Computerized House Flippers and Conflicting Interests

New Orleans       It was bad enough when Wall Street sharpies like Blackstone started buying tranches of foreclosed houses in the suburbs to paint, rent, and then cash out.  Now, algorithms are being deployed for house flippers.  What could go right or wrong with this picture?

A story in the Wall Street Journal claimed that metro Phoenix is ground zero for the future of home purchases.  More than 5% of the home sales in 2018 involving 5000 properties were made by companies launching computer driven, algorithm powered approaches to the market.  Opendoor, a San Francisco startup, Zillow, the listing and area pricing web giant, and Offerpad are breaking this ground.

The Journal walked the reader through the new world:

“At the edge of the city’s stucco sprawl, a beige, three-bedroom house with a gravel yard sold last month for $240,000.  The seller, Opendoor Labs, Inc. paid $215,000 for the house in January, replaced carpet and repainted, and put it back on the market.  A computer told the company what to offer and how much to ask.  There was no need to schedule a showing with a real-estate agent.  Prospective buyers of Opendoor homes can download an app to unlock the door.”

Wham, bam, thank you Alexa, Siri, or whatever they call their thing!

What is it about Phoenix?  The city can’t catch a break.  First, the sketchy boom and then the bust over a decade ago, and just as things begin to even out again, here come the techies.

Sadly, real estate agents and realtors are a bit like taxi drivers in the love-hate relationship they maintain with consumers.  There are over two-millions of them and 1.3 million are actually licensed realtors with access to multi-listings and supposedly a code of ethics.  Even if you like your person, you know she only gets her slice if you buy or sell, so her self-interest and yours are always in conflict, and her advice always comes with many grains of salt.

Many consumers would be delighted to bring the Airbnb model to home buying, although that’s sobering for more than just the loss of jobs.  Airbnb now slants its algorithm to favor listings at its demand price and destinations.   What is there to keep Zillow from favoring the houses it owns on its listings compared to the rest of the field?  Nothing!

Add to the mayhem this disruption will bring is the fact that algorithms will undoubtedly not be limited to purchase and sales prices, but also to rents, which is surely what Blackstone is doing for its 80,000 properties.  Tell me that won’t accelerate gentrification and community mayhem.  Is there a better argument for rent controls? I can’t think of anything else off hand that will stop predatory practices.

Looking at the Uber model, we would have to predict that it would just be a matter of time before the fixed agent price of 7% or whatever would fall like a house of cards.  The companies win and base their business model on volume, which almost always favors price cutting, and that’s the easiest piece to cut.

Hey, you might say, it can’t happen here.  Opendoor is now in 23 cities and is targeting another 27 by next year.  Zillow claims it will be buying 5000 houses per month. Think again!

We need to get ahead of the e-world coming to home and apartment purchase and rental or the consequences could be huge.

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Hello, Landlords and Your Bankers, Meet ACORN!

New Orleans      Landing in New Orleans at 1:30 AM, the calendar alert said it was ACORN’s anniversary, our 49th birthday.  The real celebration though had already happened the day before in Hamilton, Ontario, as ACORN Canada’s Convention had featured a final day of marches and multiple actions on a gorgeous day in every way.

The crowd shook off their early morning wakeup and packing and rocked the halls of McMaster University as the leaders led the chants before the buses loaded up to take everyone to the rally site at a local park near downtown Hamilton.  This was going to be a day of not one-two punches against landlord renovictions in the city, but almost a one-two-three-four swing of roundhouses for tenant rights and against rapacious gentrification not only in Hamilton but across the country.  As the members were assembling to march, an advance team of several dozen was already at work putting banners on various Malleum properties along the downtown corridor.  Malleum has been a Hamilton-based property owner that has exploited rising rents and evictions on the pretense of renovations to evict tenants.

The first stop on the march of course was the headquarters of Malleum itself which was on lockdown as members streamed up the steps and accessible entry points.  Others hung protest banners over the balcony as members let their voices roar about the “war on the poor.”  The next stop as the march snaked through the streets towards the center of town was yet another Malleum property in development.  A second punch delivered.

Most days this would be a good day’s work by the hundreds of members from around Canada who assembled to make their points heard across the county.  Not today!  The march stretched several blocks in length now and had attracted an extensive police escort as we took the street and left the sidewalk behind.  It should not have been a surprise to bystanders or our escorts once the chants changed to RBC, the Royal Bank of Canada, as a predatory lender, that another upper cut was coming in hard as a haymaker.  When we hit the building, organizers opened the doors and all of the members came streaming into the mall entry at the ground level, then down the stairs and around the bend, as building security grabbed their radios and hit call buttons, the ACORN members marched into the bank itself, filling up the space.  The demand was straightforward:  stop lending to predatory landlords evicting tenants in rent gouging schemes!  There’s no more hiding the hand, while the Malleum’s throw the rocks at tenants the banks are enabling.

Not through yet, the march ended in a rally in front of City Hall demanding more protection from city bylaws for tenants in these ongoing battles.  The previous day members had door knocked in three wards initiating phone calls to city councilors and generating hundreds of signatures on petitions for support of rent limits and tenant protections.  One of the councilors came down from city hall to address the members briefly in response.

ACORN at 49, still kicking and swinging at the enemies of low-and-moderate income families.  That’s the way to celebrate any birthday.  For icing on the cake, the busloads of members from Ottawa detoured through Toronto to the headquarters of Timbercreek, a REIT that has resisted our demands, winning a meeting.

How sweet it is!

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