How Badly Will Higher Gas Prices Hurt Suburbia?

on the run

The good ol’ days.

Which do you prefer: a car or a motorcycle?

If you’re like most people, you find cars hard to resist on practical merits. Rain or shine, cars can haul more passengers, not to mention that heavy IKEA dresser. And even bike lovers will admit that cars are safer.

Wondering what this has to do with suburbia? The answer lies in an economic concept called the indifference curve.

Broadly, the concept of indifference curves refers to the point where the price of a good becomes high enough that people who normally favour this good begin considering another type of good.

Take suburbs. Bigger homes in the outskirts of the city have long been a Canadian dream. It’s easy to see the appeal: homes large enough to accommodate a big family. Lawns big enough to host BBQ parties. Streets safe enough to let little Jimmy ride his bike outside.

For many years, the home building industry has helped fulfill this dream by building homes further and further away from the city. This meant people who live in the suburbs and work downtown had to commute daily. Yet many of them seemed to find this a reasonable tradeoff—provided gas prices were sensible.

But people might give up their suburban dream home as gas prices soar. And soar they have. (There was a temporary—and modest—drop towards the end of the week, but experts predict they will likely remain high for months.)

Gas prices may come back down in the future, but there are people looking to buy a house a right now. Don’t be surprised if some of them join those who have already decided to raise a family in a condo, or switch to smaller and/or older homes closer to work.

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