The Times‘ Jad Mouawad has written a piece describing the state of the world’s oil market. It is, in a word, tight. Production volumes have been flat at best, and consumption growth has continued. Kevin Drum comments:

I imagine that a global economic slowdown will flatten oil consumption a bit over the next year or two, and eventually higher prices will rein in demand more permanently. On the other hand, we’ve seen oil prices double three times in the past eight years without producing so much as a blip in rising demand. So if we’re in a genuine, long-term supply crunch — and all the evidence suggests we are — what price will it take to stabilize demand in its current neighborhood of around 85-90 billion barrels per year? Another doubling? Two doublings? Neither would surprise me. There are too many unknowns to pretend to have any kind of definitive guess, but still, if 2012 were an over/under bet for oil to hit $200, I’d take the under.

Adjustments to high prices will be more substantial over the long-term. Still, while much has been made of reductions in gas purchases in the U.S., the decline in consumption since last year has been a mere 0.2 percent. Demand for gasoline is incredibly inelastic in this country. There is very little Americans can do to reduce use in the short run.

Why is that? As I’ve mentioned (once or twice) before, the dearth of transit alternatives is one issue. Another, related, factor is the extremely unwise way in which we’ve invested in homes and automobiles for the last two decades. I’ve written before on Harvard economist Ed Glaeser’s research finding that population has migrated toward low home prices in recent decades, and those home prices are the product of loose land-use regulation. What this has meant, essentially, is extraordinary population growth in exurbs and in southern and western metropolises with development patterns sharply different from those in the older cities of the Midwest and Northeast.

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The problem was compounded by the American response to low real gas prices in the ’90s and early ’00s — mass purchases of inefficient SUVs. Vehicle purchases are trending smaller and greener now, of course, but the national vehicle fleet takes a long time to roll over. What’s more, the households most in need of more efficient automobiles — those with long commutes in the distant exurbs — are those most squeezed by high energy and fuel costs and the housing crunch. They don’t have much in the way of extra cash lying around.

What does this all mean? Well, for one thing, it spells trouble for many exurban areas. Housing costs, properly understood, encompass both the price of a home and the cost of transportation associated with the home’s location. A steady rise in gas costs therefore erodes the value of exurban homes. If we expect fuel costs to continue to rise, then we should likewise expect that value to continue to decline. I’m not able to say to what extent these expectations are built into exurban price declines, but I feel confident the effect is non-negligible (for more on this, see this [PDF] interesting CEO for Cities report by Joe Cortright).

What else? Well, it suggests that from an affordable housing standpoint, we’ve missed an enormous opportunity. The supply of auto-centric, low-density neighborhoods has grown magnificently in the past decade, while the supply of walkable, dense neighborhoods has expanded at a snail’s pace (and slower still has been expansion of the supply of transit-served neighborhoods). Part of this divergence can be laid at the feet of land-use regulation, but not all or most of it. A greenfield suburban development could just as easily be built as a mixed-use, walkable place as a traditional suburb (as demand has shifted we’ve seen a lot more of the former, demonstrating that it’s not an infeasible pipe dream). Instead of connecting distant suburbs to city centers exclusively via new pavement, investments in roads could have been balanced with new money for rail.

Because supply of walkable, transit-served places is so small while demand is so high, those places are expensive. Because they are expensive, they are inhabited mainly by the well-off. Everyone else is forced to make do where they are.

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If you happen to think that gas prices will come back down to where they were three or four years ago, or that congestion won’t increase as the nation continues to add people, or that the fight against climate change won’t necessitate improvements in efficiency and more expensive fossil fuels, well then I suppose you can be excused for thinking that the exurbs will ultimately recover and go right back on growing ever outward.

If you think that those things are probably not going to be accurate descriptions of the future, then there is no avoiding the conclusion that better planning is an absolute necessity. Happily, market demand will buoy shifts in building strategies, but it would be wise to augment market forces. Investments in appropriate infrastructure are vital. Zoning changes are necessary. And a shift in perspective is key. It won’t do to have our leaders pretending that something like a summer gas tax holiday will put things right. Those leaders need to be saying that it’s time to focus on long-term solutions and long-term adjustments. And those leaders need to be saying that they’re ready to put the government to good use in facilitating the transition.

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