It seems like everybody has agreed that there is a price bubble in the Toronto residential real estate market. And all bubbles end (eventually). So, the next question should be: how to put your money where your mouth is? How to profit from this knowledge? The answers reveal a lot about real estate markets. Continue reading
Ethical awareness affects people involved in the real estate industry. There is a lot of money at stake and, because investors are separated from their real estate by distance or expertise or uncertainty, lots of exciting operational challenges. Research has shown that these same features also create opportunities to mislead or to be misled. So, operations and ethics in the real estate business cannot be separated.
Being ethically aware is a good thing. Many industry associations have codes of conduct or courses which include an ethical dimension. Unfortunately, it is hard to teach a 20 year old how to be ethically aware, especially if the “good answer” seems obvious in a two-hour test. 60 year olds have more life experience and know that distinguishing “good” and “evil” is not so simple.
So, the discussions about potentially unethical behaviour by the next president of the United States represent a teachable moment about an important topic. Continue reading
Well, that was an interesting election. It also adds special significance to a comment made by a student in my Real Estate Market Analysis course: the job of an analyst seems really difficult. Or, more poetically, “Prediction is very difficult, especially if it’s about the future.” (Nils Bohr, supposedly).
When expectations differ from reality, somebody is surprised. In this election, the media have settled on the word “stunning”.
Being a long term investment, the real estate business is full of such stress. The outcome, and sometimes the best business strategy, depend on unknown market conditions. That is why market analysis is both difficult and unavoidable.
Election night in the US offers two memorable examples which should remind you of best practices. Continue reading
Politicians and journalists are two professions that are known to be easily confused by numbers. The consequences of that confusion are on full display during this election cycle in the U.S. Real estate people cannot afford to be confused by numbers, either because lenders will not allow them to go over budget or because the personal costs of getting the numbers wrong is scary.
This post uses some examples of the more annoying examples of innumeracy to show that, although a math class does not look like a class in literature, numbers convey meaning. That meaning is enhanced by making good comparisons. Continue reading
The interests of real estate businesses intersect with the interests of governments, often, although they are not necessarily aligned. The presidential campaign of Donald Trump offers a teachable moment which shows why character matters, for at least three reasons.
The evidence says that Trump insults others frequently and making “them” into an enemy of some kind. His campaign shows that you can go a long way by insulting people. It also indicates that insulting people also makes enemies of people, which reduces the chances of success.
This is relevant since a common test of the character is the Golden Rule: treat others as you wish to be treated. So, it is instructive to see how he reacts when others insult him.
Character matters, in politics and in real estate, because so much of getting things done is about groups of people doing things together. Important projects are complicated and involve many people. Thus, it is easy to get lost in a swamp of details, petty insults, to forget that goal and to react badly to somebody else’s behaviour.
Whenever real estate business intersects with government, as it often does, voices may be raised. Often everybody is unhappy about something. Insults may fly even during friendly negotiations. If that were the end, nothing would happen. That consequence matters in politics especially because governments rarely operate as a top-down or hierarchical organization. Success often depends on finding allies.
Character matters because allies are important, and allies rarely like being insulted.
I have listened to discussions during this American election and I am impressed at how closely it matches a 20 year old movie The American President. Its story contrasts the verbal insults of a presidential wannabe with the high-pressure decision-making environment of a sitting President. I think that its pivotal speech is amazingly relevant to many topics debated today.
Politically popular decisions are usually obvious. A dilemma is that, for any issue, different advocates can give good reasons why their preferred solution would be popular with others.
But the popular decision is not necessarily the right decision. Being popular is easy. It is harder to tell somebody that they are wrong.
By their nature, important decisions are hard decisions, where the consequences may be in the distant future and affect people whose names are not known. The discussions concerning sustainability is a recent example: Should the government impose a carbon tax of some kind? Using ideas from NetZero and LEED, should builders target more sustainable buildings? The immediate costs are usually obvious and the people who bear those costs usually express their opinions loudly. It takes a strength of character and some skill in persuasion to move forward on something which is unpopular currently.
In the real estate business, as in politics, character matters because the benefits of good decisions are felt for many decades after.
Fear is not a good thing, and many things should be feared. Many of the things which people dislike about Donald Trump’s speeches are the frequent and emphatic appeals to fear: “the world is dangerous”, “they are coming to get us”, “terrible trade deals”, “worst ever”, …. In the real estate business, there is also a lot to fear: “property is very expensive” “incredibly high risk”, “financial contagion leads to the end of civilization”. So, what can teachable moments from Trump’s campaign teach us? Continue reading
This American election campaign is an odd one for facts.
Many supporters of a Trump presidency like the idea that Trump “tells it like it is” and that Trump does not use polite code words to hide reality.
Others have noted that we have entered a “post-truth political era” in which fact checkers state that a politician’s lie is so bad that it is labelled as “pants on fire” or “four Pinnochios”. Some people try to assert that feelings and perceptions are kinds of fact.
It is hard to find a memorable lesson from this teachable moment, since some of them repeat what should be obvious. Some commentators have noted some more subtle lessons. Continue reading
It is fashionable to say that economic ideas are wrong, at best, and, at worst, dangerously misleading. This fashion is not new. Since the most familiar pieces of the traditional economics model have survived for many decades, it is worth seeing how they appear in the world of real estate. Continue reading
Real estate projects are big, complicated and involve many actors. Therefore, success often depends on a legally binding contract to ensure that things get done with as few disputes as possible.
The first barrier to finding an answer is to describe the situation accurately: e.g.
- What is the source of uncertainty? If there is none then it is too easy to detect misbehaviour.
- are there only two outcomes (“success” and “failure”) or a continuum between really good to really bad?
A clear theory helps immensely.
The second puzzle is that changing the incentive changes the anticipated behaviour, which changes the outcome and the degree of risk. Think how the behaviour of a real estate agent might change if Continue reading