Category: Density/Proximity

Changes to areas of concentration

AVs and Real Estate – A Guide to Potential Impacts

We have gotten a number of questions about how AVs could be affecting real estate and thought it would be good to do a post that covers some of this.  Below is a brief list of issues to consider.  Look out for an upcoming post that will add e-commerce and sharing economy impacts as well.

  • Parking – if we move towards an even partial model of shared vehicles (i.e. Lyft, Uber, Via, Chariot) there will be a substantial reduction in the need for parking (see earlier posts here and here). Studies have shown this dropping down to as low as only needing 10-15% of current parking spaces (and here). This change would open up a tremendous amount of land for redevelopment (parking is the single largest land use in most cities), hence dramatically increasing supply and – one would think – decreasing land values.  In addition, as parking needs diminish and parking regulations move to requiring less – or no – parking, constructions costs will also drop dramatically.  Parking can cost about 4k$ per spot for on-grade parking and up to 18-20k$ per spot for structured parking, can be a significant proportion of construction costs, and typically requires additional land acquisition.
  • Sprawl – several studies have shown that AVs could increase suburban sprawl as people can drive further, faster and might be willing to accept a longer commute as they can now use their time in the car for things other than driving. If that is the case, there will be an increased pressure on sprawl and the metropolitan footprint would expand dramatically.  Again, this constitutes an overall increase in available/feasible land supply which – given the rules of economics – lead to a drop in land value.  Arguably, this would not be the same everywhere as land that will have all of a sudden become available for development would see large price increases while places that are already close enough or within to cities would see land prices drop due to increased competition.
  • Housing Prices – Given the points above, housing prices should decrease. As land prices and construction costs drop, housing rents and prices will also drop.  This could be a boon for affordable housing concerns across the country (for example, each parking spot included in rent equates to about 225$), but could also cause substantial disruptions to existing markets and developments/projects.
  • End of TODs? – One unknown effect of AVs will be how it changes transit. On the one hand, this new technology could be a boon for transit as it helps solve transit’s perennial first/last mile hurdle. Lyft can get people to the train, light rail, or bus station, increasing catchment areas and boosting ridership.  On the other, riders may simply decide to stay in that Lyft all the way to their destination – especially as the price of the trip drops dramatically as technology replaces the highest cost of the trip – the drivers.  Preliminary reports from New York and San Francisco point to this trend, with transit ridership diminishing as Transportation Network Company (TNC) use skyrockets. Some studies have shown a decrease of up to 43% of transit ridership – potentially the death knell of transit as we know it.  In addition to this concern, is simply the potential atomizing of transit.  What happens when multiple rider/route services such as Via and Chariot (or Lyft-line and Uber Pool –  the carpool versions of Lyft and Uber) grows and we now have 8-12 passenger vans zipping through cities, delivering people directly to where they want to go and not to a bus stop a few blocks or a few miles away. If this happens, the activity/energy clustering and focusing role of transit would diminish as would the price premiums that are associated with transit proximity and transit oriented development.
  • Location, Location, Location? – A looming question with not only AVs but the entire shift to mobility as a service is that mobility will become easier and more affordable. As that happens, the friction of transportation – which is one of the factors that creates the value of location – will diminish.  This does not necessarily mean that current activity centers and draws will reduce in value, but any value based solely on the broader proximity aspects of location may diminish.  This will increase the role of the quality of places and the buzz of related activities in determining location value.

A significant issue to consider in all of this is not only the end state change of AV impacts, but also the transition period.  In terms of real estate, a glaring concern would be projects caught during this time.  Projects that have built parking in consideration of today’s reality may find themselves with decreased parking revenues (that is already happening with Lyft and Uber) and unable to repay long-term mortgages or bonds.  In addition, these projects will be competing with future projects that did not need to build parking and/or benefited from reduced land costs.  The last projects built with today’s constraints – and not future-proofing the coming disruptions – will be the ones most punished by this rapid change.

All of this points to a dramatically shifting landscape for real estate.  A large question is both what direction these changes will take and – as importantly – how quickly will they come about.  Of concern is not only the shifting market conditions, but also the regulations that currently help shape that market and the speed at which those typically change.  What happens if parking utilization needs drop dramatically over a short period of time.  How quickly will parking requirements shift with that? And what kinds of political battles will meet these changes as developers and property owners with existing properties fight these changes to protect their competitiveness.

Looking Beyond the Personal AV to See a Larger Potential for Citywide Connectivity

The shape of our current urban spaces and transportation networks are shaping up to strongly influence the approach cities and countries are taking toward AVs. The American influence on AV developing, not surprisingly, is pushing somewhat toward a personalized vision of AVs. A number of European countries and cities are taking a more public transit-oriented approach to AV development.

A recent article in the New York Times dives into these differing approaches.

“The coming age of driverless cars has typically centered on Silicon Valley highfliers like Tesla, Uber and Google, which have showcased their autonomous driving technology in luxury sedans and sport utility vehicles costing $100,000 or more. But across Europe, fledgling driverless projects like those by Deutsche Bahn are instead focused on utilitarian self-driving vehicles for mass transit that barely exceed walking pace.

The article further points out that AVs in combination with existing public transit systems have the potential to greatly “reduces the complexity required to make the machines navigate across an entire city.”

AV technology has the potential to extend beyond vehicles on roadways, as a number of Dutch cities are realizing. A number of leaders in that country see a future with “driverless boats” that can ferry passengers around the city and potentially “autonomous boats will be able to automatically dock with each other, creating on-demand bridges and walkways whenever necessary.”

AV Micro-Transit Could help TOD and First/Last Mile

One of the larger concerns with the rise of AVs and ride-sourcing services has been its potential drain on transit riders that could  – even with only a draw on few riders –  make transit itself economically infeasible.  This article from the New York Times discusses the development of AV micro-transit 12 person shuttles that might be just the boon transit has been looking for.

These shuttles are being developed in Europe and focus on slow (20 mph), limited range travel.  While these shuttles would never be able to provide desirable alternatives for cross town trips, they are ideal for getting people to and from transit.  Due to the shared destination/origin point of transit, this type of shared mobility on demand would greatly extend the catchment and draw of main line bus and rail transit.  The limited areas it would travel to and from (around a transit stop) make the technology much easier to attain in the near term.  This provides a hopeful version of the future where AVs might actually help transit oriented development instead of destroying it.

Think Out Loud – Urbanism Next on the Radio!

Urbanism Next was recently featured on public radios ‘Think Out Loud’ program.  Although mostly targeted on autonomous vehicles, in keeping with this blog, the interview focused on the secondary impacts on cities. You can listen here or take a look at an article about the interview here.

Uber Replacing Parking (in Suburbs)

Many have talked about the long term implications of ride-sharing companies like Uber – Summit, New Jersey is the first example in the US where a municipality is subsidizing rideshare trips as a way to reduce parking demand in Park-and-Ride facilities.  See the article from Buzzfeed here.

A good example of how Uber may actually be a boon to transit and not a replacement for it.