“Information is power” is a familiar phrase and the goal of any market analysis is to gather enough of the right kinds of information to make a good decision. Most people are vaguely familiar with the common sources of information about real estate markets (e.g. Statistics Canada and, for residential properties, CMHC). For other types of property, the common sources are less well-known.
Joost Groeneveld (IPD) visited the University of Guelph recently and discussed some of the issues associated with gathering and using information. His company is best known for creating and publishing indices used as benchmarks to reveal what is “normal” performance in both capital value and in income for more than 30 countries around the world. He reported that Calgary real estate market had the best performance (income plus capital growth) over the last 10 years of any city in the world.
His discussion with our market analysis class focused on a critical lesson about data analysis which must be learned (either in a classroom or through experience): what questions need to be asked in order to know whether to trust the data? To understand a reported number, Joost noted the four types of questions should be asked about the research process used to create that number:
- Is the data provided comprehensive?
- Given that users have to rely on the published summaries of commercially sensitive data, do the original owners of the data trust the confidentiality of the process enough to be willing to give their raw data to the publisher?
- Does the data accurately measure what it claims to measure?
- Do different people measure the same thing in different ways?
The answers to these questions are not obvious, since IPD does not report on all countries in the world.
It is easy to find ways to distrust any evidence (e.g. “the sample is small” or “it is unrepresentative”, “the data provider is biased”, “the questions are biased”, “history does not matter because this time it’s different”) but few offer a better alternative. Compiling data in the way that IPD does offers a great social benefit because so much of the investible real estate in the world is “unmeasured”. (As comparison, IPD offers the crude estimate that the world’s commercial real estate is worth about US$27 trillion.)
Newbies sometimes find this middle ground challenging; it is incorrect to say that data are absolutely right or completely wrong (mostly, because we rarely know the whole truth until it is too late to act on it). Increasingly, businesses want to hire people with rigorous evidence-based reasoning skills who can connect evidence to a business strategy. As Joost noted, it starts with knowing what questions to ask.