How Self-Driving Cars Will Transform Cities

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, not just in the automotive industry, but all the industries adjacent to it.

Headed into 2020, self-driving cars are a disappointment relative to expectations. They were supposed to be dominating the roads by now, and they obviously aren’t. The “minor details” of making self-driving technology sufficiently reliable turned out not to be so minor. Instead, they were huge.

But the timing 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. This is actually a common phenomenon.

Any technology that is sufficiently game-changing needs to attract investment capital to be developed and built out at scale. As a result of this need, the technology and its surrounding components experience a “hype cycle.”

The hype is used to drum up large amounts of investor capital: Without the hype, you don’t get the large quantities of investment necessary to fund the new build-out.

Then, too, the hype is naturally attached to 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 — just over a longer time frame — 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, years later, we know companies like Amazon, Google, and Apple (and later Facebook) really did change everything, which means the internet changed everything. It just took more time than initially allotted.

The 3D-printing industry is another candidate for this. Investors got excited about 3D printing way too early. The companies couldn’t live up to the original hype, and the personal focus of the first 3D-printing wave was likely wrong (an industrial focus makes more sense). But eventually, and likely by the late 2020s, industrial-scale 3D printing will be huge.

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 and will continue to do so no matter what. There is too much at stake to do anything else. First prize is world domination, second prize is a ten-figure return on investment, and third prize is a set of steak knives. Never before in history has a single technology seen such a well-funded assault in terms of capital, talent, and resources at scale.

Self-driving cars will transform cities and urban centers, and even the nature of real estate itself, by their indirect impacts — the second-level and third-level effects.

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. As of this writing, nobody knows how this problem will be solved, and there is a great deal of hand-wringing over it.

Now imagine a self-driving bus that feels like a first-class train car. There is free Wi-Fi and great coffee and a minimum of noise (maybe classical music or smooth jazz). There are even workspace partitions that set up like a mini-office; the whole thing is a rolling co-work space.

This self-driving bus — again, basically a co-working space on wheels — has its own self-driving lane that human-driven cars aren’t allowed to use. It gets you into the city in less than an hour. Meanwhile, your work day doesn’t have to wait: You can get to work as soon as you settle in your seat.

The bottom line is that a combination of self-driving bus services (and single-occupant private car services) can ultimately make the worker-commuting distance irrelevant.

People will get used to starting work in a well-appointed self-driving vehicle; from that point, it won’t matter if they live farther out. This, in turn, will make it easier for cities to support perimeter neighborhoods — a kind of outer ring that could be 100 miles in diameter.

Low-cost yet high quality transportation, which functions as a rolling co-working space, removes the distance problem. Oh, and by the way: There is no traffic to speak of for these commuters, because the self-driving lane always runs at 70 or 80 miles an hour.

As a result of this change, housing within the city can become a luxury good. In conjunction with that, 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 intentionally prefer new homes in a newly built 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, which means no more parking spaces.

In this scenario, only self-driving cars are allowed into the city center. After dropping you off, your self-driving car goes and parks itself in a garage or lot five miles away. This parking area can be super high density because no human drivers have to navigate it. If your car is old fashioned and non-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 worth 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.

Getting rid of parking lots — and parking spaces in general — will create mind-blowing opportunities.

The reclaiming of parking-related land will get underway at scale just as the next generation of 21st century building materials comes into its own. It will also happen alongside a complete rethink of how an urban center can look and feel when traffic is taken out of the picture.

Even if self-driving transport vehicles still operate within the city, by the way, they will do so at far greater efficiency and speed. When you remove the human driver and add a central control system, self-driving cars can travel almost bumper-to-bumper in a perfectly choreographed stream. They can navigate complex interchanges, pass through underground tunnels, and do many other things a human driver never would or could.

Before the self-driving era kicks off, we are already catching glimpses of how top-tier cities will transform themselves. The competitive challenge for cities will be attracting and retaining educated workers, whose clustered presence attracts top-tier companies and high-end service businesses.

Cities like New York, Atlanta, and Los Angeles already have big initiatives adding beauty to the landscape — taking ugly industrial structures and capping them off with green parks and gardens. Concepts like this will accelerate and expand as parking lots and traffic disappear.

The developments discussed here are baked into the cake in part because they don’t require sharing the road with humans. Self-driving commuter transport vehicles can have their own lanes and routes, and urban centers can phase out human drivers entirely. This is overwhelmingly the rational thing to do, and after a few cities figure it out, the rest will copy them.

The key here is forgoing mixed-use roads for “self-driving only” lanes and city zones, which will happen. This, in turn, solves the “last mile” problem of trying to teach a self-driving car to anticipate what an unreliable and unpredictable human will do. Humans will get used to this in the same way present-day city dwellers are comfortable using subways.

It may be that, a generation or two from now, the idea of “driving your own car” will sound as odd as “flying your own plane.” Those who drive their cars would then be like people flying an aircraft — either professionals or hobbyists.

On the investing front, there will be huge winners from this transformation — and huge losers, too.

You wouldn’t want to be in the car insurance business, for example, 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. Those and many other business models will be toast.

The transformational impact of self-driving cars won’t happen tomorrow. As we turn the corner into 2020, we are still gearing up for these changes to accelerate.

But the number of electric vehicles (EVs) in operation will rise dramatically in the next few years as new EV factories come online — that will naturally accelerate the trend — and self-driving car technology is still advancing rapidly behind the scenes.

Within two or three years, we are likely to see a proliferation of urban pilot programs, where self-driving experiments backed by local transport authorities start showing up in many cities. By the second half of the 2020s, that is to say 2025-2030, the real changes will start to be felt.

TradeSmith Research Team