Location, location, location is a well-established mantra when it comes to real estate prices. But the effect of driverless cars on the real estate industry could overturn this conventional wisdom.
What are driverless cars?
Driverless cars allow you to carry out other activities as you travel to your destination. The Society of Automotive Engineers (SAE) ranks driverless cars into six different levels. Level 0 has zero automation, and Level 5 represents full vehicle automation.
The driverless cars we are concerned with fall into Levels 4 and 5. Level 4 requires no human intervention to operate the vehicle. However, the vehicle relies on maps to navigate the roadways. If a map is not available, a human driver must take over control of the vehicle. Level 5 driverless cars require no human intervention at all.
When can I use a driverless car?
Ride-hailing services are testing self-driving cars in some markets. For example, Google subsidiary Waymo recently introduced a small fleet of autonomous ride-hailing vehicles in Arizona. The project currently includes human drivers, just in case the vehicle malfunctions.
“Over time, we hope to make Waymo One available to even more members of the public. Self-driving technology is new to many, so we’re proceeding carefully,” Waymo’s CEO John Krafcik, wrote in a blog post following the launch of the service.
What impact will driverless cars have?
The impact of driverless cars on our daily journeys cannot be overstated. “[Driverless cars] are expected to significantly reduce travel cost, time and congestion, while increasing safety,” according to a recent KPMG report on the impact of autonomous vehicles on the public transport sector.
“Cost-efficient self-driving cars could change commuter preferences away from conventional public transport,” the report added.
Driverless cars could also negate the need to buy a car altogether. “A growing number of tech analysts are predicting that in less than 20 years we’ll all have stopped owning cars, and, what’s more, the internal combustion engine will have been consigned to the dustbin of history,” according to a recent BBC report.
Changes to the landscape
The transport and property industries have long-established ties. Mobilization allows individuals to live further away from their places of work, but the resulting commute is an obvious downside for workers.
However, driverless cars could turn the commute into a productive part of the day. “Depending on the comfort level of the vehicle, the car could then become a place to work or even to sleep. Arguably this would reduce the perceived travel time to almost zero,” according to a recent report from Deloitte.
Workers may start to invest this commute time in traveling long distances. The number of shared and self-driving cars will consequently increase the number of vehicle movements.
But this doesn’t mean our roads will become more congested. Research reveals autonomous vehicles will improve traffic flow and reduce fuel consumption by up to 40 per cent.
However, properties that command high values due to their proximity to transit hubs could suddenly find themselves losing their edge.
Changing city layouts and policies
City street layouts will evolve as autonomous vehicles move into the mainstream. Some experts have likened the coming changes to our infrastructure to the replacement of horse-drawn carriages with motorized vehicles.
Parking lots will be the first to feel the impact of driverless cars. The need for parking space will diminish as people rideshare and driving practices are optimized.
McKinsey estimates that driverless vehicles could free up more than 61 billion square feet of parking real estate, for example. Further analysis by OECD suggests driverless vehicles will remove the need for on-street parking.
The decreasing demand for parking has interesting policy implications, according to the Deloitte report Shared and self-driving cars: A game changer in real estate and area development? The report states: “Municipalities generally require real estate developers to provide for a certain level of parking capacity, depending on the size of the building that is being developed. This requirement can significantly diminish a developer’s return on investment, especially when the parking capacity needs to be realized underground.”
“As an increasing share of inhabitants of large cities relies on public transport, cycling and ride sharing, municipalities have started to rethink their policies.”
However, while buildings will no longer have to worry about integrating expansive parking lots, developers will need to implement dedicated drop-off areas for autonomous vehicles. You’ll also see fewer gas stations and dealerships, and these existing spaces could be converted into additional residential or commercial space.
What will happen to real estate prices?
If perceived travel times are reduced thanks to driverless vehicles, will we see advancing surburbanization as people opt to live further out of our cities and industrial hubs? Does this mean the price gap between rural and urban dwellings will decrease?
The Deloitte report warns the CRE industry not to get too carried away. It states: “Let’s not forget that experts have underestimated the role of location before. Only 15 years ago, leading economists and urban planners predicted that the internet would revolutionize area development and real estate prices.”
However, the rise of the internet and flexible working practices has not had a significant impact on the CRE industry.
The report notes: “The low prices of connecting over long distances accelerated globalization. Yet, instead of reducing the need to travel, the importance of location has only grown bigger because decision-making and innovation still largely takes place with face-to-face communication.”
“As autonomous cars, unlike the internet, would enable people to attend meetings in person, while largely reducing the perceived travel costs, a flattening effect on real estate prices should not be stricken,” Deloitte concludes.