The costs of living: housing, energy and transportation costs

Back in June, I wrote about the double-whammy that many buyers face when closing the deal for a home purchase. The first and most obvious is the actual cost of the home; with prices continuing to climb, Ontario home buyers are often stretched to the limit on their mortgages. The second ‘hit’ often comes in the form of their energy bills, and reflects to a large extent how energy efficient, or not, their new home is. Imagine now a triple whammy in the form of a ‘third bill’ arriving in the mailbox which, by factoring in the location of the home (whether it is located in a low-density sprawling suburb versus a walkable, mixed-use community), reveals how much our new home owners will pay in future transportation costs. Depending on where their home is located, some might be pleasantly surprised while others may wonder whether the purchase price of their new home – far from any amenities or public transit – truly represented the more affordable option over the long term.

Of course, this ‘third bill’ doesn’t come due immediately and instead is payable over time. What it highlights, however, is the fact that many buyers are often unaware of, or underestimate, the costs associated with the location of their new home. A recent analysis of the Greater Toronto Area showed that, while the monthly costs of owning a home in a suburban, greenfield development are far less than a home in a more location-efficient neighbourhood, the high cost of vehicle ownership often cancels out the lower housing payments.

Added to these are the higher costs to the environment – more air pollution and greenhouse gas emissions – from the increased use in personal vehicles. In fact, the location of a home – and its proximity to public transit options – has a significant impact on a household’s overall energy consumption, along with the energy efficiency of the home itself.

So, how do we begin to make home buyers aware of this ‘third bill’ and thereby begin to shift demand in the market place towards communities that are less car dependent? If Ontario stands any chance at reducing transportation-related greenhouse gas emissions, a fundamental change in how communities are built must occur. Continued urban sprawl ‘locks in’ future emissions and compels residents to depend on single occupant vehicles for the bulk of their transportation needs.

To begin to address this issue, an interesting idea has recently been put forward by the Cool Communities Group to develop a ‘location cost calculator’ which would measure and compare costs for homes based on their location. Armed with this information, home buyers would then be able to factor this information into their purchasing decision and perhaps make a more ‘location-efficient’ choice. Of course, it may still be a stretch for home buyers to finance such properties, even if the higher purchase price is offset by lower transportation costs. Given that mortgage lenders don’t take into consideration the increase in cash flow that comes with spending less on transportation, they may incorrectly undervalue the ability of purchasers of location-efficient homes to meet their monthly mortgage payments, and overvalue the ability of those who purchase a less expensive but more remotely located home. While the proposed calculator would not by itself change mortgage lending practices, it is an interesting idea that could ultimately form a foundation upon which more substantive changes, such as location efficient mortgages, mortgage assessment reform or other alternatives, could be based. As I concluded in my 2011 Annual Greenhouse Gas Progress Report, other incentives need to be explored to help reduce emissions from commuter transportation. The proposed calculator appears to be a step in the right direction.