Peak Suburbia

June 25, 2007
     I get lots of letters from people in various corners of the nation who are hysterically disturbed by the continuing spectacle of suburban development. But instead of joining in their hand-wringing, I reply by stating my serene conviction that we are at the end of the cycle -- and by that I mean the grand meta-cycle of the suburban project as a whole. It's over. Whatever you see out there now is pretty much what we're going to be stuck with. The remaining things under construction are the last twitchings of a dying organism.

     It is not an accident that the housing bubble coincided with the phenomenon of Peak Oil. First of all, the housing bubble should more properly be called the suburban bubble, because most of the activity came in the form of "greenfield" housing subdivisions, and included all the additional crap-o-la accessories required by them -- strip malls, power centers, Outback steak houses, car washes, et cetera. The suburban expansion has been based entirely on cheap-and-abundant supplies of oil. Similarly, it was not an accident that the suburban project faltered briefly in the 1970s, when America's oil production entered its long decline, OPEC seized the moment, and oil prices shot up. Notice that the final suburban blowout occurred after 1990, when the North Sea and Prudhoe Bay oil strikes came into full production, disabling OPEC, and a world oil glut finally drove prices as low as ten dollars a barrel in 1999. That ushered in the climactic phase of suburbia, as represented by things like the standard 4000-square-foot Toll Brother's McMansion and the heyday of the super-gigantic SUV to go with it.

     The American public has no idea how over all that is. The bottom is falling out under not only the housing market (as in houses up for sale) but on the whole apparatus for delivering future houses, and the car-oriented crap associated with it. The production home-builders, such as Toll Brothers, Hovanian, Pulte, et cetera are going down and they will not be coming back. There will be a great deal of wishing that they might come back, but they won't. Likewise, the commercial builders of all the various forms of suburban retail will be waiting to "turn the corner." But they will discover that the wall they have hit has no corner. It's just a wall. For anyone who wonders how much we do not need anymore retail space in America, have a look at this chart showing the comparative amount of retail square-footage allotted for citizens of each nation:

Those of you considering the purchase of more WalMart stock, take note.

     Some years back, when those watching the oil scene began to coalesce in their recognition that a worldwide production peak was imminent and hugely significant, the concept developed that this peak would take the form of a "bumpy plateau," meaning that supply-and-demand would teeter in an uncomfortable relationship for a period of time as markets and economies adjusted to the new reality by oscillating from higher prices to "demand destruction" to recession to recovery to higher prices, and so forth. This was expected to go on for quite a while before the world really headed into a slow permanent decline.

     The latest statistical work by Dallas geologist Jeffrey Brown over at The Oil Drum.com, suggests that something else is happening, something that was not anticipated: an imminent oil export crisis. This Export Land Theory states that exporting nations will have far less oil available for export than was previously assumed under older models. (Story here.) The theory states that export rates will drop by a far greater percentage than net production decline rates in any given exporting country. For example, The UK's portion of the North Sea oil fields may be showing a nine percent annual decline for the past couple of years. But it's export capacity has declined 60 percent. Something similar is in store for Saudi Arabia, Russia, Mexico, Venezuela -- in short, the whole cast of characters in the export world. They are all producing less and they are all using more of their own oil, and have less to send elsewhere.

     Brown's math suggests that world oil exports will drop by 50 percent within the next five years, certainly enough to trigger a systemic breakdown in market allocation, meaning serious supply shortages among the importing nations. That's us. We import two-thirds of all the oil we use.

     The implication in all this is that the activities that have become "normal" for us during the post World War Two era will very shortly become untenable. An economy based on suburban expansion and incessant motoring is on the top of the list of supposedly "normal" activities that will not be able to continue. I would maintain that even if we had 20 years, no combination of bio-fuels and other alternatives would enable us to keep suburbia running. But this latest work indicates that we have much less time to adjust.

      This new information is consistent with my view that we had better prepare to make other arrangements for living in this country, by which I mean specifically re-localizing, de-globalizing, with an emphasis on local agriculture wherever possible, the emergency restoration of passenger railroad service and related modes of public transit, the rebuilding of local commercial infrastructures, and a radical rethinking of how we inhabit the landscape under New Urbanist lines.
     Perhaps the most imminent danger is that the financial markets, which have been driving our insane, hollowed-out economy, will soon recognize what's in store and implode, creating a crisis of capital that will leave us with no ability to make any emergency investments, such as would be required to rebuild the railroad system. The equity markets sure blinked last week when two hedge funds based on phony-baloney collateralized debt obligations tanked. The collateral underlying this load of hallucinated "wealth" is comprised of contracts made by the insolvent for suburban houses worth far less than the value stated on the contracts -- with every indication that the real value will keep dropping.

     In any case, those who keep wringing their hands over the bulldozers leveling the plots of prairie, or cornfield, or desert -- those distressed folks can direct their anxiety elsewhere. Worry less whether one final strip mall will tilt up out in gloaming, and think harder about how you are going to feed yourself and your family in a couple of years when the stupendous motorized moloch of American life begins to sputter, and the Cheez Doodle shipments can no longer make it to your supermarket shelves, and all that is "normal" melts into air.

Comments

[contango]

Really good article this week JHK. It's getting so close you can actually taste it now. I'm beginning to feel plain scared and I've been aware of PO for 4 years.

[johninmontreal]

Not directly apropos of Mr. Kunstler's excellent piece this week, but a phenomenon I find both perplexing & infuriating: the notion that 'biofuels' are going to 'save our bacon.' Whenever I'm in conversation with proponents of this nonsensical notion, I simply ask them: "Don't you think that it's an indication of our collective insanity, callousness, greed and lack of critical thinking ability, that we could embrace a plan that would feed our cars, while subjecting a hungry world to even greater hunger & deprivation?!" Try this sometime...it's a sure way to become persona non grata at future social gatherings!

[Nicholas]

Like the analysis comparing oil prices to democracy, I like the underlying thesis: “you think that you’re in control of your destiny.” The concept that the urban projects of the seventies were an outgrowth of a sort of group think is appealing, in that many people are currently attempting to make their own markets and goods in interesting ways. The article in the NYT talking about the Renegade Craft Fair is relevant.

This is a long way from localized production, but people begin by doing in small experimental ways, and transfer knowledge to the periphery.

How we wish somebody had the guts to discuss the measly Amtrack subsidies compared with our support of air travel, and wouldn’t it be nice if some mayors got together to discuss intercity travel in a more cohesive manner. How about intercity business development and relocation assistance? Two tax breaks instead of one.

I don’t think that globalism is going away however, no matter how expensive travel or products become. Fifty miles outside of the urban areas however, is going to seem like a world away…

[superfreak]

The retail space chart is absolutely amazing. That's a lot of merchandise to sell to people who have no money except for borrowed money.

[Dave]

Great Piece ! I have been one of those agonizers for some 35 years as my haunts for hiking, swimming, simply enjoying the landscape of my region has been bulldozed, subdivided, mined and made land fills again and again. It has broken my heart so many times I have learned to avert my eyes out of a need to remain sane.
I have foght this shit in my own way for many years but the "Growth is good !" crowd owns the pols and guys like me are dismissed as passionate idealist (at first) then tree huggers, the radicals and gets worse-simply wackos or commies (which are one and the same thing in the eyes of the elites) Oh well I hope it happens quick and with as anger at the jerks that got us here as possible. Good one this week JHK ! And thanks for your fearless and determined spirit. At 55 and knowing of your age it is heartening in this Zombie Nation of ours !

[bud4wiser]

Great essay. I especially like the specifics given regarding the possible declines in exports across 5 years. The real decline in US oil imports will most likely begin in Feb of 2009, when the new administration discovers the "funny bookwork" and accounting practices of the previous 8 years can no longer be ignored nor used to keep any international confidence in the dollar.

We won't know exactly why our greenback-world went to hell, but I wouldn't be surprised if some leaders will suggest we attack some country to fix things.........

[Joe O]

I haven't lived in Ireland for over ten years. Because of the ridiculous and capricious US Immigration system as well as risibly small amounts of vacation, I simply have not been able to go home. One spell of being unable to travel (while I waited for a Green Card) lasted four years. I have been away.

The last time I went back to Ireland at Christmas 2005 I was awestruck at how much the place had changed.

The following documentary produced by Irish national television explains what happened to Ireland while I was away and predicts what Peak Oil is going to do to the country:

http://www.rte.ie/tv/futureshock/av_20070618.html

Some statistics from the program:
- they use more oil per capita than the US!
- Because of suburban sprawl, Dublin is on track to becoming as large as Los Angeles but with four times less population.

Of course, we all know that this can't last.

Ironically, the program is preceded by an advertisement for a Ford Mondeo.

[CBH]

Dang it! Why didn't I find Jim five years ago!

[Matt]

My neighborhood has been in a constant neurotic state since my neighbor died last year and his greedy son immediately threw their 40 acres on the market to a local developer. This developer had grand plans to completely change the rural character or our neighborhood. Fortunately, a few delays were encountered, and now the plans have been scrapped altogether.

If Jim is right, and I believe he is, that development is now the least of my worries.

[Mary]

What is going to happen to the housing industry?? No more homes are ever going to be built? Will the builders scale down and start building a smaller number of houses on infill property close to transportation? I have very close friend who works in the industry as a project engineering manager, what should I tell him to do?

[Joe O]

Mary, tell him to build smaller houses on infill property close to transportation.

I think you have it figured out.

[Window Cleaner]

Too much attention has been paid by the peak oil crowd to world production numbers and the date of overall peak. There are other numbers that are more relevant to us.

- How much oil is available for export, and will they sell it to America?

If oil-exporting countries begin consuming all of their oil internally, then ultimately it doesn't matter to us how much they're producing since we can't get our mitts on it. If oil-exporting countries have bilateral agreements to sell to countries besides us, like China, then again it really doesn't matter how much they're producing.

- Can we afford it?

No. I think a dollar crash is inevitable; after which, we may not be able to import ANY oil. Nor anything else.

[Joe O]

Here is that URL again:

http://www.rte.ie/tv/futureshock/av_20070618.html

I watched the whole thing. It's pretty amazing - they don't pull any punches. This is the main TV station broadcasting this. My own family in Ireland watched it. It's well produced and it moves well. It didn't miss any of the main points.

This is the main TV station - people are getting informed. It's not like over here on this side of the Pond.

[Laura Louzader]

Jim, today's article Peak Suburbia is one of the scariest, though best, you have ever published.

The scariest part is the rate of the drop in production and exports-much faster than even the most pessimistic prognosticators predicted. I haven't done the numbers yet, but from what I read here, it sounds to me like we could easily , and immediately, see a 15% drop in the amount of oil we can import, which would be catostrophic, not only for suburbanites, but for all of the rest of us.

I have been reading CFN on a regular basis for about 3 years now, having been a fan of your work since I first read GEOGRAPHY OF NOWHERE in the 90s. That book so much echoed my own thinking that I have followed your work since. I hated suburbia and car ownership for reasons quite apart from the fuel situation, which did not seem to me to be dire at the time.

However, CFN has influenced the way I think, and we have to know now that even we car-less city dwellers in a small apts. have quite a few adjustments to make.

Like doing without a regular income, for example.

Like freezing in our apts half the winter.

Oh, and the Grunt, regarding the real estate prayer lunch was a riot. That's what you do when things are horrible and hopeless- have a friggin' prayer circle, just like people in my neighborhood do every time there's another gang shooting.

That's what you do when you're frightened and desperate- pray to everything and nothing and hope some god or goddess somewhere hears you.

[mpg]

"motorized moloch" - great stuff - kids, google moloch if it doesn't ring a bell.

[German Mike]

Very nice article Jim, ties everthing together.
Bio-fuels will not save our bacon; they'll sure make our bacon more expensive.
The oil market already experienced significant demand destruction in third world countries. Next up is the food/grains market. By diverting significant amounts of agricultural commodities towards fuel production exports will decrease, prices will increase and some economically weaker players will be left holding the bag...an empty bag. SUVs drivers versus starving children in Africa.
Oil exports are on a 2 way squeeze, declining/stagnant production and increased domestic comsuption in most exporting countries equals drastically lower exports.
On the credit/housing front we are beginning to see the first cracks in the fasade. I bet Bernanke, Paulson and Co are in panic mode to keep this thing contained. Once CDOs get auctioned off at drastically reduced prices all other holders of such paper are forced to reevaluate their holdings at the new, reduced price. This would create a financial shit storm of epic proportions. The bad (or good depending which side you're on) news is that we are still very much at the beginning of the ARM/subprime reset cycle. The vast majority of loan resets and trailing defaults are still in our future. The peak default will probably hit next summer and last well into 2009 (remember that Credit Suisse chart?). From now on, for the next 24 month or so there're around $50 billions resetting every month. I would guess that half of them end up in default since borrowers are trapped. They can't sell due to a declining market and they can't refinance due to tight credit and negative equity.
The stock market must like what it sees vry much, it just keeps going up, up, up...at least when measured in $$.

[DaveL]

"That's what you do when you're frightened and desperate- pray to everything and nothing and hope some god or goddess somewhere hears you."

nah, that's what smart people do when they need god and some other people to do some smiteing on thier behalf.

DaveL

[kd]

Great post, Jim.

[Dale]

A much more rational article than many of Jim's recent posts. I too am especially stunned by the statistic on commercial space. Jim has always been at his best when talking about real estate.

I have always agreed with Jim's idea that suburbia would peak before long. The signs have been there for a long time, and not just related to the price of oil. Various other factors; family size, commute times, lifestyle choices etc. have all pointed towards a revival of urban living since the early 90's.

I also have to admit the export article is impressive. Riddle me this however: If this is all true, versus speculation, why doesn't the oil futures market reflect this fact? I think the recent increase in spot prices is fairly typical of increased, but well managed demand. Why no panic in distant futures? Or is there? I don't even know how to find those numbers.

[Dale]

German Mike,
Mortgage resets could be a serious issue, although I doubt that is will result in 50% defaults by any stretch. Mortgage markets remain pretty resilient.

Trying to correlate mortgage foreclosures with Peak Oil seems extremely speculative to me. Just too complex a situation to make that connection. Nice try however.

[George]

Oil futures contract pricing can be found here:
http://www.nymex.com/lsco_fut_cso.aspx

[cowbutt]

Looks like we're heading for 'peak food' too: http://www.independent.co.uk/incoming/article2697804.ece

[FARfetched]

JHK, if you read your comments, you should mark this article as a "start here" for anyone who wants the overview of the situation as you see it.

I still think that suburbia will reconfigure rather than be abandoned, for several reasons:

1) Even a crappy house is better than no house at all.
2) Houses that *are* abandoned could be repurposed as shops and workplaces. My favorite indie bookstore was once a house, for example.
3) Those big yards can, with some work, become gardens, or even small farms if combined.

The biggest obstacle I see to suburbia becoming real communities is the attitude of the dwellers. How many burb-dwellers know their neighbors these days? Do they even throw block parties? For a housing development to become a real community, people are going to have to get to know each other and start cooperating to build it.

[DaveL]

"If this is all true, versus speculation, why doesn't the oil futures market reflect this fact?"

First east coast shortage will drive delivery cost. Futures will then respond.

Remember Katrina? The markets didn't respond until just about landfall.

It's not like corn futures, no active drought, no seed shortage from last year, no ethanol speculation. In fact, ethanol speculation serves to push down the oil market. everything looks "normal" to the market.

Get a broker, make a play.

DaveL

[liberals in bondage]

"The biggest obstacle I see to suburbia becoming real communities is the attitude of the dwellers."

AMEN to that! I hated my VERY short stint in suburbia (mid to late 80's) and that was at the very heart of it.

And there is one hell of a storm gathering strength out there.