By Rick Palacios Jr., Director of Research
The combination of widespread ride-sharing and self-driving cars will reshape housing in 8 significant ways:
- Prime real estate will be unlocked for new home construction (parking lots, auto dealerships, gas stations).
- Outlying drive-until-you-qualify housing markets will eventually reemerge once the majority of core infill markets have repurposed their prime real estate.
- Urban employment should continue rising as prime real estate is repurposed for housing, allowing more people to live closer to city centers.
- Density will increase, with the days of wide streets, massive driveways, and two-/three-car garages a thing of the past.
- Construction costs will decline as transportation costs plummet for moving building products from manufacturing facilities/warehouses to new home construction sites.
- Fewer home sales will occur, as the elderly will be able to stay in their existing home long after losing their driving rights.
- Assisted-living facility demand will be less than most people expect.
- Repair and remodeling will flourish due to seniors remodeling their homes to age in place. Millions of garages will also be converted to fully functioning livable space.
Fully autonomous vehicles (AVs) should become commonplace within 10–20 years, disrupting entire industries while triggering structural shifts in housing and the economy. 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. 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 evolve. Regardless of the adoption rate, AVs are the future, and the long-term economic impacts include:
- 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, jump-starting wage growth and overall economic activity. Beyond shortening commute times due to better reliability and efficiency than human drivers, AVs 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.
So what impact will AVs and ride-sharing have on the housing market? We think a big one. As outlined above, increases in disposable income and productivity from AVs should drive overall economic growth higher, a positive for housing. 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:
- Prime real estate will be unlocked 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.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.
All in all, we expect the advent of AVs to benefit the overall housing market and greater economy. 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.