Sunday, September 27, 2015

Self-Driving Cars and The Coming Real Estate Revolution

Self-driving cars are coming and not only will they revolutionize transportation, they'll also change the way we develop real estate.

What is a self-driving car? 

I'm not talking about cars with steering wheels and an advanced form of cruise control; I'm talking about a car without any need for passenger intervention during the journey. You simply give it a destination and sit back and enjoy the ride. 

When is it coming?

Most likely soon. Google is predicting they'll release their self-driving car in 2020[1]. Other automakers  think they won’t be far behind with their own projects. Several automakers are already testing their self-driving cars on roads throughout the US and the rest of the world. 

Reasons for fast adoption
Okay, so these cars might be coming soon, but it will take years for them to catch on, right? I'm not so sure. Here's why:
  1.  Low cost. Dense urban areas will be perfect targets for large fleets of these vehicles. Per mile costs for autonomous cars will likely be so low that owning a car may not be much cheaper than renting one for your daily commute[2]. If the rental costs can come near to the cost of owning a vehicle, city dwellers will likely have no problem making the switch in a short period of time, because there's no large outlay of cash needed. 
  2. Change is in the air. Fewer people view driving their own car as something special and fewer people are enjoying driving their car [3]. More people are viewing driving for what it is, simply a method of transportation.
  3. Uber growth. It took less than three years for Uber to go from 0 to over 150,000 drivers 4. There was a pent-up demand for a convenient and low cost transportation alternative to taxi cabs. A cheaper self-driving alternative will likely enjoy even faster growth.
  4. No red tape? By some estimates car accidents caused by driver error result in a cost of 300 billion dollars per year in the US5. If self-driving cars can demonstrate that they are safer than human drivers, it will be difficult for governments to stand in the way of progress (or so we hope).
What this means for real estate

New development standards. One of the the biggest changes will be in city real estate development standards. As of now in most cities parking is a critical factor with all new developments and existing buildings. Cities use a ratio of available parking to square footage to help determine uses for particular property. These ratios may become meaningless when self-driving cars drop off passengers at their desired location and drive off to pick up their next passenger. 

Smaller parking lots. Once we can decouple people from their cars, developers will be free to create parking lot free buildings. The size of a development will no longer be tied to how many parking spaces can be provided. Properties will likely still need some amount of parking for deliveries, but parking lots as we know them can fade into history. By some estimate parking spots account for as much as 1/3 of the land use in some cities[6], so this change would represent a significant transformation for these cities.

Other impacts


  1. Fewer gas stations. Self-driving cars will likely be mostly electric, so their adoption will mean fewer gas stations. Also less pollution with less combustion engines (assuming we can find ways to generate electricity without burning fossil fuels).
  2. Less income for cities. Less parking meter revenue and less revenue from driving citations. Eventually no more speeding tickets!
  3. Significantly less personal car ownership would lead to fewer car dealerships.
  4. Fewer insurance brokers. You won't need insurance if you don't own a car.
  5. No need for valets and parking attendants.
  6. Less traffic. Ride-sharing will be easier, because cars can be compartmentalized to pick up multiple passengers for a single trip. Fewer accidents, no traffic slow downs to view accidents, trucks can travel on the roads at night, etc.
  7. Fewer auto mechanics. The large fleets of similar self-driving cars will likely be serviced by large scale operations rather than smaller mom and pop type operations.
  8. Cheaper and faster deliveries of objects too big for drones.


Self-driving cars have the potential to dramatically change both transportation and real estate. There are still hurdles including the fact that the law needs to be updated to deal with non-human drivers, but it won’t take long for people to realize that the following benefits outweigh the risks: less traffic, less pollution, and fewer accidents and deaths. Eventually the government may prevent human driving completely.

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