8 Big Housing Changes Driverless Cars Could Bring

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8 big housing changes driverless cars could bring by John Burns Real Estate Consulting

Fully autonomous vehicles (AVs), or driverless cars,  should become commonplace within 10 to 20 years, disrupting entire industries while triggering structural shifts in housing and the economy, according to new research from John Burns Real Estate Consulting.

“The path to government approval and consumer acceptance of AVs will have hiccups no doubt, so we expect ride-sharing along with semi-autonomous vehicles to kick-start the movement towards AVs,” writes Rick Palacios Jr. Director of Research.  

For consumers, the tipping point for large-scale adoption will come when not owning a car makes more financial and logistical sense than traditional ownership. Car enthusiasts, the affluent, and rural households will continue to own cars as AVs or driverless cars evolve. Regardless of the adoption rate, AVs are the future.

So what impact will AVs, or driverless cars, and ride-sharing have on the housing market?

 “We think a big one. Increases in disposable income and productivity from AVs should drive overall economic growth higher, a positive for housing,” Palacios writes.  “A portion of the money once allocated to owning/leasing a car should also free up for owning/renting a home. Here are some of the additional housing shifts we anticipate” as a result of AVs:

No. 1 – Prime real estate unlocked

New land will be available for new home construction as parking lots, auto dealerships and gas stations become obsolete. Additional supply in historically supply constrained locations will likely dampen home price appreciation and alleviate housing shortages in many cities. Due to increased housing supply in good locations, there will initially be less demand for outlying locations, even though commutes will be easier.

No. 2 – Drive-until-you –quality to reemerge

Outlying drive-until-you-qualify housing markets will eventually reemerge once the majority of core infill markets have repurposed their prime real estate and consumers become more accepting of commutes given the option of working, sleeping, etc., while driving.

No. 3 – Rise in urban employment

Urban employment should rise as prime real estate is repurposed for housing, allowing more people to live closer to city centers. Those residing in tertiary areas will be more accepting of commutes into the urban core for job opportunities now that they can work/sleep/etc. while en route. The commute times should also be shorter when compared to traditional human drivers behind the wheel. 

No. 4 – More homes per acre

Get ready for more homes per acre, with the days of wide streets, massive driveways, and two-/three-car garages a thing of the past. Builders will be able to get significantly higher density, and consumers will be buying a home where 100% of the square footage is truly livable. We’re already seeing apartment developers shifting to zero parking. Innovative master-planned communities such as Florida’s new Babcock Ranch (eventually home to 50,000 residents) are already utilizing AV community shuttles, with the goal of having on-demand AVs that individual residents can use via smart-phone apps.

No. 5 – Declining construction costs

Construction costs should decline as transportation costs plummet for moving building products from manufacturing facilities/warehouses to new home construction sites. Construction timelines should also improve for home builders as the transportation of building products becomes a 24/7 operation handled by AVs. Labor may also become more available due to mobility improvements brought about by AVs coupled with displaced workers in other industries (energy, auto, trucking). These developments should allow for faster new home construction at a lower cost.

No. 6 – Fewer home sales

Fewer homes sales will occur as the elderly will be able to stay in their existing homes long after losing their driving rights.

No. 7 – Demand for assisted living facilities could fall

Longer-term housing turnover will likely be suppressed as AVs enable the elderly to stay in their existing home while aging in place, maintaining independence despite losing their driving rights. Demand for assisted-living facilities could also fall as a result, especially when compared to past generations.

No. 8 – Repair and remodeling increase

There is a bullish case for repair and remodel industry, as AVs enable more retirees to age in place. Grab bars, slip-resistant flooring, and wider doors/hallways to accommodate wheel chairs are just a few examples of remodeling projects associated with aging in place. In addition, garages previously used to store cars will increasingly be converted to functioning living space, requiring complete overhauls.

Summary: Impact of driverless cars

  • More money in consumers’ wallets

As automobiles shift from a consumer good (owned/leased) to service (on demand), loan/lease payments, fuel, maintenance, and insurance costs will disappear almost completely. The boost to household disposable income will be significant once scaled.

  • A productivity boost for everyone

A jump-start in wage growth and overall economic activity will happen. Beyond shortening commute times due to better reliability and efficiency than human drivers, AVs , or driverless cars, will transform billions of commuting hours into time that can be reclaimed for remote working or personal recharging (which should boost in office productivity too). Some of this previously lost time will also be reallocated to media consumption and online shopping.

 Money that consumers previously spent on owning/maintaining their cars will now be spent on other things while riding in them. Industry productivity should also improve as 24/7 AVs enable more to be done in less time across various supply chains and logistics channels.

“All in all, we expect the advent of AVs, or driverless cars,  to benefit the overall housing market and greater economy,” Palacios writes.

“How it shakes out and who the industry winners/losers will be remain up for debate. The above is our assessment based on what we know today, which could quickly change depending on government policies, which are hard to predict.

“For builders and developers not already doing so, it is imperative to begin strategizing on how your business may shift as AVs gain scale,” he said.

This article courtesy of John Burns Real Estate Consulting.

About Rick Palacios Jr.

Rick, senior vice president and director of research, oversees subscription research conclusions, producing timely, accurate and thorough analyses.  He is particularly well-known for quantifying the impact on housing of unique industry events, such as surging student loans or falling oil prices. Rick originally joined John Burns Real Estate Consulting in 2006, and then re-joined the company in 2014 after working as a home builder Equity Research Associate at Morgan Stanley in New York. He has also worked as an Analyst at the Milken Institute, and as a Senior Investment Banking Analyst. Rick holds a B.A. from the University of California, Irvine, and an M.S. in Real Estate Economics and Finance from the London School of Economics, and works in our Irvine office. If you have any questions, please contact Rick at (949) 870-1244 or by email at rpalacios@realestateconsulting.com.

Photo credit: By DimiTVP (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

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