Can Taxi Companies Like Uber Expand The Radius Of Cities And Transform Urban Commutes?

When a revolution happens, people rarely notice. There might be one taking shape with the way cab services industry in India is evolving.

Uber, the San Francisco-based taxi aggregator, announced on July 6 that it would invest $50 million in Hyderabad over the next few years to build its largest international office outside the United States. In agreement with the newly formed state of Telangana, the company will work on an array of new products and offer employment to a large number of people in the city.

Hyderabad is the capital of both Telangana and Andhra Pradesh and one of India's emerging technology hubs with presence of companies such as Google, Amazon, Accenture and Dell.

Why should this investment matter? How do we expect this to impact real estate in India and the future evolution of cities?

Today, less often than we realize, hired cab services such as the one offered by Uber are accelerating urbanization in India in ways it wasn't envisaged before. There is a general consensus that by reducing transportation costs of people, governments can encourage optimal consumption of real estate.

This can happen in three ways: first, build large, efficient mass transit systems like the subway system in New York city; second, charge people for congestion, because real estate consumption of vehicles is very high; and third, allow driverless hired cab services that do not need much parking space, respond more quickly on the road and do not stand in transit stations to pick up people while reducing the number of vehicles on the road.

Driverless cabs are not yet driving on India's roads, but with services like Uber, this may not be far from becoming a reality (see point 5). 

Though Uber was banned in Delhi after a woman accused a cab driver of rape, Uber cabs still continue to operate in the city. While crimes in cities, whatever be the cause, must be top priority of governments, the easy availability of multiple auto providers in India's cities has led to rationalisation of fares and easier commutes for citizens. Uber cabs, for example, are now cheaper than auto rickshaws in Delhi.

One of the greatest barriers to urbanization in India and in much of the world has been inefficient mass transit systems that hinder mobility. Government officials and urban planners have often attempted to create ideal transportation systems for cities, but this hasn't materialized in ways that would facilitate urbanisation.

Here, we look at reasons why mass transit systems haven't worked in cities and how companies like Uber can help:

1. Mass transit systems end up being inefficient because when urban labour markets expand, commutes inside a city are less likely to be to and from the city center. The commutes are more likely from suburb to suburb. Except during rush hours, there would be weak demand for each route. This means that mass transit systems have to operate even when there is low occupancy. Valuable resources are often wasted unnecessarily. There is far more energy consumption that necessary.

2. People rarely live very close to mass transit systems. In Indian cities like Delhi, people either walk to mass transit systems or travel by a rickshaw. Such commutes are more time consuming than trips in a private car. At times, mass transit is more expensive than a direct trip in an auto rickshaw. This leads to longer trips, with infrequent services.

3. Often, the space consumed by cabs, rickshaws and other vehicles that are parked near mass transit systems in Indian cities is incomparably greater than the space consumed by mass transit stations. Parked vehicles consume expensive real estate. A parked car consumes 14 square meters of street. This is very expensive in Indian cities like Mumbai where the road area per person is merely 1.7 square meters.

Moreover, a moving car that travels at 30 kilometer per hour consume 65 square meter of space. Streets, especially Indian streets, cannot afford many vehicles driving through them. Hired cab services would lead to fewer cars and greater access at a cheaper cost.

4. Cheaper, hired cab services like Uber will increase the radius of Indian cities, allowing people to live in areas that are still not connected to railroads or the metro lines. With Uber, there will be more efficient price differentiation in real estate in India. Suburban dwellers and firms located in suburbs would consume more real estate. Many new firms will come into existence. People in metropolises in India will consume more floor space when there is greater migration to suburbs.

5. There are, still, two factors which raise the cost of hired cab services: government regulations and drivers. A few years ago, Google built self-driving cars that are expected to be on roads in the near future. Self-driving cars would take the driver out of the equation. Hired cab services might then become the mass transit of the future, especially when many people share them.

Self-driving cars would also not need parking space because they pick up one person and move to another. They would also consume less real estate because they respond more quickly to other vehicles. They would also reduce road congestion and the probability of accidents.

PropGuide View: Uber, though, is no stranger to controversies, worldwide. Alongside its exponential growth since 2009 when it was founded, there have been concerns regarding poor regulation of taxi services, especially in India, where systemic corruption and lax regulations are everyday concerns. Even proponents of cheaper and faster tax services admit that cab industry needs to be regulated, since they offer services in the public domain, just very much like the public transport systems like Delhi Metro and the Indian Railways. Free market proponents may argue that regulation stifles business, but for users of such utilities, well-placed and reasonable government regulations serve as a mark of safety and assure commuters that they wouldn't be attacked when taking a ride in privately-run cabs.