February 12, 2018   3 mins

First the pebble makes a splash and then the splash makes a splash. Or, to use fancier words, first order effects are followed by second order effects.

On Medium, Phil Levin of the 99mph consultancy applies this framework to the impact of self-driving cars:

“A lot has been written about the ‘first order’ effects of autonomous vehicles (AVs): How they will reduce traffic fatalities, make rides more comfortable, or put truck drivers out of work. But the bigger story here is the ‘second order’ effects — how improvements in mobility will cause us to reexamine fundamental assumptions of how we live.”

The second order effect he’s particularly interested in is the impact of self-driving cars on property prices. Unsurprisingly, prices are highest were property is closest to where people want to be. However, the effect of self-driving cars will be to lessen the tyranny of distance:

“Autonomous vehicles make commutes more pleasant, so people will be willing to live further out: A 40 minute commute in traffic is a different animal if you are watching TV, napping or answering email instead of focused with hands on the wheel…

“…Autonomous vehicles may even shorten commutes: This one is hotly debated, but some believe AVs will reduce travel time by packing roadways with more cars per lane or increasing average speed through vehicle-to-vehicle communication.”

Levin and his team modelled the effect on the property market in and around America’s biggest cities. There will be money to be made:

“We conservatively estimate that ~$1 trillion of residential property value is going to shift across 13 major US cities due to autonomous vehicles.”

The shift, of course, will be from closer in to further out i.e. from city centres to suburbs.

Somewhat controversially, the model assumes that driverless cars will undermine public transport (the availability of which is currently a big plus point for city centres):

“Autonomous vehicles will eat away at public transit: This will be true for even the most convenient transit corridors. Public transit, which already struggles fiscally in most major cities and is starting to lose share to Uber, simply won’t be able to compete with the combination of convenience, comfort and price offered by efficient on-demand autonomous vehicle fleets…Expect a correction for anywhere that ‘public transit proximity’ is baked favorably into property values.”

Levin says one “doesn’t have to like this conclusion for it to be true”. Fair enough, but I’m not sure it needs to be true. Self-driving vehicle technology could actually be a huge boost to public transport – especially buses:

  • Firstly, driverless buses and minibuses (and perhaps much smaller vehicles) will have lower costs.
  • Secondly, advanced management of traffic flows has the potential to reduce congestion and increase transit speeds and timetable reliability.
  • Thirdly, there will be less of a distinction between bus and taxi services, i.e. flexible routing in response to real time data will deploy vehicles to where the demand is.
  • Fourthly, with improvements on price, speed, reliability, flexibility and convenience, demand will increase, providing an economic basis for more services.
  • Finally, increased demand for all forms of driverless road transport may force the authorities to skew incentives towards vehicles that use up less road-space per passenger i.e. larger vehicles with more seats.

If this more optimistic scenario for public transport does prove true, I think we will still see the shift in property values that Phil Levin forecasts. Using advanced technology to extend the geographical area over which public transport is easily accessible and properly joined-up will make living outside of the city centres more desirable.

When a new subway line opens, the benefit is reflected in local property prices. Some people believe this enhanced land value should be captured for the public good, not left to land owners who contributed nothing to the improvement. If driverless vehicles do make it to the market – and if they are successfully integrated into city transportation networks, then it will be like a new subway line opening in every suburb at once.

That a lot of money will be made is beyond doubt. The only question is who makes it.

Peter Franklin is Associate Editor of UnHerd. He was previously a policy advisor and speechwriter on environmental and social issues.