For a long time the idea of self-driving cars was fantastical, something we’d expect to see in an episode of The Jetsons but certainly not here on our own streets. But alas, it’s 2017 and the rapid progression of technology has made self-driving cars a reality. Google and Tesla have each put self-driving cars on the roads in California, nuTonomy is testing its technology on the streets of Boston, and Michigan recently passed new legislation to make the state a haven for companies looking to pilot other self-driving technologies.
Self-driving cars are real, and they’re going to become widespread faster than most people expect. Some say that Uber will begin offering its first driverless rides just two years from now, with broad-based adoption within five years.
As driverless vehicles become common, the cost of ride-sharing will become substantially lower than the cost of car ownership. The biggest cost of an Uber ride today goes to pay the “salary” of the Uber driver; however, an autonomous car needs no driver, so the market price should be cut by more than 50%. In addition, most cars are parked 96% of the time, which is highly inefficient. Driverless cars can be on the road almost 24 hours per day, further lowering costs.
People are already driving less than they used to. According to architectural designer Jeff Speck, in the late 1970s only 8% of 19-year-olds opted out of getting drivers’ licenses, whereas today, that number has tripled to 23%.
This combination can only mean one thing: pretty soon, car ownership is going to become a thing of the past for most people. And that’s going to cause a major shakeup in the real estate industry.
Here are five ways we suspect self-driving cars will affect residential real estate:
- Parking lots and garages will become less necessary – if not obsolete. Parking lots and garages in apartment buildings can be converted and repurposed to make way for additional residential units and/or resident amenities, such as a fitness center, movie room or outdoor pool.
- Cities will lower their parking requirements, thereby allowing developers to increase residential density. The number of units a developer builds is often constrained by his ability to meet a city’s parking requirements. For instance, he may be required to build 1.5 parking spaces per residential unit. In land-constrained cities, there is often not enough space to build the requisite number of parking spaces so developers can’t build as many units as they’d otherwise like (or are allowed under zoning). As car ownership declines, cities will begin to lower their parking ratios. We’re already starting to see this happen in cities like San Francisco. Ultimately, lower parking ratios will make it easier for developers to build more units at any given multifamily project.
- Housing will become more affordable. The average parking space is only 330 square feet in size but can add anywhere from $10,000 to $50,000 per space to a development’s total project costs (depending on whether it is surface-level or below-grade parking). As cities lower parking ratios, new development projects will become more affordable. Existing buildings will also become more valuable if they have parking spaces can be converted into living units.Cost savings won’t be constrained to multifamily buildings; owners of single family homes could get a boost too. An estimated 13% of every single-family lot is now dedicated to a garage. This space could be converted into an office or in-law suite. Owners can then turn around and rent these accessory units out on websites like Airbnb, which in effect will make single-family homes 13% more affordable than they were previously.
- Neighborhoods that currently lack parking will become more attractive.Anyone who’s familiar with San Francisco knows how bad the parking crunch is in the North Beach neighborhood. Unless you have off-street parking, finding a place to park can be a nightmare. For some people, this makes North Beach a no-go when it comes to deciding where to live. When self-driving vehicles become more prevalent and people begin to forego private car ownership, areas like North Beach could become more appealing. Property values and rents could both rise as people no longer need to worry about where to park their cars.
- Commuting patterns may change. People might be willing to live farther away from the city center when autonomous vehicles become the norm. Driverless cars will allow people to be productive during their commute; they can make phone calls, shoot off emails, read the news, or take a nap. This could make fringe and suburban markets more popular, where people have access to more land, bigger homes and better schools.
As real estate investors, we have to stay ahead of the trends. We can’t be naïve or blind to advances in technology. Driverless cars are coming, and they’re coming fast. Most investors plan to own their investments for 10 years orare more, and things are going to shift dramatically over the next decade. Investors who can anticipate these changes and invest accordingly will be well rewarded in the long-run.