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Will driverless cars re-route the property market?

Road congestion explains much of why residential property assets become more valuable the closer they are situated to the main employment hubs – our capital city CBDs – and why that trend is far stronger today than, say, 30 years ago.

Put simply, an aversion to being stuck in traffic during the morning and afternoon rush hours results in a buyer paying hundreds of thousands of dollars more for a property that has a daily commuting times of say 30 or 40 minutes less than a further-flung-from-the-CBD but otherwise equivalent property.

Similarly, our nation’s commitment (some might say addiction) to car ownership (eight out of ten households have at least one vehicle, according to the ABS) underpins my no-buts rule that every apartment investment must have a dedicated parking space on the title. Yes, anecdotally a parking space adds around 10% to the purchase price but that ‘loading’ only underlines the value we ascribe to the use of a car and is always repaid down the road (excuse the pun) with interest by the comparative ease in finding tenants and, eventually, in a higher resale value.

My attitude to investment apartment parking spaces is quite confronting to some. I’m accused of inflexibility and dogmatism. Surely there are exceptions I’m implored. What about apartments next to train stations? Or environmentally designed blocks with secure bike racks, on the doorstep of the CBD, adjacent to an off-street direct-to-your-office bike lane? Or apartments that offer unlimited free Uber in lieu of a parking space?

But I remain unmoved, despite the increasingly outlandish and creative compensation developers come up with for that missing three by seven metres of bitumen.

A future of driverless cars is now being wheeled out as an argument to give up the parking space. It goes like this: the first driverless cars are on the road now, precipitating a fleet of driverless hire cars such that an individual can confidently summon a vehicle at will to arrive at very short notice. Consequently, car ownership and driver-steered commuting rates will collapse. Computer-optimised use of the driverless fleet will reduce congestion significantly and CBD parking spaces will become redundant and converted to wider pavements. The driverless car will make the parking space – at home and in the city – as anachronistic as the steering wheel.

Will this happen? Yes it might. Indeed, wouldn’t it be wonderful? I agree that a significant fall in household car ownership rates would be reason to re-evaluate the investment apartment car space rule.

But, how far away is this future? And, are you willing to choose the apartment without the space today, and so effectively place a large bet on it happening sooner rather than later?

I don’t think the driverless, congestion-free, parking-free future is close enough to make that bet. And I don’t think I’m alone. Indeed, the Grattan Institute has released a report, Stuck in traffic? Road congestion in Sydney and Melbourne, that shows that congestion in our major cities is becoming worse. The authors suggest several solutions – generally around peak road-use pricing – that can alleviate the issue but are silent on driverless cars as an option.

I’ve characterised investing in an apartment without a car space as a bet.  And it is. One is speculating large amounts of money on a great uncertainty. An even more risky bet would be buying a far-flung property because driverless cars might erode the price premium of the inner suburbs over fringe areas.

I look forward to a congestion-free future. But I’m not betting on it.

Richard Wakelin