Disruption & The Housing Market
Over the last decade disruption of markets has become the clarion call of business and enterprise, and start-ups have become the darling of commerce as they are chased from Sydney to San Francisco to Manchester.
How should we view disruption? As a welcome agent of change, as a sign of leadership? And does simply maintaining the status-quo result in stagnation resulting in lazy industries and lack of progress, a lack of competition, less innovation and possibly higher prices. Against this background I’m thinking about how disruption is manifesting in the property sector and what further changes there might be lingering around the corner. There’s a lot of scope ranging across topics including agency, finance, construction, planning, design, marketing and development.
Disruption: Leadership. A change agent. These are powerful ideas. Change or disruption often comes out of the need to solve a problem, and in the residential property market a major problem is affordability, and yet I don’t think we’ve seen any great disruptor come along. Sure, we’ve had the growth of the non-bank lenders, but that’s now old news and most non-bank lenders have been gobbled up by the banks anyway. The question is: where’s the new disruptor?
It’s been suggested that Amazon, Google and Apple might go into financial services. Where housing is concerned the current path to housing finance may not be the only viable model. We need more affordable housing and that goal might only happen with financial disruption.
Slow to Change
Why has the housing market been so resistant to change not only with finance but in other areas? Although we’ve seen the status quo challenged around real estate agency services, that’s only one area, it’s an easy target and here there are some hurdles.
The first point to think about is that real estate is very local; having the knowledge about the area you’re working in has very real value. Local knowledge and history is not an easy commodity to replicate and this fact has driven the character of the industry for decades. Local firms have usually held strong market share either as sole traders or a franchise.
Covered off in my last post, buying and selling a home is a big deal, full of emotion, it’s a big investment and people need to understand their options and have faith in the process. And beyond individual house transactions it’s a very complex market, the work required to bring several hundred apartments to the market for example, can take years of planning. The industry and every buyer and seller, purchase to live-in or as an investment, everyone deals with the complexity of mortgages, contracts, taxation and marketing.
Each one of these areas might also be well over due for a shake-up and some innovation has already been powered by the legal profession moving most of the conveyancing process online.
Real estate is ripe for even more disruption. In fact, the process has already begun and one area where there’s pressure for change relates to the commissions paid on the sale of the average home. The game changers are emerging in real estate where the average homeowner is demanding lower commission rates, with new pricing models, that will most likely become commonplace in the next five to ten years. Fees tied to a percentage of the sale price have been driven up by higher prices, but there’s a need to ask if this has created more work for estate agents. The same can be said for other areas tied price movements, like stamp duty which has turned into a punitive tax.
Marketing is also tied up in the question of agency services. Because savvier homebuyers need less from agents. They can learn about neighbourhoods via almost endless reports and their own social media networks and online resources.
There are apps that allow you to stand in front of a house, take a photograph and get all the markets’ facts you might consider if looking to buy. All of this combines to disrupt parts of an agent’s business, and the industry needs to adapt. Major web portals allow buyers to search for a house with as many characteristics as possible: there’s also an ability to search for similar homes that were sold.
Finance is another area where, as I noted earlier there has been some changes, but I think there’s room for a lot more innovation, more disruption. Currently anyone looking for a loan can shop around and get endless comparison rates and terms. However, the P2P lending environment might soon make a bigger impact when the loan ceiling gets well past current levels at below $50,000. Qualified buyers might soon be able to put their loan out to market tender and get a much more competitive deal, and technology will enable that process.
Technology is changing housing sales and the coming of more disruption is inevitable.
To help understand what’s happening: we can look back to when TV licenses were first around in the 1940s and vested interest and big business acquired those commodities which became valuable assets, but the range of buyers was very limited.
Today thanks mainly to the internet of things access is free, innovation is easy, disruption is fueled. The platforms for disruption are almost available to everyone and start-ups prove that every day.
But I don’t think of these trends as scary – disruption holds the possibility of creating something better, if resisting change this might not always be a comfortable ‘revolution’.
Diversity acts as a change agent, we admire leadership, of which we are all capable of, and so we can admire disruption and look forward to more change across the industry, so let’s bring on the new ideas.