The Link Between Sprawl And Mortgage Defaults

The theory that the mortgage default crisis was not only a consequence of lax lending standards or predatory lending or uninformed consumers, but also a result of urban sprawl has received important empirical support from a study by sponsored by the National Resources Defense Council.

"Reducing Foreclosures and Environmental Impacts through Location-Efficient Neighborhood Design" found a direct, statistically significant link between the high costs of personal transportation imposed by poor location efficiency and a much higher risk of default. In one example, the study showed that every dollar saved in transportation cost allowed a family to spend more than $3 more in mortgage payments with no higher probability of default.

The report by Stephanie Y. Rauterkus of the University of Alabama at Birmingham, Grant I. Thrall of the University of Florida, and Eric Hangen of I Squared Community Development Consulting relied heavily on the Housing-Transportation Affordability Index created by the Center for Neighborhood Technology http://www.cnt.org/tcd/ht , a partner in the Center for Transit-Oriented Development.

The traditional vision of housing affordability has maintained that housing generally becomes more affordable the farther one ventures from the urban center. However, the Housing-Transportation Affordability Index showed that transportation costs increase dramatically in suburban and exurban areas, due to dispersed employment, retail, and other amenities. With the new study, the financial risks of that auto-dependence are underlined.

"Reduced automobile dependency creates an economic buffer for owners of location-efficient homes," the study notes. "The underlying principle is that the real cost of housing is a combination of mortgage and transportation costs. With more available alternatives to car ownership, residents of location-efficient homes have more flexibility when it comes to managing their transportation costs, making them less likely to default on a mortgage when compared to otherwise similar homeowners who spend a substantial portion of their household budget on automobile transportation."

A four-page summary of the study has been added to Best Practices.

Reducing Foreclosures and Environmental Impacts through Location-Efficient Neighborhood Design