Real estate is one of the few industries in the world that’s bigger than transportation. But in the coming decades, companies like Uber and Lyft—eventually super-charged by self-driving cars—are likely to change living patterns and upend property markets in ways that we’ve only begun to understand.
The most interesting thing to me is that the shift is already beginning to happen in some urban areas, and I expect that residential and commercial real estate values are going to start adjusting much faster than people expect.
Let me start with a personal vignette. My wife and I have been thinking about moving homes in San Francisco, and going into the search our default position was that the house absolutely had to be within quick—and flat—walking distance of good grocery stores and restaurants. Unsurprisingly, this is also the perspective of many other potential buyers and real-estate prices reflect walkability even within the city’s many micro-neighborhoods.
In the process of looking at various homes and prices, however, it struck me that at the dawn of the era of instant, reliable, and inexpensive ride-sharing services, immediate walkability feels over-priced in the market. I am just not willing to pay the same premium for the easy stroll to the grocery when the cost of living up the hill is just a few dollars and a minute or two of transit time, as opposed to dealing with the hassle of a car and parking. There is a ring of ‘Uber houses’ within cities that are going to appreciate, and likely a set of super-prime locations that will correspondingly lose value.
The story also holds for commercial real estate. I was having a beer recently with a friend, Jared Friedman, the co-founder of Scribd. We were discussing how Scribd is now paying for its employees to take Lyft Line to and from work because they think it’s a good thing for their employees to be able to minimize transit time and maximize productive time. Jared also mentioned that because of Lyft and Uber he now regularly goes to restaurants across the city that would once have been too far away to consider. If Jared is an early indication, the importance of walkability for businesses like restaurants is probably going to change as well—and the value of prime commercial real estate will shift accordingly.
The question of how technology and infrastructure investment impacts real estate values is obviously not a new one. Transit projects like highways and railroads have not just influenced real estate values; in many instances, like the trolley system in San Francisco or the great railroads of the Western U.S., the business model for transportation investment was built on real estate. The Interstate highway system is generally agreed to have been a huge factor in driving the postwar migration from cities to suburbs.
Communications technologies have had a similarly dramatic impact on living patterns and business location decisions. In the 1990s, the dawn of the Internet era spurred a deep and serious debate on whether telecommuting would finally "free" people to leave the cities, or if the Internet as a coordination tool would compound the value that cities provide for people. (The winning side of that debate seems clear with 20/20 hindsight.)
The next wave of technology —and self-driving cars in particular—should dwarf almost everything we have seen to date in terms of impact on how we live and the values we assign to real estate. Removing the cost and the errors associated with human drivers should increase the functional size of cities and make the suburbs and exurbs more desirable by enabling quicker trips and reducing traffic. It's quite possible, even likely, that the same technology will eventually usher in a world of truly on-demand access where 'ownership' of things becomes an undesirable burden. That could free us to have smaller and more efficient homes, which in turn could lower the friction of moving and make the idea of a long-term homestead less of a foregone conclusion for how we live.
But what I find exciting is that while that future is a long way off, it feels like we are seeing the beginning of it in small but noticeable ways. It is going to be interesting to see who capitalizes on this, because unlike the railroad companies I don’t see Uber dealing in real-estate any time too soon.