Stop Building Garages: How Driverless Cars Will Affect Real Estate

Driver-less cars are going to change a lot, and if you haven’t been actively reading about this, then it’s most likely going to happen much faster than you’re expecting. At first glance, there may not seem to be much overlap between the auto industry and the real estate industry, but the impacts and infrastructure changes from this technology will be felt by everyone. As investors, it’s our responsibility to understand changes as far out in advance as possible so we can adapt to progress and mitigate new risks.

Just about everything in this article takes place across the next 15–30+ years, which may seem useless to some. However, if you’re currently buying 30-year mortgages then you’ve got commitments that fall well within this transition period, and these changes will affect you. Having a better understanding of the future can be massive risk-mitigation tool against getting caught off guard when changes negatively affect you.

Driving Will Change Where People Want to Live Because Cars Will Commute for Us

Imagine you could wake up at 6 a.m. and crawl into your car and tell it to head to work while you got back to sleep. In two hours, you’re there, you’re safe, fully rested, and you arrive at work on time without having to deal with traffic or the monotonous task of driving. This is not science fiction. In fact, based on today’s technology, this isn’t even far fetched. This is science inevitability.

So how does this affect real estate? Well, think of all the people who don’t want to live in Washington D.C., Los Angeles, or New York City. What if they could live an hour or two outside the city and commute to work without losing any real time out of their day? How might this affect home values in a city when people can commute there easily without having to live there — and without making any sacrifice to do so? It doesn’t even have to be this extreme, either. Lots of people would be willing to commute for one hour each way if they didn’t have to drive. This creates a lot of space between a city hub and the places people can live without taking on the financial burden of city costs.

Might home values in a city go down when the necessity to live close by is reduced? Maybe cities will create an even larger price premium for those who can afford to live there while the masses are forced to commute an hour or two each day from poorer suburbs.

Cars Will Be the Next Rental Real Estate—Owning a Car Will Be a Luxury

Car ownership is going to be a thing of the past before you know it. Sound crazy? It’s not even a secret in the auto industry. Did you know that Ford, the oldest car company in America, has announced it’s going to stop selling cars and just sell trucks and SUVs? How can they do this? That’s a lot of cars to give up on selling … unless they don’t expect to lose that many sales. Companies who host ride sharing like Uber, Waymo, and Lyft are developing fully autonomous vehicles and are building fleets to replace personal car as we speak. General Motors is building a mass-market, fully autonomous car right now that will not be sold to the public. It will be only be used as part of a ride-sharing platform and available (supposedly) in 2019. That means two of the biggest auto manufacturers are starting to just flat-out not sell their products to the public. This is a signal of really big change.

Owning a car isn’t really that expensive, but there is zero return on investment. It’s only an expense. However, once cars can finally drive themselves 24-hours a day, all while producing income, the value of ownership will go through the roof. The most likely scenario is that Uber will sell unlimited-use passes by the month, and we will all happily give up car ownership in trade. It’ll be on-demand, easy, fast, and awesome. It may sound far fetched, but people will happily give up car ownership in the not-so-distant future when the cost savings become obvious. The value of any business is based on it’s income production. If you think cars are expensive now, imagine how much more they might cost when it’s a guaranteed profitable purchase.

Those with means to own their personal cars will create a moat between social classes. These days we might see a Ferrari and say, “Oooooh, that person has money! Look at their fancy car!” In the future, someone driving a Camry might get similar treatment: “Ooooooh, that person has money, they can afford to have a personal car!!!”

Lots of people in America buy their own homes, and some own an extra house as a rental. The volume of landlords is relatively small because owning a house requires capital, resources, knowledge, risk mitigation, etc. In the future, cars will be the new rental real estate; people with means will still own their cars, and a few will own an extra car. The second car will drive itself around as part of a ride-sharing platform and produce income, just like a taxi, but passive.

Remember That Extra 900 Square Feet Everyone Had to Add to Our Houses to House a Car? What Were They Called? Oh Right, Garages!

Why would you need a garage if you don’t own a car? What value does a garage provide? Storage, for sure: We get to put our unsightly water heater there, the Christmas decorations, and the treadmill that my wife just had to own. Is that all worth the space and cost that a garage requires? Not likely. So will garages be a premium in the future, or a nuisance? More likely it’ll fade from importance in middle-to-low-end housing and continue in luxury homes.

This problem is already being tackled with large parking garages. It might be a bold claim to say you won’t need your garage in 20 years, but the world really won’t need massive multi-level parking garages. Efforts are already being made to find out how to convert these spaces into light retail, office, storage and other amenities. It’s not going to be feasible to tear down all that concrete, but it will be imperative to find something useful to do with all that space.

Currently we pay a premium for garages because they are a highly sought after convenience. However, when the majority of people don’t own cars, will that garage command a premium? Or will it be a detriment?

What’s the Land Underneath a Gas Station Worth?

Some of the most valuable land you can find is sitting underneath a gas station, and for good reason. Corner lots with good road access on busy cross streets serve a lot of cars and provide tons of ancillary needs. (Where else are we supposed to buy Slim Jims?). This infrastructure has been built up over decades and billions of drivers, but at its core it really relies on one thing: the internal combustion engine.

Electric cars, however, don’t need gasoline (surprise!). You’ll charge at your home and probably at work. So how often are we going to need a gas station then? Hard to say, but the fact is, people will use a lot less gasoline, and my assumption is they will use gas stations much less.

Now, obviously, some operators will find competitive advantages to survive, but many will not. And in rural areas, we should expect this problem to be much worse. A complete halt on gasoline sales is unlikely, because there are still uses for the product: small engines, generators, non-EV-conformers, etc. That’s a pretty weak position to hold onto though. Lots of industries are long gone, but still have niche support. Walmart will still sell you a CD Walkman (I saw one recently for $30!), but you wouldn’t use that example to highlight the value of compact discs.

When gasoline sales do slow, what will gas station owners do? I personally think most will go away, but not before suffering increasingly diminished profits as they experience the decline. Many will sell their businesses because of this, and what will their assets be worth? No one wants to look at a declining income statement trend and then pay top dollar. What about all the stores attached or adjacent to gas stations that capitalize on the heavy traffic? I’ve heard of no great solutions to these questions, but that won’t stop the impending takeover of autonomous and electric cars.

How Long Will All My Daydreaming Take to Come to Fruition?

If you don’t read often about this topic, then it’s likely that this transition will happen much sooner than you would guess. People hear about autonomous cars and say, “It’ll never happen.” Well, “never” will begin in 2020 when both General Motors, Ford, and others start to produce mass-market autonomous cars. What happens when every cab and Uber driver across the country goes jobless in a few short years? Ride sharing platforms will replace car ownership, as I mentioned earlier, and it will start next year. GM has publicly announced plans to build cars not sold to the public. They will only be part of their ride sharing platform….next year. How will home values be affected when waves of mass unemployment start? Take everything I’ve mentioned so far and apply it to truck drivers as well. In fact, they will be unemployed first, as autonomous 18-wheelers are already being used in the UK.

Unfortunately, I have no good advice for how to adapt to this, but anticipation and being proactive about change should help. For the “It’ll never happen” camp, they will not take any measures to protect themselves and it will cost them dearly. What I don’t want to convey here is not to buy a house with a garage because you might not need one in 30 years. That’s silly, but maybe get used to the idea of not needing one in the future. Sleeping in our cars is what poor college kids do when they are really stretching, but in 10 years it might be a feasible temporary option instead of stretching to rent an apartment. Twenty years ago smartphones didn’t exist, now I can’t go three minutes without touching mine. It’s important not to get too confident of what is normal, as you may get caught stuck in the past.

You don’t need to have an MBA to know that businesses who refuse to participate in new technology go under. The board members at Blockbuster obviously had a strict head-in-the-sand policy. Don’t be like Blockbuster. Embrace and adapt to changing technology.

What do you think? Am I on to something?

Where do you see the future of garages and personal vehicles? Share below!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.