How Autonomous Vehicles will change Real Estate Forever
Current Status of Technology and Pace of Adoption
When thinking about self-driving cars, most people imagine this is the technology of the future, and it will take at least one more generation for full adoption. However, the pace of technological advancement in the past few months have shown that we are a few years (maybe months) away from mass production of fully autonomous self-driving vehicles:
- Google started piloting the technology in 2009, and by the end of 2016, more than 2 million miles had been driven
- Tesla has been testing autopilot for three years in thousands of vehicles, and according to Elon Musk’s tweet, it’s months away from full automation
- Uber and Lyft already started testing in selected markets
- Ford has announced plans to launch its self-driving vehicles for ride-sharing services by 2021
- GM just revealed fully-autonomous electric car to hit the market next year
Once the technology becomes available, and government regulations are in place, the pace of adoption will be substantially faster than expected. The reason is that the economic and social benefits are so significant that rapid adoption will be desired for all segments of society.
Driver licenses will become a luxury item
“Owning a car will be a lot like owning a horse. You will only be owning it for sentimental reasons” Elon Musk.
We all love our cars and the thrill of driving, however, we are not great drivers, and the accidents stats show that. In 2016, over 37 thousand people died in a motor vehicle accident. On top of that, every year we see over 5 million crashes with over 2 million injuries. The cost to society in loss of life, healthcare and damage to property are simply too high.
Given the fact that autonomous vehicles can eventually cut accidents to a fraction of the above, driver licenses and car registration will become more expensive over time. This eventually creates an incentive for people to stop purchasing and driving their vehicles.
Minimization of cost of transportation
Probably the most substantial reason for the quick adoption of this technology is the reduction of transportation costs. Research from investment firm Ark Invest has estimated autonomous taxis will cost $0.35 per mile. Based on the 32 miles a day of current average commute in America, it equivalates to $11.20 a day. This cost is ten times cheaper than the current cost of taxis and less than the average family pays to own a car including lease costs, maintenance, gas, etc.
The costs savings are mostly driven by the following:
- Elimination of driver cost which represents over 80% of the transportation costs
- Replacing gasoline engines with electric cars will help reduce costs by 75%
- Increase in asset utilization: most cars currently stay idle about 95% of the time and over 76% of the time cars are occupied by one person
- Repair and insurance cost will be substantially reduced due to fewer accidents (According to Columbia University, over 90% of vehicle crashes are caused at least in part by humans)
Given the above, we will see the emergence of transport as a service. Fleets of cars owned and maintained by companies will be available 24/7 to anyone.
Substantial reduction in travel time
We all wish we had more free time to do personal things and enjoy life. According to a Harvard Health Watch study, the average American spends 101 minutes per day driving. That means that in a year, we will spend whopping 614 hours driving a car.
- Highway capacity: by combining autonomous technology with artificial intelligence and interconnected vehicles, the capacity of current highways will increase dramatically. According to studies from the University of Columbia, having exclusively interconnected autonomous vehicles will lead to a 273% increase of highway capacity, as cars can travel close together or platoon as a long continuous train.
- Increase in travel speed: interconnected cars and dedicated lanes will allow for an increase in travel speeds by between 20 and 100%.
- Traffic will be reduced due to more efficient technology and also a combination of an increase in carpooling (as smart and on-demand cars remove the inconvenience of ride sharing), optimization on road usage as traffic spreads more equally, more intelligent scheduling of trips and cargo.
Another crucial impact will be that travel times will become more productive as you don’t need to focus on the wheels anymore. Given the costs savings, reductions in travel time and accidents, the government will have enormous incentives to limit how many humans are allowed to drive. Also, this technology will grant us the opportunity of a lifetime to redesign our cities and shift investment in roads and highways to more relevant areas.
Opportunity of a lifetime to redesign our cities
The first impact of the end of car ownership will be in our homes. Most houses in North America have between 240 and 500 square feet dedicated to garages, and apartment/condo buildings have parking spaces for hundreds of cars. Initially, this area will be converted into storage which will immediately impact the multi-billion dollar self-storage industry. However, this additional space will then be transformed into more useful areas like bedrooms, play areas, office space and potentially increasing the short-term rental inventory.
According to the University of Michigan, there are over 1 billion parking spots in America which are divided between private parking lots and curbside parking. Also, a considerable portion of cities is occupied by a car-related business that will eventually disappear (gas stations, car repair shops, etc.). Freeing up all this space provides urban planners with the opportunity of a lifetime to redesign our cities. Many cities are already planning for the near future changes. The City of San Francisco published a contest to expand and integrate shared mobility services across the City. By incorporating Shared Connected Automated Vehicles (CAVs) using a community-driven approach, we obtain an increase of green and shared spaces.
Interconnected cars will also change how our cities look with the opportunity to eliminate traffic lights. Autonomous vehicles smart cameras can also monitor accidents or alert authorities about any crime.
I believe the most significant impact will be on our quality of life. With less time spent in traffic and more free time and money to enjoy life. With fewer worries about car accidents and more freedom for our kids to play outside. With less traffic, noise and more green common areas.
Impact on the real estate market
Finally, the changes about will have a considerable impact on the real estate market which will come from two folds:
- Downtown condos will face downward price pressure. Less traffic and higher travel speeds will make centrally located shoebox condos less desirable. On top of that, there will be more land available for property development downtown as in many cities parking occupies 50% of the space available.
- Increase in value of suburban and recreational properties: larger lots, scenic and waterfront properties within close distance to cities will become more desirable as commute time becomes less of an issue.
