In yet another analysis of the causes behind the current financial crisis, it turns out that vehicle ownership and a lack of access to public transportation may be just as predictive of mortgage foreclosure rates as low credit scores and high debt-to-income ratios.
Such are the results of a study, commissioned by the Natural Resources Defense Council, of foreclosure rates in San Francisco, Chicago and Jacksonville, Florida. The survey found
mortgage holders were less likely to face foreclosure (.pdf) if they lived in ?compact? neighborhoods with sufficient public transit to make owning a car optional. For example, a hypothetical borrower in the Chicago area with a credit score of 680, a debt to income ratio of 41 percent and a 20 percent down payment would be 2.7 percent more likely to default if the home is in a sprawling suburb instead of a compact urban area.
While it?s easy to dismiss the report as just another environmental advocacy group?s indictment of McMansions and SUVs, there?s a more nuanced interpretation of the findings that could affect future transportation and housing policies.
According to the study authors, living in a location-efficient area provides a greater buffer against volatile transportation costs, which even before fuel prices spiked in 2008 accounted for as much as 17 percent of an average household?s income. This also may explain why vehicle ownership was predictive of mortgage default. The term ?location efficient? refers to communities with several transportation options beyond owning a car.
?Many households in location efficient areas still have cars ? it?s just that on average they have fewer cars per household and drive them less,? said Jennifer Henry of the NRDC. In other words, families in such communities who find themselves spending too much on car repairs, gas and parking might switch to public transportation to make ends meet.
Another possible explanation for the findings is downtown dwellings remain in demand. Therefore, owners are less likely to end up owing more than their home is worth (the infamous ?underwater? mortgage) and retain the ability to refinance.
While homes in location-efficient areas may hold their value, Henry says its unfortunate that some buyers perceive such areas as trendy and high-priced, the gentrified domain of hipsters and Whole Foods. Such areas are prohibitively costly, Henry said, ?because they are in high demand ? partly because we have not been building as many of them over the last 60 years, so there is essentially an undersupply of location-efficient properties and an oversupply of location-inefficient properties.?
That?s why, Henry says, land use and transportation policy should favor location-efficient neighborhoods.
?To some extent this will always be a matter of personal tradeoffs ? some people would rather have the convenience of nearby amenities even if it means a slightly higher grocery bill, others will not,? she said. ?But higher cost of basic goods in location-efficient areas is largely a product of higher retail rents, and again, the more location-efficient areas we have, the lower the pressure on land values.?
