What Will Robots Do to Property Values?

(Photo: vincent desjardins)

(Photo: vincent desjardins)

Our podcast this week is all about driving. Last spring, we had a podcast on driverless vehicles that heavily focused on its likely positive safety impacts. Over at Economix, economist Casey Mulligan explores another likely effect of both driverless cars and the drone delivery services that Amazon is experimenting with:  property values increase in urban centers.  Here’s Mulligan’s theory:

As technology helps with moving goods and people more cheaply, it might seem that urban real estate would give up some of its price premium because distance becomes less of an obstacle to economic transactions. Wouldn’t a driverless car cause some workers to sell their Manhattan apartments and commute to their jobs from more spacious homes in the suburbs or even rural New York State?

But don’t forget that many people and businesses currently avoid urban areas because of the monthly expense of owning or renting urban property. New technologies might allow them to use urban properties on a part-time basis, or use less urban property to accomplish the same tasks, which would make urban property more valuable.

A restaurant may need less refrigeration and storage space because it takes multiple food deliveries per day. Grocery stores may save on shelf space by having a greater fraction of their items delivered directly to customers without being shelved in the store. Households may opt for less storage space or parking, for example — and more room for people — when they can get items and transportation cheaply and on time.

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  1. Badger says:

    So using less urban property ( a reduction in demand) will make it more valuable? That seems unlikely.

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    • Jared N says:

      Hahahahaha I had the same exact thought. Doesn’t it usually work the other way around?

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    • Clancy says:

      It makes some sense if you think about it. If I own a building with enough space for two restaurants and suddenly the restaurants need much less space, now maybe I can add a third restaurant. Now my building is worth more because I can get 3 restaurants worth of rent instead of 2.

      If I can build an apartment building with 50 units with space for parking, maybe I can build 70 units with no parking on the same amount of land. Maybe I’ll have to lower the rent on each unit, but I’ll make up for it in volume.

      Overall, rents might go down, but land value might go up.

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    • tylerh says:

      The more efficient use of space lowers the “barrier to entry,” expanding demand.

      If one ‘s lifestyle requires 600 sq ft of personal space, and that personal space runs $1/sq ft/month, then anyone with less then $600/month is priced out of the market. But if technical improvements mean one can achieve the identical quality of life with 400 sq ft, then people with only $400 will enter enter the market, increasing demand for personal space.

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      • Michael says:

        Demand will go up, yes. Anyone who has ever seen a demand curve knows that when prices fall demand goes up. However, the removal of barriers to entry will be in the form of a reduced price.

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  2. KC says:

    In the case of Amazon’s drone deliveries, I would imagine that they would make large urban centers more desirable. They are short range, and they need to be near to a very well-stocked warehouse. They are only the last leg of the delivery chain, and couldn’t really be deployed in rural areas. That is, only people living near or at large urban centers could take advantage of them.

    That being said, they would be equally useful for the suburban sprawl around major urban centers, and in fact are less easily deployed for high-density housing. My guess is if they had any effect they would encourage that sprawl, which is already quite pervasive. Other robot technologies would probably much more easily be deployed in higher density areas, I would guess.

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    • Taylor S. Marks says:

      They have a range of 10 miles as the crow flies. So places that are near cities but perhaps have out of the way paths to get to the cities (IE, living on the other side of a river, not near a bridge) suddenly have many of the same advantages of living in the city.

      Where’s my jetpack and flying car so that I can easily take the same routes that Amazon and Dominos drones do?

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  3. PKutney says:

    I think that with the rise of driverless cars, and services like Uber, land prices all around will sink as an enormous quantity of land that was previously occupied by parking spaces becomes available.

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    • Enter your name... says:

      But that goes both ways: The rents will sink, which draws in people who couldn’t afford them before, which pushes them up.

      The bigger factor, I think, will be people who can’t afford rent+car, but can afford just rent—and no longer need a car. So (using made-up numbers) a budget that accommodates a $600 apartment plus a $500 car (payment, insurance, storage, gas, repairs) becomes a $900 apartment plus a $100 transit pass/timeshare for a car plus $100 in shipping/delivery charges each month.

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    • momosgarage says:

      Real Estate values are artificially manipulated, and have never worked this way. What you said won’t be happening in the short term, which is basically within your lifetime.

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  4. Sean K. says:

    I was wondering this earlier today… What do delivery robots sound like? It may be great to get things quickly but the constant buzz of flying robots could be a downer.

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  5. James says:

    Before we get all starry-eyed about drone delivery, we might think about just how these drones could possibly deliver to apartment dwellers. Maybe dive-bomb the package onto a balcony, for those who have outside apartments? Or place the package in the (armored) nose of a short-range missile. and fire it through a window? Those are the only two modes I can think off offhand.

    If we completely neglect the energy requirements of helicopter flight, drones might be workable for some suburbanites (those without shade trees) and penthouse dwellers. But I suspect that, like Musk’s Hyperloop, they’re an idea thought up by a SF reading but not too tech savvy boss, and handed to an engineering staff with a “make it so” dictate.

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    • NPW says:

      We didn’t always have mail boxes or gas stations. If we want to have drone delivered pizza, it isn’t out of reach.

      I figure drones will deliver to my condo in the same manner that UPS/Fedex delivers now. Drop it in a puddle, knock on a door (doesn’t need to be mine), and run off.

      If it was a purely technical question, a UAV could make the route from the pizza joint to the apartment delivering to a mail robot who then in turn brings the pizza up to the door.

      The energy requirements for a VTOL drone is not that bad. The actual cost of a manned helo, or helos of that size, is more due to maintenace costs rather than fuel. The higher costs of VTOL scales somewhat proportionally to size.

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      • James says:

        I suppose that depends on your definition of “that bad”. For some ballpark numbers, the Robinson R-22 (the smallest copter I can think of offhand) burns 7-10 gallons/hour. A light plane with similar cruise speed might burn 1/2-1/3 of that; a ground vehicle could burn under 1 gph, or less by taking full advantage of hybrid/electric tech.

        Nor does the maintenance cost go away simply because it’s a drone. Beyond the fact that you’d presumably like your drones to have a reasonable service life, there would be all sorts of liability issues if they crash.

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      • NPW says:

        @James

        No. The R22 is a manned helo with that could have room for 500 lbs of pizza without a pilot. At less than 3 lbs on average for a pizza that’s overkill. We can use a much smaller class of drone rather than a manned helo converted unmanned. 100ml per 10 mins is all this should take for fuel.

        Maintenance cost would be significantly reduced. It isn’t like we need to do vib analysis or adjust the pitch control rods. Look at turbine RC helos. They do a lot of flying before they need maintenance. You are thinking much too large.

        Apples and oranges. We are delivering pizzas, not sling loads into the mountains of Afghanistan.

        The technical problems are not what will hold this back.

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      • James says:

        The fuel consumption numbers were for comparison of fuel use between delivery methods.

        Presumably a delivery drone is not delivering just one package at a time, then returning to a central depot for the next one – that really would be inefficient. Instead, it would fill its cargo capacity, and depart on a minimum-time route to deliver them all.

        Why would drones be used just to deliver just pizzas? In the past few months, my online orders have included books, computer components, horse blankets, and a wheel bearing & hub assembly for my car. (But no food of any sort.) And in no case did I care whether it got there in an hour, or a week. I always opt for the lowest-cost delivery method: i wonder what fraction of Amazon’s customers do likewise?

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  6. Voice of Reason says:

    I think that drone delivery and driverless cars will have opposite effects:

    Drone Delivery will help urban areas because it benefits “cubic communities” that race towards the sky and not outwards, as there is a certain cubic range that they have, and going up is as easy as going out. If they work, they will never work in rural or suburban areas (but I doubt they will ever catch on).

    Driverless cars will benefit suburban and rural areas. Urban areas already alternatives to driving: walking and metro services. In the suburbs or the country, you have to use a car to get anywhere, so of coarse making driving easier would help.

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    • momosgarage says:

      Existing Building codes will have to be eliminated or radically altered in the USA for this to happen. If you know anything about the AEC businesses you’ll quickly realize that this is basically not going to happen withing your lifetime.

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      • Voice of Reason says:

        Then again, drone delivery might not help urban areas much anyway. The point of living in a dense city is to be close to things, and there is little need to order online at all. It’s not like in a rural area where everything is at least 30 minutes away.

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  7. momosgarage says:

    I keep hearing , “WOW Amazon is going to revolutionize shipping”, but I haven’t heard anything regarding the FAA’s opinion on the idea or the legal repercussions.

    Will the FAA really let Amazon deliver packages, even small ones, by robot drone aircraft, bypassing traditional services like UPS, USPS, FEDEX, DHL etc? Are there existing laws on the books in some states giving an advantage or legal recourse on “physical package deliveries” to conventional services like UPS, USPS, FEDEX, DHL etc?

    I’ll give an example, in my industry companies are chomping at the bit to do LIDAR and laser scanning “billable services” by airborne remote controlled drones, but its not currently legal to use drones for commercial endeavors. Only research organizations and some government agencies have been granted permission by the FAA to do LIDAR and Laser scanning by air/drone. Also, in all these cases the people flying the drones are licensed commercial pilots, not autopilot software robots. Which is where the real “savings” would come from, due no licensed human pilots needing to be on the Amazon payroll.

    So where does the delivery of packages by autopilot drone fit into the overall legal/code issues within the Continental United States?

    In contrast to thousands of potential Amazon drones delivering packages in unknown daily environmental conditions, remote controlled drones currently doing LIDAR scans for construction projects, etc, are performing very controlled events, flown by licensed commercial pilots in short time spans under very controlled environmental circumstances and they are NOT currently allowed to do this for commercial purposes.

    So, what legal mechanism is going to let Amazon put UPS, USPS, FEDEX, DHL etc out of business, while simultaneously twisting the arm of the FAA to allow robots to fly drone aircraft regularly in populated areas around the clock?

    I personally don’t think there is any current way for them to do this legally. I wouldn’t be surprised if the service actually is intended for foreign countries and not within the continental United States.

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  8. Tom Goddu says:

    The overwhelming effect will be the displacement of truck driver jobs and independent trucking companies. 2 million+ jobs will go away. $66 billion/year will not go into their paychecks.
    Trucks will be loaded and unloaded by loading dock workers with no driver in between. Where do the current drivers live? I think they live mostly in suburbs and rural areas. Where will they go when they’re unemployed? Toward cities. Do they have marketable skills? Ummmm….

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