The Impact of Smart Cities on Real Estate

The Impact of Smart Cities on Real Estate

Smart Cities are coming to a metro near you. These "connected" cities are expected be more desirable to live in than those that are not "smart". And generally, the more desirable a city gets, the higher the value of its real estate (duh, right?).

But the devil is in the details. How will this increase be manifested? Will it be an equal increase all around? Will the effect stop at some point? To answer this, we'd have to get a deeper understanding of what a smart city achieves and what actually makes it "smart".

Besides being cool, the value they offer is making infrastructure and overall living in the city more efficient. The wikipedia definition of a smart city is:

An urban area that uses different types of electronic data collection sensors to supply information which is used to manage assets and resources efficiently... This includes... traffic and transportation systems, power plants, water supply networks, waste management, law enforcement, information systems, schools, libraries, hospitals, and other community services.

This would mean using real time data for likewise optimization of traffic patterns, better internet infrastructure for working from home, better crime prevention, digitization of government services, and much more. The mature state of the Smart City would come when this more developed instance of public data is used for enterprise. Theoretically, private companies would use this data to develop a technological framework that would coordinate all the moving parts of a city, so as to become a singular super entity.

aerial photography of city during night time
Photo by NASA / Unsplash

One of the biggest impacts of the Smart City efficiency gains is in everyday logistics: Commuting to work. Using the internet. Going out socially. Running errands.

When traffic is optimized and the people on the outskirts can enjoy the things usually only available in Midtown, what you end up getting is the socio-technological effect of the world "shrinking". Like how social media has done this from the standpoint of interpersonal network reach and general awareness, Smart Cities would literally shrink the amount of time it would take for you to get anywhere and do the things you need to do.

In Real Estate, a lot of what makes a "luxury" home is the location, as in its vicinity to the city and the popular elements of it. As Smart Cities extend the range of distance that someone can enjoy the benefits of centrality, the radius of what is considered a "luxury" location would also extend.

black steel barricade
Photo by Jamie Street / Unsplash
bird's eye view photo of concrete houses and street
Photo by chuttersnap / Unsplash

The knee jerk reaction here is to think that this necessarily means a general and proportional bump of real estate values all the way out to the sticks. While this may be true when comparing between a Smart City and a non-connected city, one must remember that the pool of demand is not infinite.

When "democratizing" the benefits of the city outwards for a finite group of buyers, you would likely see that same flattening out of real estate values as you wonder out from the center. This means the premium for the luxury city location would shrink as the world "shrinks".

Ironically, this would also mean a reversal of the modern urbanization era, as this technology becomes more ubiquitous. When people can enjoy a 30 minute commute at the 3am road time, but during 5pm rush hour, it no longer becomes a necessity to live within stone's throw of their workplace.

People in real estate should keep an eye out for this trend in the coming decade or two. After all, the only way to catch a wave is to stay ahead of it.