Self-driving cars will completely transform urban city landscapes, and possibly even change the nature of real estate as we know it. This transformation will both create and destroy trillions of dollars in wealth.
Headed into 2020, self-driving cars are a disappointment relative to expectations. They were supposed to be dominating the roads by now, but the delay doesn’t change the ultimate impact self-driving cars will have. And the fact that expectations ran far ahead of actual delivery is not surprising.
Any technology that is sufficiently game-changing needs to attract investment capital to be developed and built out at scale. As a result, the technology and its surrounding components experience a “hype cycle.” The hype is used to drum up large amounts of investor capital.
The hype also naturally drives short-term expectations because investors are impatient. When short-term expectations prove too optimistic, investors feel disappointed or lose interest. But then the actual development happens and transformation follows.
The internet itself went through a process like this. By the end of 1999, investors were convinced the internet would change the world. Then the dot-com bubble popped and expectations were dashed. Except now we know that companies like Amazon, Google, and Apple really did change everything. It just took longer than expected.
The aggressive development of self-driving car technology is immune to sentiment shifts at this point. The tech giants know the self-driving space is a trillion-dollar opportunity, and they also know whichever tech giant wins will have a massive scale-and-profit edge over its rivals. As such, the tech giants are going all-out on self-driving. There is too much at stake to do anything else.
Self-driving cars will transform cities and urban centers, and even the nature of real estate itself, by their indirect impacts.
Take the problems of overcrowding and unaffordable housing, for example. The most desirable cities are becoming impossible to live in without a top-tier income. Now imagine a self-driving bus with free Wi-Fi, coffee, minimal noise, and even workspace partitions — basically, a co-working space on wheels. It has its own self-driving lane and gets you into the city in less than an hour while you work from your seat.
As a result, city housing can become a luxury and city housing costs will fall as supply options expand. It will no longer be a burden to live outside the city, and many families will prefer new homes in a perimeter neighborhood.
But that is only the beginning. The even more radical change will be no more human-driven cars in the heart of the city itself. After dropping you off, your self-driving car will park itself in a garage five miles away. If your car is not self-driving, you would park it at the equivalent of an airport lot outside the city.
In the city proper, meanwhile, there aren’t any human drivers other than special permit vehicles. This means reclaiming all the parking spaces and parking lots, which means new opportunities for real estate. A study from Woods Bagot, an international architectural firm, estimated the city of Los Angeles to have 27 square miles of parking space. The study further estimated LA County to have 101 square miles of parking space, more than four times the surface area of Manhattan.
The key here is forgoing mixed-use roads for “self-driving only” lanes and city zones, which will happen. This solves the “last mile” problem of trying to teach a self-driving car to anticipate what an unreliable and unpredictable human will do.
On the investing front, there will be huge winners and huge losers from this transformation. You wouldn’t want to be in the car insurance business, or own a string of auto body repair shops, or have your net worth tied up in gas stations and restaurants associated with highway rest stops.
The transformational impact of self-driving cars won't happen tomorrow. But the number of electric vehicles (EVs) in operation will rise dramatically in the next few years as new factories come online and self-driving technology advances rapidly behind the scenes.
Within two or three years, we are likely to see a proliferation of urban pilot programs, where self-driving experiments start showing up in many cities. By the second half of the 2020s, the real changes will start to be felt.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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