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Peak Oil and the Housing Bubble!


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2006 Feb 6, 3:02am   12,072 views  98 comments

by San Francisco RENTER   ➕follow (0)   💰tip   ignore  

James Howard Kunstler has recently equated Peak Oil as a contributing factor to the decline of the Housing Bubble. In one of his Blog entries of a few weeks ago, he writes the following:

"You can only introduce so much perversity into an economic system before distortions cripple it. From 2001 through 2005, consumer spending and residential construction had together accounted for 90 percent of the total growth in GDP, while over two-fifths of all private sector jobs created since 2001 were in housing-related sectors, such as construction, real estate and mortgage brokering. Much of the money spent did not really exist except as credit -- incomes as yet unearned, hallucinated liquidity, wished-for wealth, all based on the expectation that house values would continue to rise at 10 to 20 percent a year forever. It became a reckless racket, all predicated on sustaining an economy that had lost its other means for generating wealth -- foremost its infrastructure for making things besides suburban houses.
This housing bubble economy represented, holistically speaking, the wish to maintain a sense of normality in American life, under conditions of disintegrating normality, and it is no symbolic accident that it centered on the images of hearth and home, because fundamental comforts were what many Americans actually stand to lose in a reality-based future. The decay of standards and norms in banking behavior applied-to-housing started, as in the case of the proverbial rotting dead fish, at the head, the federal reserve, and infected every lowly loan officer through the body until, in effect, lending standards ceased to exist.
The suburban housing bubble and its related activities were predicated on the idea that we could continue building out a living arrangement dependent on cheap oil and methane gas, and that all the subdivisions and strip malls would retain value for decades to come. Of course, this was the central delusion of the suburban sprawl economy, because it was obvious to anyone who gave the situation more than a cursory glance that cheap oil and gas were the things we were least likely to have in the decades to come.
This reality had begun to penetrate the American collective consciousness and will be represented in 2006 by millions of individual choices to not buy a new suburban house, either because the individuals fear the expense of long commutes or they fear the cost of heating a 4000 square foot house occupied by only a few people (or both). As the inventory of unsold new houses mounts up, the prices of all houses, new and old, will start to go down. There will be enormous psychological resistance to this reality, expressed in a lag of correct pricing, as the owners of these value-shedding "investments" wait for the bubble behavior (anticipated 10 t o20 percent asset appreciation) to return. Eventually they will get the picture.
The velocity of change in the housing bubble (and the psychology involved) will be greatly affected by oil and gas prices. It seemed to many of us watching the energy markets that the world may indeed have passed through its all-time oil production peak in 2005. Production in 2005 was nearly flat over 2004. The world was producing and also using roughly 82 million barrels of oil a day. "

So what do you all think? How real of a phenomenon do you think Peak Oil is and how much does it relate to the energy price spikes of this past year? Will it have a real effect on the housing bubble and is it indeed a harbinger of decline as Kunstler suggests above? Is it likely that we're on the path toward a lower-energy future? Is high-density centrally-located housing the wave of the future?

#housing

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17   San Francisco RENTER   2006 Feb 6, 6:04am  

"I don’t think we’ll see a push for that kind of mass transit until we have no other viable options." --SQT

I think we'll see the push as auto fuel becomes increasingly more expensive and traffic on our already strained highway infrastructure because increasingly worse.

"I wish I could take TOLurker up on the challenge to go longer than 24 days on a tank of gas, but we do live in one of those areas where everything is pretty spread out." --SQT

I hate to sound like a snob from "The City" but I really see Sacramento as a disgusting cancer of urban sprawl. San Francisco is such a huge contrast to Sacramento with how compact and densely built of a city it is, whenever I go up to Sacto I am just shocked at how spread out, sprawling, and gross it is. San Francisco has such an efficient, compact, high-density grid; apparently it is still the original grid layed out in 1850 or something like that. They don't make 'em like they used to is a truism regarding San Francisco, and this is one of the areas where I believe Kunstler has it right: we'll be going BACK to more compact and efficiently designed urban grids that can comfortably accomodate a higher population density.

18   Randy H   2006 Feb 6, 6:05am  

The world does not have even close to enough uranium to switch over to mass nuclear power for the world.

This statement is false. Please cite data sources.

From the UIC Nuclear Issues Briefing, 9/2005:

Uranium is ubiquitous on the earth. It is a metal approximately as common as tin or zinc, and it is a constituent of most rocks and even of the sea.

High grade ore, which is economically viable, (2% U), is concentrated typically at 20,000ppm. Its availability is far greater than commonly thought, or reported by (often biased) media interests. Moreso, discoveries of new Uranium concentrations are found every year, and increasing in frequency. If anything, we are in the early stages of the Uranium "bell curve".

19   San Francisco RENTER   2006 Feb 6, 6:17am  

"I guess that’s why I think mass transit would be really hard, at least in area’s like this. Because I don’t live in SF or a high density area, it seems like such an overwhelming problem." --SQT

Aha, now that I think about it from the perspective of the times I've been driving in my car up in Sacto and gagging at the sprawl, I see exactly what you're talking about.

Down here in SF we've already got BART and a very good bus network within SF to build on, not to mention CalTrain. The Bay Are has very good prospects to remain a strong economy even with a lot of the looming problems America faces in the future that we discuss on this Blog.

20   Randy H   2006 Feb 6, 6:23am  

Kunstler has it right: we’ll be going BACK to more compact and efficiently designed urban grids that can comfortably accomodate a higher population density.

Unfortunately, the data don't bear this conclusion out:

Consumption in the US of energy is
33% Industrial
28% Transportation
21% Residential
18% Commercial

Early-industrial urban center living will only solve a portion of the 28% that is transportation. It will do *nothing* to solve Industrial or Commercial uses, and will only affect Residential uses by a factor. Not that I don't prefer Chicago to Sacramento, but the costs of dislocating a huge portion of the economy would be greater than the energy efficiency gained, even over the long-term.

21   Peter P   2006 Feb 6, 6:27am  

Randy, that 28% is probably the most difficult part to go nuclear.

22   San Francisco RENTER   2006 Feb 6, 6:31am  

"but the costs of dislocating a huge portion of the economy would be greater than the energy efficiency gained, even over the long-term." --Randy H

How is that Randy? I know you are data-driven in your analyses (which I certainly agree with), but I don't see how the data backs up your above statement at all.

24   HARM   2006 Feb 6, 7:06am  

Desperate homedebtors seek divine intervention to sell overpriced home.

25   jeffolie   2006 Feb 6, 7:15am  

Coal gasification looks very promising and we have a vast quanitity of coal.

26   Randy H   2006 Feb 6, 7:27am  

How is that Randy? I know you are data-driven in your analyses (which I certainly agree with), but I don’t see how the data backs up your above statement at all.

The infrastructure captial costs associated with relocating the largest portion of our society (suburban) to urban grids, expanding existing urban centers in super-urban centers, and building/expanding transit would itself be massive. Larger costs would come from disruption of the existing economic status quo. I'm not saying this won't happen, or that it shouldn't happen, but for it to happen these costs will need to be less than the costs of developing efficient long-range electricity transmission and mobile energy storage enabling next generation personal transportation (ala electric cars).

27   Peter P   2006 Feb 6, 7:35am  

The infrastructure captial costs associated with relocating the largest portion of our society (suburban) to urban grids, expanding existing urban centers in super-urban centers, and building/expanding transit would itself be massive.

My vision is to build new mega-cities from scratch. If we have 100-story apartment buildings that can house 50 families on each floor (i.e. 5000 families per building), we do not need too many to accommodate a large city (200 can house 3-4M people). Residents will be able to take elevators directly down to subway stations. Surface traffic will be limited to service and emergency only.

28   HARM   2006 Feb 6, 8:04am  

This is OT, but does anyone out there have a good link for California Mello-Roos CFD maps (areas required to pay Mello-Roos taxes)?

29   Peter P   2006 Feb 6, 8:25am  

Nuclear energy will, thank God, remain impractical because it only works now because it’s held up by cheap oil - what do you think powers all the trucks etc used to mine the fuel, transport it, etc.?

Nuclear energy will still be economical even if oil goes to $100. The energy output is much greater than the input required to mine/transport uranium. Do not forget than we can also have nuclear transport ships.

30   Peter P   2006 Feb 6, 8:39am  

I dunno, I think there’s a lot of hidden/not-thought-about oil energy going into nuclear energy as it’s done now. kinda like how it’s not PC to think about how much oil goes into farming.

Perhaps, but a lot can be replaced by electricity, which can in turn be supplied by nuclear energy. For example, we can have hydrogen trucks/equipments mining and transporting uranium. Hydrogen can in turn be produced by nuclear/electricity.

I am not saying that not much oil goes to nuclear energy NOW. I am saying that it should not be too difficult to reduce oil-dependency in the nuclear energy.

Wind is also promising in many places. We just need to ignore "bird-lovers". :)

We should expect opposition whatever we do. Silencing/ignoring oppositions for the greater good will be the key in the future.

31   Peter P   2006 Feb 6, 9:22am  

I personally don’t see that having any kind of energy crisis will affect most folks opinions on the risks associated with nuclear energy.

What risk? How many percent of population served by nuclear energy was ever killed in nuclear accidents? How many percent of population was ever killed in traffic accidents?

32   HARM   2006 Feb 6, 9:34am  

@Street Smarts,

Thanks for the flylady link --first time I've heard of it. Loved the Declutter page.

33   HARM   2006 Feb 6, 9:40am  

oh god infomercials on blogs how obnoxious.

@Richard Shmend, PhD,

As near as I could tell (in 5 minutes of browsing), the site was mostly free advice, but you may be right --maybe I haven't gotten to the "10 easy payments" part yet ;-).

34   Randy H   2006 Feb 6, 10:06am  

RE: Nuclear cost effectiveness,

The arguments that the energy inputs override outputs is not supportable by the data. Even assuming that all inputs require oil (which isn't true), you are still talking about aggregate demand that comes no where close to even 1% of total energy demand. Agriculture is another story, but the energy input costs are still small in context.

The arguments about economic viability are more serious. Nuclear is weighted with regulations that make it more expensive than oil, gas or coal (but cheaper than solar, wind or exotic). I think many of the regulations are good, but you can't make the comparison between fossil and nuclear on these grounds because equivalent regulations are *not* applied to the fossil industry. I believe that if comparable safety regulations (implying comparable safety outcomes) were applied to coal (current generation), then coal would be some 3X as expensive per kW as nuclear. The sad fact is that the coal and crude lobbies are just more powerful and effective at keeping regs out of their industry, thus taxing nuclear and subsidizing fossil.

35   Peter P   2006 Feb 6, 11:29am  

I have more faith in zero point energy.

36   Randy H   2006 Feb 6, 12:17pm  

You are assuming the Uranium resource curve is the same as the fossil resource curve. This is a false assumption. Uranium concentration discoveries are (a) still increasing and (b) dissimilar to fossil reserves. There is a finite amount of Uranium on Earth, but the economic supply formulae are different, and more favorable than fossil reserves (Uranium supply has a longer tail).

37   praetorian   2006 Feb 6, 1:53pm  

not really, you can make hydrogen from any power source…

Bio-diesel + cheap, simple, durable, *mechanical* engines.

It's so crazy that it just might work.

That is all,
prat

38   Randy H   2006 Feb 6, 2:33pm  

Like oil, there’s been a lot of uranium, it’s even found in sea water. The other similarity is that like oil, only a portion is easy to get at. Peak Uranium is likely to come much sooner than Peak Oil relatively speaking but new discoveries may prolong that. Current sources of uranium are already being stressed and should the US, China and India along with others decide that nuclear is acceptable, then for all practical purposes, Peak Uranium will negate it as a realistic substitute for oil.

Datapoints please. Uranium can be extracted for under USD130 per kg, with over 4.4M metric tons of such concentrations currently in producing mines. The amount of actual Uranium extractable at this economy is more likely 2x-3x that amount due to the fact over half the world's productive mines have been closed over the past 30 years due to low Uranium prices on the world market. If reopened, and examined with current technology and technique, these mines would certainly be productive. Further, very little new prospecting has occurred in decades for new Uranium deposits. Quite bluntly, the Uranium supply arguments are void. If people have a political or ideological opposition to Nuclear power fine, but don't try to justify it with selective data. By the way, assuming a conversion to Nuclear electricity generation over a period of 100 years achieving 50% of global electricity production (this is overly conservative because it is too aggresive), known Uranium reserves would fuel 350-500 years of production. This is with current technology (which is really 25+ years old), excluding the more efficient French breeder designs which would stretch supply further.

39   Peter P   2006 Feb 6, 2:41pm  

By the way, assuming a conversion to Nuclear electricity generation over a period of 100 years achieving 50% of global electricity production (this is overly conservative because it is too aggresive), known Uranium reserves would fuel 350-500 years of production.

Good. I bet we will have zero point energy long before Peak Uranium in 500 years. :)

40   Randy H   2006 Feb 6, 2:45pm  

One other point on the "50 years left" of Uranium argument. This is most likely a carefully selected snip from the Wiki on Nuclear power. The entire section reads:

At the present rate of use, there are 50 years left of low-cost known uranium reserves - however, given that the cost of fuel is a minor cost factor for fission power, more expensive lower-grade sources of uranium could be used in the future [16] [17]. Other ideas include extraction from seawater and granite[...]

Another alternative would be to use thorium as fission fuel in breeder reactors - thorium is three times more abundant in the Earth crust than uranium [21].

Current light water reactors make relatively inefficient use of nuclear fuel, leading to energy waste. More efficient reactor designs or nuclear reprocessing [22] would reduce the amount of waste material generated and allow better use of the available resources.

41   Randy H   2006 Feb 6, 2:46pm  

Good. I bet we will have zero point energy long before Peak Uranium in 500 years.

You're not suggesting that the fundamental laws of thermodynamics are wrong are you? (You know, the "there's no free lunch" part.)

42   Peter P   2006 Feb 6, 2:56pm  

You’re not suggesting that the fundamental laws of thermodynamics are wrong are you? (You know, the “there’s no free lunch” part.)

The laws of thermodynamics are indeed very convincing. However, I somehow do not think that they are necessarily unbreakable. Laws of physics are quite a bit weaker than Laws of mathematics.

43   praetorian   2006 Feb 6, 3:03pm  

In his last book, he noted that the natural gas would be turned off to the power comp... ...idn’t know that 99.9% of home gas heating will not function without electricity.

I was a big Kunstler fan after "Geography of Nowhere", which really is a great analysis of the insanity of modern urbanism and architecture. Unfortunately, like me, he is only really capable of pointing out what is wrong. His next book, "Home from Nowhere" disappointed, the start of a rather rapid falloff.

He got really nutty during the Y2K panic, and really hasn't recovered.

Still, his aesthetic eye isn't awful, insofar as he recommends classicist principals. And his eyesore of the month is always good for a laugh.

Cheers,
prat

44   Peter P   2006 Feb 6, 3:04pm  

Prat, thanks for delurking. :)

45   Randy H   2006 Feb 6, 3:28pm  

Thanks PS. I thought some of the French experimental designs were also FBR reactors. I know I read something about the plutonium consumption aspect of these being an economic consideration in the French energy policy: they'll agree to dispose of the rest of Europe's nuclear waste in exchange for free plutonium fuel.

46   praetorian   2006 Feb 6, 3:29pm  

While nuclear is great for electricity, permit me some skepticism on the viability of electric vehicles, the long-term prospects for hybrid vehicles and the workability of the hydrogen automobile.

We have a clean burning, renewable liquid fuel that runs in engines that are 20 to 50% more efficient that todays gassers and that are so simple that an idiot like me can understand them. These engines are repairable with basic tools, have over 100 years of engineering behind them, and last for well over 300K miles of heavy use. Further, the fuel can use our existing distribution infrastructure.

I know, I know. Diesel just doesn't seem futuristic enough, does it? Maybe if we dressed it up. Called it hydrozryixtonium or something.

@Peter,Harm,SQT,Jack,etc: sorry for the extended lurking. Work.

Cheers,
prat

47   Randy H   2006 Feb 6, 3:41pm  

Praetorian,

I agree 100% on next-gen efficient Diesel. I think sometimes people get too hung up on "the sky is falling, buy a farm in Iowa" hysteria and they fail to realize that marginal improvements in efficiency through technologies like Diesel combustion engines will yield enormous economic benefits over a very long time horizon.

By the way, I grew up in rural farm-community Ohio; my wife lived her entire childhood on a family farm. For those who might be fancying some neoagrarian utopia, I suggest you actually try farm life for a while first. We didn't "ride our horses into town on market day". We "knocked the catalytic converters out of our old Fords so we could burn tractor fuel".

48   Unalloyed   2006 Feb 6, 3:53pm  

Iran will lead the way in meeting energy needs with fission reactors.

49   praetorian   2006 Feb 6, 4:09pm  

The technology to convert electric power into motion is actually pretty simple.

Quite right. And also quite efficient. However, consider todays hybrid engines. Simple? Easy to work on? Hrm.

As you point out, it's the storage that's the killer.

Not that biodiesel is without problems. Right now algae seems like the most promising source of it, and the theoretical yield is about 15,000 gallons per acre, per year. Probably only enough to supply 10 to 20 heavy drivers per year.

_shrug_

Still, in the long run, I'd bet on bioengineering and a simple combustion engine. Also, diesel landcruisers rock.

Cheers,
prat

50   Unalloyed   2006 Feb 6, 4:28pm  

...the common sight of a homeless person loaded down with what looks like their own bodyweight in stuff...

I saw a homeless man downtown wearing a shirt that said "Another Andon College Success"

51   praetorian   2006 Feb 6, 4:31pm  

It used to be far cheaper to buy diesel, but now it’s even more expensive to buy per gallon than unleaded.

Yeah. Crazy, considering petro-diesel is much cheaper to make. In the Bay Area all diesel is lunatic expensive. You can get straight bio-diesel for $3.60 a gallon in Berkeley.

It really is sad that such a great engine technology got such a horrible reputation thanks to GM's engines back in the 70's. A bare-bones, small 4x4 with an inline CRD 4 cyl engine could get 30 mpg highway easily, with plenty of low-end torque.

Dammit.

Cheers,
prat

52   Unalloyed   2006 Feb 6, 4:36pm  

What's the difference between a Realtorâ„¢ and an elephant?

Ans. A Realtorâ„¢ always forgets.

53   praetorian   2006 Feb 6, 6:16pm  

And this is why it will take more than simply not buying their goo and vacating their soil to get the jihadists to back off, it will take stopping the reason for jihad, which means stopping the war against them by Israel, supported by us, that was started against them first.

Perhaps we could move the jews to Alaska...

Anyone seen any good cartoons lately?

Cheers,
prat

54   Michael Holliday   2006 Feb 6, 10:04pm  

Sunnyvale_Renter Says:

"...it will take stopping the reason for jihad, which means stopping the war against them by Israel, supported by us, that was started against them first."

Ahh...No!

55   San Francisco RENTER   2006 Feb 7, 1:16am  

"This has NOTHING to do with being a homedebtor, the rare homeowner, or a renter, it has everything to do with our society being based on, He who dies with the most stuff wins."

Sad but true. I am reminded of the end of "Citizen Kane" where after Charlie Kane's death the camera pans across a vast ocean of consumer goods he has accumulated in his gigantic mansion and then falls upon some workers who are disposing of all of his crap by throwing it in the furnace! It all goes up in smoke and the man died lonely and alone, so look where the life-long quest for material shit got him!

56   Peter P   2006 Feb 7, 1:53am  

DinOR, is your e-mail address working?

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