Cities in driverless age
It's 2027 (or 2037) and the age of the self-driving car. City-dwellers have traded in their car keys for ride hails. Street parking has been replaced by wider sidewalks and bike lanes, while developers are busily converting garages into much-needed housing.
That's one vision of how self-driving cars will affect US real estate, laid out in a report by MIT's Centre for Real Estate. But it's not the only one. Even as reclaimed parking spaces fuel a downtown building boom, autonomous vehicles will encourage builders to push deeper into the ex-urban fringe, confident that homebuyers will tolerate longer commutes, now that they don't have to drive. That's according to the report, which is sponsored by a unit of Capital One Financial Corp.
In the first scenario, cities become more like New York, with walkable streets and fleets of autonomous vehicles for public transit. In the second, they become more like Dallas or Phoenix, which already function as a collection of suburbs.
"It's a polarisation," said Albert Saiz, a co-author of the paper, which also covers subjects such as the future of retail space and strategies for producing more affordable housing, He added: "I see both things happening at once."
It's far from clear how long it will be before fully autonomous vehicles are ready to rule the road or how governments will choose to regulate them.
The 25 biggest US cities generated a combined $5bn (€4.25bn) last year from parking tickets, vehicle registrations, and other related revenue, according to data compiled by Governing magazine.
Governments will also have to grapple with the likelihood that as the cost of the vehicles comes down, fleet companies may overburden roads with them.
In New York, it won't be until 2040 that "land use planning is permanently altered" to accommodate self-driving cars, according to a study this month by the Regional Plan Association, an urban research and advocacy group for the metropolitan area.
Still, Saiz is optimistic that self- driving cars will unlock buildable space. Developers are already starting to target parking structures, gas stations and auto dealerships, betting that they'll be able to redevelop the sites as car ownership becomes obsolete, said Rick Palacios, director of research at John Burns Real Estate Consulting.
Palacios also sees the vehicles driving suburban sprawl, though in his view, builders will start by redeveloping downtown sites, then move to the suburbs after they're done with the parking garages and other legacy sites.
In another potential effect on the real estate market, driverless cars would help seniors stay independent longer, slowing home sales but also reducing the demand for assisted-living facilities, Palacios wrote in a September research brief.
The remodelling industry may also get a boost as older homeowners invest in makeovers to help them age in place. Construction costs will decline when driverless trucks are used to transport materials, he said.
If it's hard to predict how or when these changes will take hold, it's also hard to know how they'll affect property values.
The developable land is likely to temporarily slow price appreciation in cities, Palacios said, adding that values will probably rise once the new parcels are used up.
In already popular urban areas, driverless cars could spur more gentrification and increase property values further, Saiz added in a follow-up email. On the other hand, the vehicles could drive real estate values down by creating new supply in the suburbs. "Sorry to hedge," he said, "but it is ambiguous!"
The impact of autonomous vehicles could spread well beyond the residential real estate sector.
The bricks-and-mortar stores of retail could yet be challenged by the arrival of mobile malls that bring stores to consumers' homes, according to Wolf Richter.
Writing on the subject in a recent article for the business and financial analysis website, Wolf Street, Richter suggests that the ongoing progress in autonomous vehicles being made by companies such as Tesla, Google and Ford, makes the possibility of mobile retail stores even more feasible. These could then allow for tailored designs to better accommodate the shopping experience than previous attempts.
Having noted the "battering" retailers have already taken from the rise of online shopping, Richter says that the potential advent of mobile stores or "stores on wheels" could see the demand for physical shop spaces drop further as both start-ups and established companies look for less expensive and more risk-averse ways to market and deliver their goods.
But while the demand for physical retail space might fall, Richter concedes that this would be replaced by what he describes as an "exponentially increased need for autonomous vehicles capable of providing a space for stores".
This would come in the form of companies selling and renting fleets of autonomous vehicles to companies of all different shapes and sizes," Richter believes. "With most companies estimating that autonomous cars will be on the market by around 2020, the idea of renting out fleets of autonomous vehicles to retail and service businesses may still seem like a long way off; however, by looking at the effect that major innovations disruptors have had on other industries, it's easy to see how quickly things can change," he says.
Richter cites the examples of Uber and Airbnb as examples of disruptors that changed the trading landscapes for taxi and hotel industries.
"Since Uber's inception in 2010 there has been a fall in income of 10pc among salaried taxi drivers," he said. "Likewise, since Airbnb came on the scene, it's estimated that hotels have lost out on approximately $450m a year. (Bloomberg)