The price is unfair!

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During the last two years, this phrase has been shouted in anger many times by many house buyers.  Their financial frustration is combined with a general unease about the bad ethical practices demonstrated by some real estate agents and some Realtors ®  (including a few who were convicted of various offences). So, the Ontario Real Estate Association is looking for your input into revising the Real Estate and Business Brokers Act .

You might think that the simplest part would be to improve the pricing process.   Unfortunately, OREA asks Continue reading

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Math, business and learning

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At this time of year, our first students are about one month into their required math class: enough time to learn something, enough time to wonder whether it will be useful and to ask “is this course an arbitrary barrier to my career?”.  The purpose of this blog posting is to say “Yes, math class teaches important ideas” and “Listen carefully to discover the really useful stuff”.

It may help to start by making some silly questions disappear.  If you think that the mathematics used in advanced classes or on the job is about entering numbers into a spreadsheet and making sure that the answer is calculated correctly, then you misunderstand the value added of a job.  If you think that calculus is about fancy symbols that were developed a couple of hundred years ago for use by scientists (but not people in business) then you misunderstand the questions that business people need to answer.

This table lists a couple of familiar subjects, the contents of such courses and why there are costs to not understanding them.

Subject Concepts Misunderstanding a concept opens the door to …
Arithmetic 1, 2, 3, -100, 0, …, +, -, *, /, ( ), … Creative accounting, misleading consulting reports with excessive jargon , poor number sense
Algebra x, y, =, y= mx+ b, α, π, … Being unable to understand trade offs or system-based thinking, confusing anecdotes for logic, unable to recognize equivalencies
Calculus slope, curvature, change, functions, optimization (with and without constraints), … “Model risk”, being unprepared when market conditions change, confusing marginal costs and fixed costs

Technology makes computation incredibly easy now if you know what needs to be computed.

Good math classes develop problem solving skills.  Accounting classes explore particular examples of accounting problems and marketing classes explore examples of problems faced by marketers.  But, like a magician pulling a rabbit out of a hat, the solution to many of these problems is as obvious as if the hat had two floppy ears sticking out.

In upper year classes, we teach net present value (NPV) or sensitivity analysis.  Students think that the class teaches how to make investment decisions and that is not completely wrong: they are taught how to show whether a project’s financial sensitivity coefficient is more or less than 5.  A better student would recognize that NPV is a type of function with inputs and an output, and that sensitivity analysis is an example of calculus (which quants in finance disguise with jargon such as “delta”, “vega” and “rho”).  With math class providing a solid foundation, upper year classes can spend less time on boring review and more time on advanced ideas.

A university education is about obtaining a more general perspective so that, without being taught directly, you can see that the problem of tipping restaurant staff is related to the problem of giving incentives to corporate executives.  Or, you can use your perspective to extend the textbook examples to solve a type of problem which is too new to be in any textbook: somebody will, why not you?

The goal of learning is to develop a level of comfort with the concepts, not the ability to calculate the answer to a known formula using known inputs.  A student who only learns to calculate an answer can be tempted to torture a formula and to change planning assumptions to produce the “right” answer (such as demonstrating profit is high by ignoring certain costs).  A better student would know that the right decision for a business is not yet known and would know when to ask hard questions of any answer.

There are many worthy articles on why it is good for your soul to study this or that subject but a blog posting on the Scientific American website argues: math is fun.  By playing with math tools, you will realize the value of having learned time tables or calculus.  When used to them, they complement the application of creativity.  Stimulated by the real world, you can play with puzzles and patterns that nobody else has noticed.  With the added clarity, you can proactively provide solutions before people realize that they have a problem.  It sounds like good math leads to a happy customer.

PA

Nice Guys and Gals Don’t Finish Last

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In mid-November, a team of six undergraduate students from the University of Guelph went to New York City and won second place in the 9th Annual Cornell International Real Estate Case Competition.  The team consisted of Lauren Chan, Hillary Hetherington, Sam Ives, Stefanie Kaminski, Krishna Movva and Sasha Somjen.

This competition included a record number of universities, from eight countries and four continents.  Several of the teams had to win regional contests to be invited to compete in New York City.  All of the finalists were “heavy hitters”. Continue reading

Cognitive buildings will disrupt

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A recent visit by Angela Choi (Deloitte) to my market analysis class provoked me to reconsider the ways in which a building could add value to businesses using that building.  Old style thinking emphasized that a business needs to locate somewhere and that real estate expenses were best if lowered.  That made sense when a building was basically a box.  Innovations in information technology has some people talking about “cognitive buildings” and people like Angela talking about disruption in the real estate industry.

Continue reading

Trends and Turning Points

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The media coverage of price trends in Toronto’s residential housing market has been confusing.  Most people look at recent reports and conclude that past trends have stopped or, at least, paused.  Some people point to examples where old patterns of behaviour (i.e. paying more than list price or selling in a couple of days) reappear and reach a different conclusion.  These conflicting stories illustrate how difficult it can be to analyse market conditions when there is no simple trend.

Turning points are challenging because a different logic of analysis is needed.  I teach classes on the simple analytics of trends.  Since there is general agreement on the direction, that analysis focuses on measurement and estimating precisely.

At a turning point, the general agreement falls apart.  Illiquidity in real estate markets means Continue reading

A good discussion

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Many stories tell of the tension between developers and the current residents of the neighbourhood.  The story usually focuses on developers making money and on the residents who want to protect the quality of life.  In the end, the Ontario Municipal Board makes a decision.  The villain in the story depends on who is telling it.

This tension leads all sides to distrust others and is very expensive.  People who oppose all development are fighting against the inevitability of population growth.  Developers who start by treatnig all residents as CAVE Dwellers, may be creating the problem that they complain about: by turning potential YIMBYists into NIMBYists.  Sometimes, collaboration and actively searching for allies is a great way to add more value to a property.

Therefore, I was pleased to see a good news story in the Globe and Mail over the weekend.  It talks about a prominent developer (Diamond Corp.), a big property in downtown Toronto and some details on how more than two years of discussion led to useful changes.  That may sound costly but the alternative is also costly.  Especially for that reason, this example should be instructive.

PA

Transitions and Professionalism

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Lots of people worry about the upcoming transition when the next generation takes over.  Leaders with decades of experience in the real estate industry are stepping back or retiring: who will step up?  The past few years have pretty good and many business want to expand: where to find qualified people at the more junior ranks?  If real estate businesses cannot find qualified people then the people who live, work, shop, or play in those buildings will be unhappy.

I see this worry at an even younger level: university students who say they want to go into the industry.  You know, the ones who can’t pay attention for longer than 30 seconds during class because they are so busy on Facebook and Youtube.  The ones who can’t send an email without using obscure emojis and acronyms.  In a few years, their distracted job applications will clutter the desks of HR professionals.

These might be serious issues but I see little real difference from 10 or 20 years ago.  In my opinion, the solution is what it always has been: Continue reading

Numbers are important in Business

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The Ontario government is again thinking that somebody needs to do something about math education.  In the near future, many people will ask me whether they really need to know math to learn about the real estate business.  Enough people think that numbers are not important in business because success seems to depend on getting things done, on communication, on personal relationships and so on.

This post is about how numbers, plus more advanced forms of mathematics, are important because solving problems is fun and useful.  For nearly everybody, the real goal of learning math should be to become comfortable with it.  Continue reading

Toronto Real Estate Market: Up, Down, Sideways or ???

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When home prices go up, it seems that most people think that they can only continue to rise.  When they stop rising, the critics of the previous view are listened to: maybe, today is the day that the crash starts.   If only market analysis were that simple.

A long time ago, Paul Krugman said that there were three types of economics.  With “airport economics”, things will either go up or down.  The future will either be everlasting happiness or pain and devastation.  These simplistic claims are not taught in a classroom because insight comes from a deeper awareness of nuances.  Continue reading