mixed use and less integration into the freight rail network will decline more rapidly.

In either case, there will be a shift in preference for residential properties that are integrated into commercial and/or industrial zones, and away from residential properties in homogeneous Car Suburbs. That shift in preference will further reduce the values of properties in Car Suburbs. Once the stereotype of Suburban Decline has become established in popular culture, the collapse of Car Suburbia will begin.

The Collapse of Car Suburbia

After all, we have been through this before. At the end of World War Two, urban residences dominated our settlement system. And in the flight to the suburbs, a tipping point was reached in one city after another where the value of existing urban residences began to decline with no recovery in sight. Landlords, in an effort to generate income from properties that were being abandoned by the middle class, could only resort to subdividing properties and renting smaller apartments to poorer residents who either could not afford or … because of redlining … were denied access to finance for the middle class suburban home.

This was a long, slow, slide for the cities. After all, even as jobs started to follow population out into suburban commercial centers and office/industrial “parks”, cities continued to have some employment base, which gave them some means of struggling on.

A single-use Car Suburb has no employment base. It exists entirely on its ability to attract those who are employed elsewhere to devote a share of that income to serving a mortgage on a suburban house. When its residents start to have less and less free income compared to people residing in cities, towns, and emerging mixed-use commercial/residential and industrial/residential zones, and at the same time it can offer less and less opportunity to accumulate wealth in suburban properties, then it can no longer offer what it once offered a suburban resident.

But this is no surprise. We already know, from looking at the behavior of a wide range of natural and social systems, that systems with less diversity are more prone to collapse. So some urban neighborhoods have managed to limp through the age of the Car Suburb … while on the other hands, existing Car Suburbs that are unable to reinvent themselves as something else are going to go into terminal decline.

The New Suburban Spring

I’m an eternal optimist, and so I don’t want to end this with the collapse of the Car Suburb. And I have, of course, laid the foundation for imagining the next step … with my premise that American zoning follows what makes money for property developers.

What will make money for property developers when we return to Expensive Energy will, of course, be property development that economizes on travel, and channels travel into energy-efficient transport technology.

So let me turn to the industrial park that I cycle to, when I am lucky enough to be called in. Obviously, people from the town where I live will never cycle between 90 and 120 minutes each way to get to a job paying in the range of $8.00 to $12.00 an hour.

However, in order to keep shipping things into and out of that industrial park, it is going to become necessary to invest in infrastructure to connect the industrial park with the rail system. And whether that is a branch line or a light rail system, one way for the industrial park to make a claim for government subsidy on that infrastructure will be to include a passenger rail service.

Well, either they get it or they don’t. If they get it, there will continue to be employment opportunities at that site, and if they don’t, employment opportunities there will decline, and we can shift our attention to the industrial park that does get that infrastructure. Wherever they link into the rail network will be the origin for a commuter rail network that offers access to dozens of industrial work-sites. That will then be a magnet for the county public transport system.

Of course, that interchange will become valuable commercial property, because public transport will be available to that area. Whatever suburban properties are in the immediate vicinity will increase in value, tipping over into the point where multiple units per lot offer more value to the developer than single units, so zoning will shift to allow multiple units per lot. That will reinforce the transport links between my town and the town at the junction of the industrial park.

The key point here … and the reason to harbor some guarded optimism … is that this does not require everybody being convinced of the appropriate response to the collapse of Car Suburbia. It is sufficient for large numbers of individual property owners and local communities to try whatever they can come up with … and then for the most successful responses to be copied by increasing numbers of suburbanites in the face of the on-going, inexorable collapse in property values of the single-use Car Suburb.

And in a country where government policy has channeled such a large share of the population into treating a suburban owner-occupied house as an investment property, I am confident that there will be large numbers of individual property owners and local communities trying what they can. Some of the efforts will make things worse, some of the effort will make things better, and the system as a whole will eventually be pushed in the direction that economizes on transport.