Joe and Susan Torres (a fictional couple) live in the Edgewater neighborhood on Chicago’s north side. Both are in their early 30’s, both have jobs downtown working for financial services firms. They have one son in their early teens who attends a local high school. They rent a somewhat crowded two-bedroom apartment for $800 per month, but would like to put that money into home ownership. They like their neighborhood very much; it has shopping and schools they can walk to, it is ethnically and racially diverse, the parks are great, and importantly, mass transit is close by and frequent, so they do not need to own a car to get to where they need to go.

They earn $58,000 per year between them, and have savings of $5,000. Real estate prices have skyrocketed, and single-family homes in their neighborhood sell for between $145,000 and $350,000; while condominiums large enough for three persons sell for around $90,000 to $150,000. Convinced of the benefits of home ownership, with the help of a home ownership counselor they search for homes and apply for financing at the local savings bank. Given their income and level of savings, they can only qualify for a $71,000 home using standard financing.

Determined to succeed, they decide to look in another neighborhood. The situation is no better in other north-side neighborhoods, so they begin looking in the nearby suburbs of Evanston, Skokie, and Morton Grove. Not until they get to the "land beyond O’Hare," in the area of Des Plaines Illinois, do prices start dropping significantly. When they arrive near Schaumburg, they are pleased to see whole fields of dream houses - new condos selling for $80,000, no down payment required, and they can get financing on the spot.

But they realize if they buy there, they will be at least thirty miles from work, without transit to get them there. The development does not include a grocery store, and the school is several miles away. They would need at least one and maybe two cars in the suburbs. The counselor back home informs them that if they take the deal, including the debt for car purchase, there is a very good chance they would be in default within two years.

The good news - the counselor sits them down with the computer, logs on to www.locationefficiency.com , and loads in the address of the home they really want in their current neighborhood, in the 5600 block of Broadway within walking distance of the Chicago Transit Authority stop, shopping and schools. The new Location Efficient Mortgage moves them in the right direction: instead of being limited to a $71,000 home, they can now afford to finance a $100,000 home. The reason is that the new kind of mortgage recognizes that the savings in the Edgewater community due to convenience and transit access is the equivalent of $378 of extra monthly income, or $4,536 per year. The smart choice for them is to buy a home in their current neighborhood, using the LEM to reap the benefits of owning property instead of losing that value to the costs of owning one or two cars. They will also reap the benefits of avoiding losing time in long commutes, which will allow them to continue to be active in their local community organization and to be available to help their son succeed in school.

Innovations to Reduce the Fixed Costs of Driving

The costs of owning and driving a personal car or truck can be roughly divided into two categories – fixed costs and variable costs. Fixed costs are those that are not dependent on the amount of driving. They will be about the same regardless of whether you drive 1,500 or 15,000 miles per year. Examples of fixed costs are vehicle purchase, insurance, financing, and registration and taxes. In contrast, variable costs go up and down depending on the amount of driving. Gasoline and gas taxes are the most obvious variable costs, but repairs and maintenance are also included. Shifting some of the costs of driving from fixed to variable would allow people to save more money by driving less. Two noteworthy programs are attempting to reduce the fixed cost of driving.

Pay-As-You-Drive Insurance

According to the Federal Highway Administration, up to 22.8 percent of the cost of owning and operating a car goes to insurance, so shifting insurance costs from fixed to variable could really make a difference. Pay-As-You-Drive auto insurance does this by tying the cost of insurance to the number of miles driven. Insurers would use traditional factors, such as age and driving record, to charge drivers a baseline rate. But unlike conventional insurance plans, most of the charge is per mile, so the less you drive, the less you pay. At present, only one insurance company, Progressive Auto Insurance, is offering a mileage-based insurance plan through its "Autograph" plan. Currently, Autograph is available only to Houston area drivers, though the company has plans to expand the program nationally in the near future. (Litman, Todd. "Distance-based Vehicle Insurance as a TDM Strategy." Transportation Quarterly. v51 n3: 119-137.)

Car-Sharing

The second program, car-sharing, was born in Europe, where some 70,000 members in 500 cities belong to car-sharing organizations. Car-sharing allows many people to share a pool of vehicles, split the costs, and avoid the hassles and expense of owning and maintaining a car. Unlike traditional rental cars, car-sharing cars and trucks are parked in the neighborhood and are quick and easy to reserve and pick-up. Most operations charge members a fixed yearly fee, and then charge by the hour, by the mile, or both when a vehicle is used. Car-sharing has great potential for reducing congestion and improving air quality in cities. And, because it provides the convenience of a private auto while avoiding much of the cost of ownership and maintenance, car-sharing can also be a real money saver. In the United States, members of CarSharing Portland estimate that they save an average of $154 per month in transportation costs compared to private auto ownership. Over the course of a year, that savings adds up to more than $1,800.

Currently, car-sharing programs exist in less than a dozen cities across the country. Portland, Seattle, San Francisco, Chicago, San Diego, Honolulu and Boston all have programs in place or programs in the works, with smaller programs in Boulder, CO, Kokomo, IN, and Traverse City, MI. For more information about car-sharing, visit http://www.carsharing.net