Suburban Living: Bad for your wealth

Smart Growth and Housing Affordability

Imagine that a household must choose between a suburban house with a $12,000 annual mortgage and $12,000 annual transportation costs, or an urban house with a $18,000 annual mortgage with only $6,000 in annual transportation costs. Both total $24,000 in combined housing and transportation costs, so they are economically comparable in the short-run. However, money spent on housing builds equity while money spent on motor vehicles does not. As a result, over the long run the urban location provides the household with 50% more equity, probably even more since rising future fuel prices and changing consumer preferences are likely to cause urban housing to appreciate much more than suburban housing during the next two decades. As a result, a typical household is likely to be a hundred thousand dollars wealthier in a decade if they choose a smart growth location over automobile-dependent sprawl.