The Future of Real Estate – Part 2 (The Solution)

In my last post, I detailed the problem with real estate – it’s too expensive.

People have been trained to want to buy real estate without understanding what makes a good real estate investment.  The system in place allows us to amplify those bad decisions by spending 5x more than we were able to save, effectively spending the next 20 years paying it back.  Because it fit into our monthly budget, we were never overly concerned with the cost.  The market has now figured that out and in many major cities, is testing our upper threshold of what we’re willing to pay.  When you test that upper limit of what people are willing to do, they start thinking outside the box.

The best recent example, which I had mentioned in the last post is how high oil prices gave rise to an environment in which Tesla could be successful.  So the fun question that we get to answer here is what high real estate prices are creating. Prices have reached a point where all kinds of businesses are coming out of the wood work with ‘alternative housing’ ideas.  Most of it is in its early stages now, but we have some very cool options in the pipeline.

3D printed homes.  If you don’t know what I’m talking about, do a quick search.  Additive manufacturing is most likely the future of manufacturing, and I can’t see why it won’t also be the future of building homes.  If I were to guess, I’d say that the future of construction is automated and the further we progress in that direction, it’ll look like a giant 3D printer.  While they’re not ready for the market yet, I’d be surprised if we didn’t see some market ready options within 10 years.

Shipping container homes.  Shipping containers are relatively inexpensive, structurally sound, and made from recycled materials.  They also apparently double as pretty cool homes.  The genius in this approach is that we’ve figured out we can build a modern, livable home out of just about anything.

Mobile homes.  Not trailer park mobile homes, just homes that are mobile.  One of the more interesting designs that I’ve seen was of micro suites which could easily be moved from building to building.  For individuals who like to move around, their suite would just move with them from city to city.  For others mobile homes are about getting off the grid.  One of the coolest ideas in the pipeline are self-sustaining, modern, smart, mobile homes.  Everything from solar panels to water filtration would be built into the home itself, allowing for you to put your home down on any piece of land you’d like.

Modular homes.  While 3D printed homes certainly don’t qualify, almost every other new style of alternative housing falls under the category of modular (including container and mobile homes).  Modular homes are such a broad category because it’s really referencing the production process rather than the final product.  With modular homes, each section of your home is manufactured centrally, then shipped out to your location to be installed.  That’s a big deal.

Right now, an average home is built like a Rolls Royce: with hand tools and a 6 month wait-time.  What we need is an effective assembly line for homes and that’s what modular housing is looking to tackle.  By building in modules, fabrication can be done centrally and then shipped out to the buyer for installation.  That central, and streamlined fabrication process means that a home can be built in a couple weeks and with far fewer resources.  We’re quite possibly looking at a genuine disruption in how homes are constructed, especially when the build time and cost are a fraction of our current options.

What about the land though?  Real estate is always a two part conversation because land is pretty useless without a house to put on it and a house is pretty useless without land it put it on.  It’s very possible that as houses become less and less expensive to build, people are just going to charge more for land, effectively providing the same end price.  Again, this is what happens when we understand the price of something but not its value.  That’s ok though, because I see a solution on the horizon for the cost of land as well.

Land is not unlimited, but we are not even close to using up what we have.  What’s really limited is land near urban centers.  Urban centers tend to have the most desirable jobs so people move to the city.  There’s more people who want to live there than land available so demand exceeds supply and the price goes up.  The solution thus far has been densification – finding ways to put more people in the same area and large residential towers are the result.  The problem with densification is that the city’s infrastructure rarely keeps up and we simply end up with congestion.  Yes you get to live in the city, but good luck getting around and doing things.

There’s more than one way to solve this problem though.  Rather than trying to accommodate more people in the city, why not motivate them to leave the city?

The first way you do that is by making the commute more tolerable and I think driverless cars are going to help that in a big way.  For most people, driverless cars are likely to cut down on commuting times significantly.  Second, commuting takes on an entirely different meaning when you’re not driving.  What we think of as a 2 hour commute today, could very easily become an hour in your mobile office a decade from now.  Some will still prefer to be within walking distance of their job.  For others, a cool modular home, on a quiet lake just outside of town for a fraction of the price will be the more attractive option.

The other way to get people to leave the city is by providing job opportunities outside the city.  It was the industrial revolution which created this population shift, but it was really the evolution of technology.  Farming techniques had evolved to the point where fewer farmers were needed, just as factories were being introduced and manufacturing jobs in the cities were booming.  If I were to guess, it will be technology which brings people back out to the country – and I’m thinking it’s going to be telecommuting.  Telecommuting is basically working from home, but with the power of the internet and the way the job market has evolved, it’s becoming more and more feasible.  Perhaps one of the biggest transitions will be when coding becomes a primary trade.

When I think of successes like Uber and AirBnB, I see a trend of decentralization.  It’s taking a look at the resources we already have access to and simply using them more efficiently.  My biggest issue with real estate is that it represents a remarkable inefficiency.  We have more than enough land to share, but we’re willing to commit decades of our income to securing a small piece.  Every dollar that we spend on a house is a dollar we don’t spend on all the other things our economy produces, yet we’re encouraged to spend 5x more than what we’re able to save.  And without understanding these dynamics, we haven’t been motivated to challenge the status quo – until now.