Will self-driving cars change patterns in real estate development?

Self-driving cars will impact home design and community design of the future, but it won’t be the big disruption to real estate values some imagine.

AerocarTransportation systems provide access to property and facilitate commerce. Automobile road systems in particular take up tremendous amounts of real estate, and roads define the patterns in real estate development. Further, the need for cars adds 400 square feet or more to our houses that’s largely useless as living space. But what happens if our relationship with the car changes? How does this impact housing or land development?

Over the last few years as engineers make progress toward self-driving cars, many armchair futurists imagined what a world of driverless cars would look like. Most visions are fanciful and unrealistic as people fantasize about an era of empty highways converted to greenbelts and the end of auto emissions and environmental impacts.

Self-driving cars and on-demand services like Uber or Lyft will change how people live. Many people in urban areas already ditched their cars in favor of the on-demand services. This eliminates a major expense, particularly in urban areas where parking spaces can be nearly as expensive as places to live. (See: Can a parking space be worth $1 million?)

If these services penetrate suburban areas, people could more readily live in houses without garages — or more realistically, they could fill their garages with clutter, and they wouldn’t need to park their cars in the driveway or on the street, reducing parking demand and increasing available supply at the same time. In 30 years, the garage could look as anachronistic as the deep TV niches popular in the 80s and 90s before flat screens took over.


Self-driving cars in particular offer the possibility of quicker commute times as vehicles travel in tight platoons at very high speeds. This could allow people to live further from major employment centers without adding time to a commute. This would have the effect of relieving pressure on markets close to employment centers and increase values in the hinterlands.

Visionaries who speculate that demand for roads and cars will decrease don’t really understand the behavior of people living in more densely populated areas. In the real world, if on-demand services and driverless cars are more efficient, it won’t result in less traffic or fewer cars: if transport were easier, people would travel more.

For example, Washington DC put in the beltway around the city many years ago. Traffic engineers had traffic counts on every street with access to the beltway both before and after opening. trafficThe beltway was supposed to relieve traffic congestion, but traffic on the side streets was unchanged when the beltway opened. In fact, the beltway opened to capacity traffic on its first day, and it’s endured congestion every since.

The beltway did not relieve traffic congestion because there was significant pent-up demand for trips. When residents faced a 30-minute drive to a particular destination, they didn’t want to invest the time, but when the beltway reduced this time to 15-minutes, they made the trip.

There is no question the beltway improved the quality of live of residents as they now had access to goods and services with greater ease, but increasing capacity didn’t reduce congestion, it merely unleashed pent-up travel demand. The same will be true of self-driving cars and on-demand services.

We will have just as many cars and just as much traffic, but everyone’s quality of life will be better because they will be able to travel faster and further to enjoy whatever activities they desire. It will usher in a new golden age.


Self-driving Cars Will Kill Transit-oriented Development

Bill Conerl, August 6, 2016

Transit-oriented development is all the rage in many cities, but self-driving cars will eliminate premium pricing for housing units located near rapid transit stops.

First, transit-oriented development doesn’t carry much of a premium except in a few large cities in the US. Urban planners pushed this idea for the last 50 years, but so far the buying public hasn’t been nearly as enthusiastic. While many transit-oriented developments are successful, this success is usually because the project provided much-needed supply. Anything built in these locations would have sold out.

Self-driving cars will lower the cost of shared-ride services such as UberPool and Lyft Line, speed up car traffic, and thus eliminate premium pricing for transit-oriented development.

… drivers won’t be needed, and … electronic apps will make car-pooling more common.

Self-driving cars will lower costs, thus increasing the number of trips demanded by consumers. Increased use of shared-ride services will further increase the convenience, reinforcing the demand for shared rides. …

good_timeNotice that both of those phenomenon increase the number of trips people take. This is why I don’t believe this will decrease traffic congestion. However, it will eliminate much of the stress of driving in heavy traffic, and since more people will take more trips, it increases everyone’s quality of life.

As a result, rush-hour car trips will drop, lessening traffic.

Rush hour traffic will not lessen.

In many metropolises like LA/OC, workers modify their hours worked and driving habits due to the traffic. Some people start early and leave early; some people start late and leave late. This phenomenon can be readily observed on election day when people disrupt their normal routines to go vote. Traffic congestion is noticeably worse on days like that, and it’s not due to an extra trip to go vote. It happens because people are forced to be on the road at times they generally avoid.

As traffic speeds up, the incentive to leave the rails will increase. Those apartments and condos located next to the rail stop will lose their … value. …

Many of these properties enjoy high values, not because they’re near transit hubs, but because they’re in desirable urban areas. The need to use rail may not add to the value in these areas, but it’s unlikely buyers will shun properties located in such desirable areas to the point that values go down.


The value of transit-oriented development depends on highway congestion. The prospect for much faster rides in shared, self-driving cars will kill premium home prices and rents.

Again, premium prices near urban centers will not likely be “killed,” but the rate of appreciation in these locations may lag behind the exurbs that are now more accessible.

And how quickly do people really need to travel anyway?


More generally, urban land values may fall as parking lots will be hugely downsized. This was noted by the Rich Thoughts blog. (Hat tip to Funspirit who provided the link in a comment on my earlier post Self-Driving Cars Won’t Kill Demand For New Automobiles.)

This groupthink idea is pretty silly. Values won’t decline. Urban parking lots will be redeveloped into uses with better yields. Surface parking is rarely the highest and best use of a property. It’s a necessary waste of space as it imbues nearby properties with value. If parking lots become worthless as parking lots, they will find much more profitable and more valuable uses.missed_opportunity

Although estimates of land area devoted to parking lots are soft, 30 percent is mentioned a lot based on the work of Eran Ben-Joseph. Imagine most of that land being made available for new development. Real estate prices should head down in the most parking-oriented parts of town.

No. That’s not what will happen.

Imagine what would happen to downtown LA if it suddenly found 30% more land to build on. Would this create a glut of useless land, or would it unleash pent-up demand for a wide variety of land uses?

The answer is obvious: it would unleash pent-up demand. The only reason urban areas build up is because they lack the land to build out. Providing more places to build makes more projects feasible. It’s not like all this land will suddenly be dumped on the market at one time crushing land values. There is no reason eliminating parking lots would cause prices to fall.trump_towers

How soon will real estate value change? The transition to self-driving ride-share transit may well take 20 years, but asset values are based on prospective supply and demand. Once it becomes clear the direction in which we are moving, property values will immediately adjust.

No, property values will adjust very slowly over time. Values rarely changes rapidly in real estate. Real property isn’t like a stock that can gap down 50% overnight.

The self-driving car era

I look forward to the era of driverless cars. As the parent of special needs child, I’m thrilled that my son may enjoy the same mobility as anyone else without relying on public transportation. The benefit of self-driving cars to the special needs community will be enormous.

Senior citizens will also greatly benefit from driverless cars. One of the more traumatic experiences seniors endure is when someone takes away their car keys. Everyone who lives long enough finally deteriorates to the point they should not be propelling a two-ton hunk of metal at 70 miles an hour. Self-driving cars provides mobility at an age where people would otherwise be limited.

Of course, such mobility can have a downside as well. As we live longer, healthier lives, we may never get out of the rat race.

Jane, stop this crazy thing!


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