How autonomous vehicles will reshape cities and real estate markets
The recent death of a pedestrian in a collision with a self-driven autonomous vehicle (AV) in Arizona has raised concerns about the safety of such vehicles. Despite the tragic incident, research shows that advances in AV technology are soon going to transform the way we travel.
But AVs will not just affect transportation. They will also influence the shape and size of cities and, along with them, of real estate markets.
The dimensions of cities have long been defined by the transportation technology of the time. As new modes of transportation allowed people to reach greater distances in less time, towns and cities expanded.
“For thousands of years, no matter what the transportation technology, the maximum desirable commute has been 45 minutes,” journalist and author Joel Garreau wrote in his book Edge City: Life on the New Frontier.
Sixteenth-century Istanbul, he notes, “was never six miles across.”
Advances in motorized transportation and the emergence of mass transit in the past 200 years have accelerated the pace of transformation in mobility and pushed the city limits outwards. Rail-based mass transit and, later, the private automobile were the dominant forces in expanding city limits, making new parcels of land profitable to develop.
Transportation technologies did not alter just the size of the real estate markets, but also the structure by influencing the spatial distribution of prices and rents for housing and commercial real estate. Commercial real estate in and around downtown areas is much more expensive than property on the outskirts. Similarly, housing within walking distance of a subway or a regional rail station is often more expensive than a comparable unit located further away.
Whereas some uncertainty remains about when fully (or less-than-fully) autonomous self-driving vehicles will become the norm, it is quite evident that the age of AVs will soon be upon us.
While a sizeable body of research on the mobility and safety aspects of AVs is available, the effect on real estate markets has generated little scholarship. Some notable exceptions exist.
Writing in Regional Science and Urban Economics, the Russian economist Roman Zakharenko explains the likely impact of AVs on a city’s size and shape. Zakharenko notes that AVs will shift parking space from the urban core to the periphery because self-driving vehicles, after dropping occupants in the urban core, will park themselves at a cheaper location away from the city centre.
The demand for parking spaces in the urban core will decline, which will permit the further densification of economic activity in core areas, thus resulting in even higher rents. Concomitantly, AVs will lower the overall transportation costs and “will cause a city sprawl and rent decline outside of the city centre.” Zakharenko estimates that land rents in the urban core may increase from 30 to 40 per cent whereas land rents may decline by the same amount in the periphery.
AVs are likely to introduce a new type of land-use or real-estate class: the dedicated parking belt, where prices would be significantly lower than in the core itself and the distance more convenient than returning home.
While the AV-driven evolution in mobility requires preparation and planning, many cities have yet to get started.
Erick Guerra, an assistant professor of city and regional planning at the University of Pennsylvania, noted in the Journal of Planning Education and Research that a survey of long-range regional transportation plans of the 25 most populous metropolitan areas, home to 40 per cent of the U.S. population, revealed barely any mention of AVs.
Real estate asset managers also need to keep a close watch on how AVs are likely to transform mobility and urban built form. A recent note in the Appraisal Journal warns that AVs will “impact residential and commercial real estate. The confusion lies in knowing the degree of the impact, the timing of the impact, and how various sectors of the real estate market will change.”
The likely relocation of parking space from the urban core to relatively cheaper land nearby alone is going to create new challenges and opportunities for owners of commercial real estate.
The task for real estate managers, city builders and urban planners is now to collaborate to improve mobility and real estate outcomes for citizens, before autonomous vehicles make such decisions — autonomously.
Murtaza Haider is an associate professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at www.hmbulletin.com.