Transportation is Expensive

The high cost of housing makes headlines and dominates water-cooler conversations across the United States every day. Transportation costs do not get the same level of attention, even though for most Americans transportation is an expense second only to housing. The average American household devotes 18 cents out of every dollar it spends to getting around. In some metro areas, households are spending more on transportation than shelter. The vast majority of that spending, 98 percent, is for the purchase, operation, and maintenance of automobiles. Most American families spend more on driving than on health care, education or food. And the poorest families spend the most — sometimes more than one-third of their income goes to transportation.

For this report, the authors used several data sources, including the Consumer Expenditure Survey performed by the U.S. Bureau of Labor Statistics, to take a closer look at transportation expenses: what transportation costs, where transportation is more expensive than average, and, most importantly, what drives up transportation costs. This analysis excludes spending for air travel and ship travel.

Where Transportation is Most Expensive

Consumer Expenditure Survey data show that in 1997 and 1998 households devoted the highest portion of their budget to transportation in Houston, Atlanta, Dallas-Fort Worth, Miami, and Detroit. The average Houston area household used 22 cents out of every dollar it spent on transportation, spending well over $8,800 each year to get around, or $2,528 more than the national average. The three least expensive metro areas in the survey, Honolulu, New York, and Baltimore, spent almost one-third less: Baltimore households used less than 15 cents out of every spending dollar on transportation, spending $5,236 annually.

Sprawl Drives Up Transportation Spending

An analysis of socio-economic, land use, and transportation factors in these communities finds that the most powerful source of differences in household transportation spending is the spread-out development pattern commonly called sprawl. Less sprawling places with more efficient land use tend to cost people less. In places with more characteristics of sprawl, households use more of their spending power to pay for transportation. To document this linkage, we measured sprawl through a multi-variate analysis of a composite of land use characteristics. These factors are compared in the figure below.

Altogether, 28 metro areas were studied. In the one-third of these metro areas that were found to be most sprawling, households devote 20 percent more of their spending dollar to transportation than do the one-third of metro areas with the fewest sprawl characteristics. The average American family living in a highly sprawling area pays roughtly $1,300 more per year in transportation expenses. While the high price of gasoline or car insurance has been a target of consumer outrage, our analysis showed these had little effect on overall transportation expenses.

The most expensive places for transportation in the Consumer Expenditure Survey also provide little transportation choice, as measured by the ratio of transit service to roads. As shown in Figure I, places where road systems dominate have higher transportation expenses.

Wide variations are also clear within metropolitan regions. A sophisticated automobile cost model based on federal census data and state automobile records allowed us to look at differences in automobile expenses between neighborhoods within a few metropolitan areas. This analysis shows that households in some parts of a metro area spend well over twice as much on owning and operating vehicles as households in other areas. Detailed maps of automobile costs in Chicago, San Francisco, and Los Angeles show that the higher cost areas tend to be in outlying neighborhoods where sprawling development means everything is far apart and other transportation options are few. The lower cost areas tend to be near active transit lines, where neighborhoods are walkable and destinations are close by. These differences are only partially explained by varying income levels; some of the neighborhoods with highest incomes also have the lowest transportation spending.

Fewer Choices Mean Higher Costs

Sprawl increases costs by making automobile travel a necessity. Sheer distance often precludes the most inexpensive forms of transportation, walking or bicycling. Metropolitan areas dominated by a uniform spread of subdivisions, office parks, and strip malls are harder to serve with transit and necessitate driving between every destination.

While the government builds the roads, private individuals buy, fuel, and maintain the automobiles that are needed to drive on them. Transportation takes a big bite out of household spending as families end up owning small fleets of vehicles. These high up-front expenses make it difficult to economize on travel. According to the Federal Highway Administration, three-quarters of all automobile expenses stem from the fixed cost of simply owning a car, regardless of how much it is driven. These patterns show how government decisions about community design and transportation investments affect personal pocketbooks. Taxes are just one way government decisions cost people money. Decisions about transportation infrastructure and growth have a big effect on family budgets.

Transportation Expenses Are Rising

Government investments in road building may be contributing to an increase in transportation expenses. Between 1990 and 1998, the portion of household budgets going to transportation in the metro areas surveyed grew by an average of eight percent. Both expenses and road building grew far faster in the top ranked areas - Houston, Atlanta, and Dallas. Spending in these areas grew by an average of almost eighteen percent since 1988, while highway mileage per person increased by more than 21 percent. In the metro areas with the smallest portion of household budgets going to transportation, (Honolulu, New York, and Baltimore), the highway mileage per person dropped slightly over the decade, and the percentage of household expenses going to transportation actually fell — by almost nine percent (see figure below).

High transportation costs can have a significant effect on families’ long term financial outlook. Spending on vehicles erodes wealth, while spending in the other major household category — housing — can build wealth. For example, over ten years, for every $10,000 invested in a home, the homeowner can get a return of over $4,730 in equity. For every $10,000 invested in an automobile, a car-owner receives equity of just $910. Automobile loans are the largest category of household debt outside of home mortgages, and such debt obligations can stand in the way of qualifying for a mortgage.

The impact of transportation expenses on housing generally goes unrecognized. New houses in new subdivisions far from central cities are seen as a "good deal," but their high transportation expenses are not accounted for. Conversely, the lower expenditures made possible by living in a convenient, walkable neighborhood with good transportation choices are not taken into account in mortgage lending decisions, putting such homes out of the reach of many buyers who could actually afford them. Taking this financial advantage into account shows that in selected cities, home buyers can expect to save between $100 and $500 per month if they choose a home in a convenient location.

This calculation has been used by the Institute for Location Efficiency to create the Location Efficient Mortgage^SM (LEM), a mortgage now offered through Fannie Mae in several U.S. cities.

Recommendations

This report shows how sprawling metro areas with limited transportation choices cost people money. In light of these findings, we make the following recommendations:

1. Invest in Transportation Choice

Governments should invest in public transit, bicycle facilities, and walkable neighborhoods as strategies that can help families save money, and should stop investing in sprawl-inducing highway expansions that are shown to cost families more money

2. Grow Smarter

Developers should build according to the principles of smart growth, and include a variety of affordable housing options so everyone can benefit. Cities should revise their building and zoning codes to make this easier.

3. Offer Location Efficient Mortgages

Banks should offer Location-Efficient Mortgages and other programs that take into account the savings made possible by living in a transportation efficient location.

4. Give People a Chance to Save Through Driving Less

Businesses and government should encourage programs that help reduce the high fixed costs of driving, such as pay-as-you-go auto insurance, and car-sharing programs.

5. Collect Better Information

Federal, state, and local governments should collect and analyze more detailed data about the personal costs of transportation, including expanding the metropolitan level survey beyond the 28 areas currently surveyed.