George Jetson Will Never Be Your Neighbor
By Jim Costello Managing Director, Americas Research CBRE Global Research & Consulting We live in the world of tomorrow. Many of the technological marvels highlighted in the science fiction of the past are science facts of our world today. However, even with these advances, George Jetson will never be your neighbor and you are not going to be commuting in a flying car to a condominium in the sky anytime soon. Many of the technology gizmos featured in The Jetsons and other science fiction over the last 100 years are here today: Walkie-talkie wristwatch computers‚ÄîCheck. Videophones‚ÄîCheck. Computers that do the work of humans‚ÄîCheck. Sassy, smart-mouthed maid robot‚Äînot yet, but you can get adaptors for your Roomba. Flying car‚Äîum, no. Yeah, the whole Jetsons thing falls apart with the flying car. Sometimes it is true that nothing ages faster than yesterday‚Äôs tomorrow. Flying cars are technologically possible, just not economically feasible. The energy requirements and costs to get there just are not worth it. As an analog to the flying car, look at personal jet packs, which already exists. Many of us remember watching Lost in Space as kids and wishing we could zip around in personal jet packs like Major Don West. That show, filmed in the 1960s, was not a CGI effect; they actually strapped someone into that machine had them fly around and film it. Right now, the 10-year-old kid in all of us is thinking of trying to commute like that each morning. Forget for a moment that the thing was a death trap. They did not dare strap the actor into the thing; they used a stunt man instead. Moreover, the amount of energy to fuel the jet pack was cost prohibitive, in that it only provided about 30 seconds of flight.¬† Assume we scale that up to some sort of flying pod even made out of lightweight carbon composites and you are not likely to get much in the way of hang time. Obviously, you can‚Äôt get very far in 30 seconds. Even in a metro area like Houston or Atlanta with high humidity, you‚Äôd be better off walking. But what if energy was not a problem? Economists like to make various assumptions about the economy in order to test ideas absent certain constraints. For the sake of argument, let us assume that some new technological innovation made energy cheap, vastly abundant and clean. Put differently, what if we assume that energy was economical enough that all of us could zip around in the private bubbles of our own flying cars just like George Jetson? What would happen to real estate markets? In the past, faced with transformative changes in energy prices and transportation capacity, the time cost of commuting changed. When subways were first introduced in major U.S. cities like New York and Boston, workers were suddenly able to live many miles away from the centers of commerce. Rather than fight the congestion of horse-tram choked streets to commute home to a relatively small apartment a few miles away, they could move into spacious townhomes in neighborhoods where land costs were much cheaper. Fast forward to the next century, highways allowed U.S. metro areas to decentralize further and rather than pay high prices for townhomes in inner suburbs, an outward migration ensued to new suburbs that sprouted up on farmland.¬† With lower land costs out away from the centers of commerce, building ever larger homes became economically feasible. In a glorious future with vastly abundant energy and flying cars, rather than spending a half hour on a subway to travel 5-10 miles, or 20 minutes on a highway to go 15-25 miles, we could all be zipping through the sky at a pace of maybe 200 miles per hour or more. As our robotic controlled flying pods zip us from place to place, we could spend the same amount of time commuting each day and yet live much farther away from our places of work. If one could commute at a 200-mile-per-hour pace, working in Chicago and commuting home at night to a small town in Iowa would be relatively easy. Living on a vast spread in the wilds of Vermont or Maine and working from cubicles in Boston or New York could become commonplace. Some people hearing this will think, ‚ÄúI have too much house as it is, I don‚Äôt want to fly to Iowa each night and spend my whole weekend mowing a 100-acre lawn!‚Äù The tradeoff here is not necessarily that one can live in a bigger house situated on a larger tract of land in the middle of nowhere. Some households would elect to remain in urban cores for the cosmopolitan feel.¬† Satellite cities with moribund urban cores might gentrify quickly.¬† If one can just about as easily get to Bridgeport as with Dumbo or Williamsburg, with the lower rents in Connecticut some portion of the population is going to move. That lower rent is the whole issue why George Jetson will not be your neighbor.¬† LowerCheaper transportation costs bring more developable sites into play across a metropolitan area. If a sizeable number of households elect to move to cheaper locales, the process of competition will bring rents down across U.S. metropolitan areas. This type of outmigration was seen across all major metropolitan areas in the U.S. following the technological shock of new highways. In fact, adjusting for inflation and asset quality, apartment rents have come down roughly 50% since the CPI index was introduced at the beginning of the 20th century. How much rents would fall in the advent of vastly abundant energy is unclear.¬† If only a handful of households elect to move to the wilds of Iowa, Vermont and Maine or even gentrify moribund cities nearby, and consumers showed that they were satisfied with the housing options and commuting patterns of the 19th and 20th centuries, perhaps not enough development sites enter the economy to make a difference on new supply and rental competition. Again though, the ten year old kid in all of us would probably want a flying car, if for nothing else because it was cool, and commuting patterns would change for a number of households.¬† Certainly it would be difficult to see much upward pressure on land prices and ultimately rents in such an environment. A market with limited rent growth is unlikely to build much in the way of high-density housing. A recent study we published highlighted the point that developing high-rise apartment buildings is, in some ways, a function of making the numbers work to reach a targeted return on cost. With land costs so high in urban areas, the only way to hit a targeted return objective is to build a tall tower with a large number of units that command healthy rent premiums.¬† In a market where rents are falling, it would be difficult for such a project to pencil out to profitability. Fundamentally, George Jetson‚Äôs condominium complex floating in the sky is a contradiction. Without a scarcity premium for land, or a limited number of views onto some vista, building tightly packed condominium towers wouldn‚Äôt be viable because there is no scarcity issue to make dense development a requirement. Furthermore, if we had the tools and technologies available to George, housing prices would face even further downward pressure because input costs would be lower. If we are making the energy cost assumptions needed to get to the world of the Jetsons, why not make a few labor cost assumptions too? George, if you recall, was a manufacturing worker, though much of his job at Spacely Sprockets involved taking naps and pushing the button to make sure that the robotic factory was running. Imagine how easy, which is to say inexpensive, it would be to develop buildings in a world where your labor input is as minimal as your land cost? And, with inexpensive energy, the commodities used to build the materials for your building are likely cheaper as well. In such a world of abundance, there would likely be far less demand for high-density housing. Any new technological innovation that made energy so cheap and clean that could make flying cars a reality has the potential to vastly disrupt land use patterns in metropolitan areas. If the sprawl we experienced on the backs of the technological changes in the past serves as a prologue, where people reside and the type of properties they live in would be vastly different in a world where one could commute at speeds of 200 miles per hour. The rationale to build a large, dense multi-housing facilities is largely a function of land cost. As such, in the world of the flying car, George Jetson would not be your neighbor. At best, he would live on the section of land adjoining yours in Iowa. He likely would not live in condominium above yours.¬† That is probably for the best though‚Äîthere was a lot of drama in that family.