WEBVTT 00:00:00.000 --> 00:00:01.800 You know, I was walking to the studio today, 00:00:01.899 --> 00:00:03.600 just looking up at the skyline. You see these 00:00:03.600 --> 00:00:07.299 massive glass towers, the row houses, the construction 00:00:07.299 --> 00:00:10.199 cranes swinging over the street. And it just 00:00:10.199 --> 00:00:12.599 feels like the backdrop to our lives. It's just 00:00:12.599 --> 00:00:15.419 there. It is. It's the stage we act out our lives 00:00:15.419 --> 00:00:17.280 on. We wake up in it. We go to work in it. We 00:00:17.280 --> 00:00:20.440 visit friends in it. It is the, well, the omnipresent 00:00:20.440 --> 00:00:23.019 container of human activity. Exactly. But then 00:00:23.019 --> 00:00:24.719 I started reading through the research stack 00:00:24.719 --> 00:00:27.539 we have for today, this comprehensive deep dive 00:00:27.539 --> 00:00:30.690 into real estate. And I realized... I've been 00:00:30.690 --> 00:00:33.049 looking at it all wrong. We tend to think of 00:00:33.049 --> 00:00:36.789 it as home or rent or the mortgage bill due on 00:00:36.789 --> 00:00:39.289 the first. But if you peel back the paint and 00:00:39.289 --> 00:00:42.570 the drywall, it is actually a massive complex 00:00:42.570 --> 00:00:45.710 machine. It's a machine that eats nearly 40 % 00:00:45.710 --> 00:00:48.469 of the world's energy. It's a machine where four 00:00:48.469 --> 00:00:51.789 cents, four measly pennies, once bought an entire 00:00:51.789 --> 00:00:54.710 acre of land. And frankly, it's a machine where 00:00:54.710 --> 00:00:56.329 some of the most expensive apartments in New 00:00:56.329 --> 00:00:58.090 York and London aren't homes at all, but basically 00:00:58.090 --> 00:01:00.200 Swiss bank accounts made of... concrete, and 00:01:00.200 --> 00:01:03.399 glass. That is the dark side of the asset class 00:01:03.399 --> 00:01:05.780 we'll definitely get to later. It is fascinating 00:01:05.780 --> 00:01:08.579 how a building can just cease to be a shelter 00:01:08.579 --> 00:01:11.280 and purely become a financial instrument. We 00:01:11.280 --> 00:01:13.640 are going to cover all of that. We're basing 00:01:13.640 --> 00:01:16.500 this deep dive on a massive review of the real 00:01:16.500 --> 00:01:19.439 estate entry, and it covers everything from ancient 00:01:19.439 --> 00:01:22.640 Roman law to modern algorithmic pricing. Our 00:01:22.640 --> 00:01:24.719 mission today is pretty straightforward. We want 00:01:24.719 --> 00:01:27.439 to take you from just occupying a space to actually 00:01:27.439 --> 00:01:30.680 understanding the estate you're in. We need to 00:01:30.680 --> 00:01:33.400 decode the jargon fee, simple hedonic regression, 00:01:33.719 --> 00:01:36.159 the difference between a condo and a co -op, 00:01:36.239 --> 00:01:38.780 and look at the history of how we decided that 00:01:38.780 --> 00:01:41.420 a human being could own a piece of the planet. 00:01:41.519 --> 00:01:43.700 Which is such a weird concept if you really stop 00:01:43.700 --> 00:01:45.359 to think about it, pointing at the ground and 00:01:45.359 --> 00:01:47.980 saying, this dirt is mine. That dirt over there 00:01:47.980 --> 00:01:50.420 is yours. It's a very weird concept. It's a shared 00:01:50.420 --> 00:01:52.579 fiction, really, that holds the global economy 00:01:52.579 --> 00:01:55.140 together. So let's dive in. I want to start with 00:01:55.140 --> 00:01:57.799 the vocabulary because I think most of us use 00:01:57.799 --> 00:02:01.420 land, real estate and property as, you know, 00:02:01.420 --> 00:02:04.959 synonyms. If I say I bought some property, everyone 00:02:04.959 --> 00:02:07.239 knows what I mean. But the source material makes 00:02:07.239 --> 00:02:09.460 a pretty sharp distinction here. It does. And 00:02:09.460 --> 00:02:12.900 legally, that distinction is everything. If you 00:02:12.900 --> 00:02:15.259 are going to understand this topic, you have 00:02:15.259 --> 00:02:18.000 to separate the physical from the abstract. Real 00:02:18.000 --> 00:02:20.479 estate is actually a compound term. You have 00:02:20.479 --> 00:02:22.719 the real and you have the estate. Okay, let's 00:02:22.719 --> 00:02:24.719 break that down. What is the real part? The real 00:02:24.719 --> 00:02:27.800 part refers to the physical land, the dirt, the 00:02:27.800 --> 00:02:30.659 rocks, the geography, the crust of the earth. 00:02:30.840 --> 00:02:33.159 It is tangible. You can, you know, kick it. And 00:02:33.159 --> 00:02:35.659 the estate? That sounds more formal. The estate 00:02:35.659 --> 00:02:39.150 part. That's entirely abstract. The estate refers 00:02:39.150 --> 00:02:42.189 to the interest or the rights a person holds 00:02:42.189 --> 00:02:45.449 regarding that land. It's a legal concept, not 00:02:45.449 --> 00:02:47.870 a physical one. So you can have the land without 00:02:47.870 --> 00:02:51.129 the estate. Exactly. Or, more commonly, you can 00:02:51.129 --> 00:02:53.090 have an estate in the land without owning the 00:02:53.090 --> 00:02:56.530 dirt forever. Think of it like this. Real estate 00:02:56.530 --> 00:02:58.710 isn't just a thing. It's a bundle of rights. 00:02:59.210 --> 00:03:01.370 A bundle of rights. I've heard this analogy before, 00:03:01.469 --> 00:03:04.189 the bundle of sticks. Yes, it's the classic law 00:03:04.189 --> 00:03:06.629 school analogy. It's a really good one. Imagine 00:03:06.629 --> 00:03:09.550 you are holding a bundle of sticks. One stick 00:03:09.550 --> 00:03:12.289 is the right to build on land. One stick is the 00:03:12.289 --> 00:03:15.189 right to mine under it. Okay. One stick is the 00:03:15.189 --> 00:03:17.930 right to walk across it. One stick is the right 00:03:17.930 --> 00:03:20.469 to keep other people off it. That's the right 00:03:20.469 --> 00:03:23.550 of exclusion. And when you buy a house, you assume 00:03:23.550 --> 00:03:26.090 you're getting the whole bundle, the whole big 00:03:26.090 --> 00:03:29.439 pile of sticks. You assume so. But sometimes 00:03:29.439 --> 00:03:31.719 some of the sticks are missing. Like if there's 00:03:31.719 --> 00:03:33.620 an easement for a power line, is that what you 00:03:33.620 --> 00:03:35.979 mean? Right. The power company holds that stick. 00:03:36.159 --> 00:03:38.240 You have the right to cross your land to fix 00:03:38.240 --> 00:03:40.479 the wires. You can't stop them. So you don't 00:03:40.479 --> 00:03:43.240 have the full bundle? Not at all. Or in many 00:03:43.240 --> 00:03:45.000 parts of the U .S., you might own the surface 00:03:45.000 --> 00:03:47.939 rights, the grass and the house. But someone 00:03:47.939 --> 00:03:51.039 else, maybe a big energy company, holds the stick 00:03:51.039 --> 00:03:53.439 that lets them drill for oil or mine for coal 00:03:53.439 --> 00:03:56.969 right under your kitchen. Wow. So you still have 00:03:56.969 --> 00:03:59.349 the real estate, but your estate, your interest 00:03:59.349 --> 00:04:03.090 is limited. Precisely. You own the surface. They 00:04:03.090 --> 00:04:05.569 own the subsurface. It's why reading the deed 00:04:05.569 --> 00:04:08.550 is so, so important. You need to know how many 00:04:08.550 --> 00:04:10.689 sticks are actually in the bundle you are buying. 00:04:10.870 --> 00:04:13.889 That makes so much sense. Now, looking at the 00:04:13.889 --> 00:04:16.750 physical definition in the source, it lists the 00:04:16.750 --> 00:04:19.930 obvious stuff, land, buildings, but then it lists 00:04:19.930 --> 00:04:23.209 natural resources. Yes. Anything that is naturally 00:04:23.209 --> 00:04:25.769 attached to the land. is part of the real estate. 00:04:26.110 --> 00:04:29.850 Crops, timber, minerals, water, that seems standard. 00:04:30.050 --> 00:04:32.649 If I buy a forest, I own the trees, that tracks. 00:04:32.949 --> 00:04:34.810 But then I saw this in the source material and 00:04:34.810 --> 00:04:37.850 I had to double check it. Wild animals. Yes, 00:04:38.050 --> 00:04:41.189 ferre nature. Explain this to me. If I buy a 00:04:41.189 --> 00:04:43.529 generic three -bedroom house with a backyard 00:04:43.529 --> 00:04:46.829 and a squirrel runs across the fence, do I own 00:04:46.829 --> 00:04:49.329 the squirrel? In a manner of speaking, under 00:04:49.329 --> 00:04:51.769 the old common law definitions of real property, 00:04:51.910 --> 00:04:54.879 yes. The wildlife that is strictly on the land 00:04:54.879 --> 00:04:57.300 is considered part of the natural resource package 00:04:57.300 --> 00:05:00.180 of that land while it is there. So if the squirrel 00:05:00.180 --> 00:05:02.379 leaves, if it jumps into my neighbor's yard... 00:05:02.379 --> 00:05:04.439 It's not your squirrel anymore. If it hops over 00:05:04.439 --> 00:05:06.120 the fence to your neighbor's yard, it becomes 00:05:06.120 --> 00:05:08.879 part of their real estate. That is wild, literally. 00:05:09.259 --> 00:05:12.420 It's a fascinating remnant of a time when land 00:05:12.420 --> 00:05:15.360 wasn't just for living, but for subsistence. 00:05:15.779 --> 00:05:18.680 You bought land to hunt, to fish, to forage. 00:05:19.610 --> 00:05:21.790 So the deer in the woods or the rabbits in the 00:05:21.790 --> 00:05:24.269 field were just as much a part of the asset's 00:05:24.269 --> 00:05:27.389 value as the timber or the water. They were resources 00:05:27.389 --> 00:05:30.269 to be harvested. It really highlights how all 00:05:30.269 --> 00:05:33.129 -encompassing this definition is. The source 00:05:33.129 --> 00:05:37.230 uses the phrase immovable property. That seems 00:05:37.230 --> 00:05:39.350 to be the golden rule here. That is the defining 00:05:39.350 --> 00:05:42.500 characteristic. Real property is immovable. Personal 00:05:42.500 --> 00:05:45.339 property is movable. The source material spends 00:05:45.339 --> 00:05:47.740 a lot of time on this distinction between real 00:05:47.740 --> 00:05:50.240 property and personal property. And it feels 00:05:50.240 --> 00:05:51.879 like one of those things that causes a lot of 00:05:51.879 --> 00:05:53.879 arguments during a divorce or a sale. Oh, it 00:05:53.879 --> 00:05:56.420 causes endless lawsuits because the line can 00:05:56.420 --> 00:05:59.439 be blurry. The test is usually, is it permanently 00:05:59.439 --> 00:06:01.660 attached? Right. If you have to use a tool to 00:06:01.660 --> 00:06:03.899 remove it or if removing it would damage the 00:06:03.899 --> 00:06:06.040 property, it's generally considered real property. 00:06:06.220 --> 00:06:08.079 So the house is real property. The car in the 00:06:08.079 --> 00:06:10.319 driveway is personal property. Easy. But what 00:06:10.319 --> 00:06:12.199 about the chandelier in the dining room? Ah, 00:06:12.339 --> 00:06:15.339 the classic trap. This is where deals fall apart. 00:06:15.740 --> 00:06:17.699 Generally, once you screw it into the ceiling, 00:06:17.860 --> 00:06:20.240 it becomes a fixture, becomes part of the house. 00:06:20.360 --> 00:06:23.139 It's immovable. So if I'm selling my house and 00:06:23.139 --> 00:06:26.459 I have this heirloom crystal chandelier I got 00:06:26.459 --> 00:06:28.439 from my grandmother, I can't just take it with 00:06:28.439 --> 00:06:30.259 me. You better take it down and replace it with 00:06:30.259 --> 00:06:33.120 a cheap one before you show the house. Or you 00:06:33.120 --> 00:06:35.100 have to write it into the contract explicitly. 00:06:35.899 --> 00:06:38.920 Chandelier excluded. Otherwise, the buyer expects 00:06:38.920 --> 00:06:41.430 the light fixtures to stay. They bought the real 00:06:41.430 --> 00:06:43.689 estate and the fixtures now attached to it. The 00:06:43.689 --> 00:06:45.850 source used a great example regarding farms to 00:06:45.850 --> 00:06:47.930 illustrate this. The rolling stock. Right. The 00:06:47.930 --> 00:06:50.310 tractors, the plows, the combines. Those are 00:06:50.310 --> 00:06:52.410 expensive pieces of kit. Extremely expensive. 00:06:52.730 --> 00:06:56.470 Yeah. But they move. They have wheels. So they 00:06:56.470 --> 00:06:58.910 are personal property. They're chattel. You buy 00:06:58.910 --> 00:07:01.089 the farm. You get the barn because it's a building 00:07:01.089 --> 00:07:03.389 real property. You get the fences because they 00:07:03.389 --> 00:07:06.790 are dug into the ground real property. But the 00:07:06.790 --> 00:07:10.290 tractor. The old owner drives that away unless 00:07:10.290 --> 00:07:12.110 you buy it separately. I like the shake test 00:07:12.110 --> 00:07:13.990 I've heard before. The shake test? I haven't 00:07:13.990 --> 00:07:16.149 heard that one. Yeah. If you took the property, 00:07:16.230 --> 00:07:18.129 turned it upside down like a dollhouse, and shook 00:07:18.129 --> 00:07:20.810 it, everything that falls out is personal property. 00:07:21.230 --> 00:07:23.990 Everything that sticks is real estate. That is 00:07:23.990 --> 00:07:26.290 a very good rule of thumb. The sofa falls out. 00:07:26.689 --> 00:07:30.850 Personal. The fireplace mantle stays put. Real. 00:07:30.970 --> 00:07:33.910 Okay, so we know what it is, but who can own 00:07:33.910 --> 00:07:36.589 it? The source lists a bunch of entities in the 00:07:36.589 --> 00:07:39.850 U .S. context, individuals, corporations, nonprofits, 00:07:40.509 --> 00:07:43.129 fiduciaries. It's a very open market in the U 00:07:43.129 --> 00:07:46.129 .S. Almost any legal entity can hold title to 00:07:46.129 --> 00:07:48.430 land. This isn't true in every country, but in 00:07:48.430 --> 00:07:50.810 the U .S., a corporation has the same property 00:07:50.810 --> 00:07:52.949 rights as a person. And within that ownership, 00:07:53.129 --> 00:07:55.769 we have these tiers. The source mentions fee 00:07:55.769 --> 00:07:58.350 simple. I see this on forums all the time, but 00:07:58.350 --> 00:07:59.709 I never really knew what it meant. It sounds 00:07:59.709 --> 00:08:02.009 like a medieval tax. It does sound medieval because 00:08:02.009 --> 00:08:04.069 it is medieval. Fee simple comes from feudal 00:08:04.069 --> 00:08:06.949 law. But today, it is the absolute top of the 00:08:06.949 --> 00:08:08.829 food chain in ownership. It's the whole bundle 00:08:08.829 --> 00:08:11.509 of sticks. So if I have fee simple ownership, 00:08:11.829 --> 00:08:14.170 what does that mean in plain English? It means 00:08:14.170 --> 00:08:16.959 you own it completely. You have the full bundle. 00:08:17.040 --> 00:08:19.500 You can sell it. You can destroy it. You can 00:08:19.500 --> 00:08:21.300 leave it to your kids and your will. There are 00:08:21.300 --> 00:08:23.839 no time limits on your ownership. It is yours 00:08:23.839 --> 00:08:26.259 forever or until you decide to get rid of it. 00:08:26.319 --> 00:08:29.079 As opposed to what? What's the alternative? As 00:08:29.079 --> 00:08:31.699 opposed to a life estate, which the source also 00:08:31.699 --> 00:08:34.879 mentions. This is a common tool in estate planning. 00:08:35.200 --> 00:08:37.720 Okay. How does that work? Let's say an elderly 00:08:37.720 --> 00:08:41.080 parent wants to give their house to their child 00:08:41.080 --> 00:08:43.950 to avoid probate later. But they want to ensure 00:08:43.950 --> 00:08:45.990 they can live there until they die. They don't 00:08:45.990 --> 00:08:47.669 want the kid to kick them out, right? Makes sense. 00:08:47.690 --> 00:08:49.870 So they might transfer the property deed to the 00:08:49.870 --> 00:08:53.090 child, but retain a life estate. So they own 00:08:53.090 --> 00:08:56.769 it, but not really. They own the right to use 00:08:56.769 --> 00:08:59.309 it and occupy it for the duration of their life. 00:08:59.570 --> 00:09:02.250 But the moment they pass away, that life estate 00:09:02.250 --> 00:09:05.149 vanishes and the full ownership interest automatically 00:09:05.149 --> 00:09:08.019 snaps to the child. The parent can't sell the 00:09:08.019 --> 00:09:10.759 house to a stranger and run off to Vegas because 00:09:10.759 --> 00:09:13.360 their interest is limited to their heartbeat. 00:09:13.600 --> 00:09:16.240 It's amazing how these legal tools allow us to 00:09:16.240 --> 00:09:19.480 slice and dice time and space. You can own a 00:09:19.480 --> 00:09:22.100 place for a timeline, not just a physical boundary. 00:09:22.360 --> 00:09:24.919 It's all about control. Who controls the land 00:09:24.919 --> 00:09:28.080 and for how long? That is the essence of the 00:09:28.080 --> 00:09:30.720 estate. Speaking of time, let's go back way back. 00:09:31.129 --> 00:09:33.029 Because the idea that a person can point to a 00:09:33.029 --> 00:09:36.169 patch of earth and say, mine, that isn't a law 00:09:36.169 --> 00:09:38.409 of physics. It's a story we decided to agree 00:09:38.409 --> 00:09:41.190 on. It is a social construct. Absolutely. Nature 00:09:41.190 --> 00:09:44.070 doesn't recognize property lines. A wolf doesn't 00:09:44.070 --> 00:09:46.330 care about your fence. The source traces this 00:09:46.330 --> 00:09:49.850 back to Roman law and Greek philosophy. The Romans 00:09:49.850 --> 00:09:52.690 were the great codifiers. They gave us the framework 00:09:52.690 --> 00:09:54.850 of dominium total control. They were obsessed 00:09:54.850 --> 00:09:57.720 with defining boundaries. But the source makes 00:09:57.720 --> 00:10:00.240 a really interesting jump to the 15th and 16th 00:10:00.240 --> 00:10:02.820 centuries. The era of natural law. Right. You 00:10:02.820 --> 00:10:04.759 have philosophers debating the nature of man 00:10:04.759 --> 00:10:07.220 and government. And they start arguing that property 00:10:07.220 --> 00:10:09.580 ownership is a natural right. Meaning it's God 00:10:09.580 --> 00:10:12.919 -given. Or something else. Meaning it's inherent 00:10:12.919 --> 00:10:15.960 to being a free human being. The argument was 00:10:15.960 --> 00:10:19.059 something like, I own my body, therefore I own 00:10:19.059 --> 00:10:21.759 the labor of my body, therefore I own the fruit 00:10:21.759 --> 00:10:24.769 of that labor. And if I use my labor to farm 00:10:24.769 --> 00:10:27.929 a piece of land, I should own that land. This 00:10:27.929 --> 00:10:29.710 was a radical thought at the time, wasn't it? 00:10:29.889 --> 00:10:32.029 Incredibly radical. Before that, the king owned 00:10:32.029 --> 00:10:35.210 everything and you just leased it from him. This 00:10:35.210 --> 00:10:37.730 shift in natural rights meant that property was 00:10:37.730 --> 00:10:39.570 something the government couldn't just take away 00:10:39.570 --> 00:10:41.929 without a very, very good reason. And this spilled 00:10:41.929 --> 00:10:44.070 over into international relations. The source 00:10:44.070 --> 00:10:47.669 brings up a treatise from 1758 by Emmerich de 00:10:47.669 --> 00:10:51.519 Vatel, The Law of Nations. Vatel is huge. He 00:10:51.519 --> 00:10:53.179 was trying to figure out how nations should talk 00:10:53.179 --> 00:10:56.120 to each other in a civilized world. And he argued 00:10:56.120 --> 00:10:58.539 that protecting private property was a key part 00:10:58.539 --> 00:11:01.679 of international stability. How so? Well, imagine 00:11:01.679 --> 00:11:03.720 a French citizen owns a vineyard in Germany. 00:11:04.000 --> 00:11:06.820 If France and Germany go to war, Vettel argued 00:11:06.820 --> 00:11:08.539 that the German government shouldn't just seize 00:11:08.539 --> 00:11:11.240 that guy's vineyard. The property rights of the 00:11:11.240 --> 00:11:13.659 individual should transcend the conflict of the 00:11:13.659 --> 00:11:16.100 states. So property rights started to transcend 00:11:16.100 --> 00:11:19.500 borders. Exactly. It set the stage for modern 00:11:19.500 --> 00:11:22.730 foreign investment. It's a reason why today you 00:11:22.730 --> 00:11:25.710 can buy a condo in London or Tokyo and feel reasonably 00:11:25.710 --> 00:11:28.009 secure that the government won't just steal it. 00:11:28.250 --> 00:11:30.429 While the philosophers were thinking about it, 00:11:30.470 --> 00:11:32.950 the British were actually doing it. The source 00:11:32.950 --> 00:11:35.289 talks about the birth of the real estate profession 00:11:35.289 --> 00:11:38.789 in England in the 1500s. It started with agriculture. 00:11:39.470 --> 00:11:42.299 England was moving away from feudalism. They 00:11:42.299 --> 00:11:45.500 needed to clear land, drain swamps, and farm 00:11:45.500 --> 00:11:47.899 more efficiently to feed the growing population. 00:11:48.179 --> 00:11:50.240 So they needed people to measure it all. They 00:11:50.240 --> 00:11:52.559 called them surveyors. Which is a term we still 00:11:52.559 --> 00:11:54.919 use, but usually for the guys with the tripods 00:11:54.919 --> 00:11:57.440 on the side of the road wearing neon vests. Back 00:11:57.440 --> 00:11:59.700 then, they were the valuers. They weren't just 00:11:59.700 --> 00:12:01.779 measuring the perimeter. They looked at the soil 00:12:01.779 --> 00:12:04.399 quality, the water access, the timber stand. 00:12:04.759 --> 00:12:06.960 They told the lord of the manor what his dirt 00:12:06.960 --> 00:12:09.360 was actually worth in terms of production. And 00:12:09.360 --> 00:12:11.480 interestingly, the source notes a linguistic 00:12:11.480 --> 00:12:15.080 shift. In England, it was surveying. But when 00:12:15.080 --> 00:12:18.120 the practice jumped the Atlantic to North America... 00:12:18.120 --> 00:12:20.559 It became appraising. Appraising. Put a price 00:12:20.559 --> 00:12:23.799 tag on it. Which makes sense for America. America 00:12:23.799 --> 00:12:26.539 was a land market. Everything was for sale. In 00:12:26.539 --> 00:12:28.840 England, land stayed in families for generations. 00:12:29.299 --> 00:12:32.299 In America, land was a commodity to be traded. 00:12:32.600 --> 00:12:35.159 Which brings us to the sale of the millennium. 00:12:35.159 --> 00:12:39.379 The Louisiana Purchase, 1803. The deal that made 00:12:39.379 --> 00:12:41.539 America. I want to pause on this because the 00:12:41.539 --> 00:12:44.600 numbers in the source blew my mind. I think we 00:12:44.600 --> 00:12:46.960 all learned in school Thomas Jefferson bought 00:12:46.960 --> 00:12:50.039 Louisiana from Napoleon. Right. We see the map 00:12:50.039 --> 00:12:52.500 in the history book, the big yellow section. 00:12:52.740 --> 00:12:54.960 But let's look at the scale. This wasn't just 00:12:54.960 --> 00:12:57.519 the state of Louisiana. This was the entire middle 00:12:57.519 --> 00:13:00.340 slice of the continent. From New Orleans all 00:13:00.340 --> 00:13:03.720 the way up to Montana, it's about 828 ,000 square 00:13:03.720 --> 00:13:06.059 miles. It doubled the size of the United States 00:13:06.059 --> 00:13:08.419 overnight. It fundamentally changed the nation 00:13:08.419 --> 00:13:11.139 from a coastal republic to a continental empire. 00:13:11.340 --> 00:13:15.120 And the price tag, $15 million. Which in 1803 00:13:15.120 --> 00:13:17.879 was a massive amount of money. It was a huge 00:13:17.879 --> 00:13:19.820 risk for a young nation. But the source breaks 00:13:19.820 --> 00:13:22.120 it down per acre. Do you remember the number? 00:13:22.179 --> 00:13:25.600 It's just staggering. Four cents per acre. I 00:13:25.600 --> 00:13:28.120 can't buy a single grape for four cents today. 00:13:28.909 --> 00:13:32.470 And they bought millions of acres of prime farmland, 00:13:32.629 --> 00:13:35.669 the Mississippi River system, mineral rights, 00:13:35.870 --> 00:13:39.110 for four cents an acre. It completely distorted 00:13:39.110 --> 00:13:42.070 the American view of land. In Europe, land was 00:13:42.070 --> 00:13:44.289 scarce. It was owned by the nobility. It was 00:13:44.289 --> 00:13:47.190 expensive. In America, it was effectively infinite 00:13:47.190 --> 00:13:49.879 and practically free. Of course, we have to acknowledge 00:13:49.879 --> 00:13:51.919 the source material briefly touches on the fact 00:13:51.919 --> 00:13:54.320 that this transaction ignored the people already 00:13:54.320 --> 00:13:56.080 living there. Yes, the indigenous populations. 00:13:56.480 --> 00:13:58.820 From a legal standpoint, the U .S. bought the 00:13:58.820 --> 00:14:01.580 preemptive right to negotiate with the tribes. 00:14:01.679 --> 00:14:04.340 But in practice, it was treated as a transfer 00:14:04.340 --> 00:14:07.259 of title. It paved the way for Western expansion, 00:14:07.440 --> 00:14:09.620 which was essentially a massive. Real estate 00:14:09.620 --> 00:14:11.960 acquisition strategy. So now you have all this 00:14:11.960 --> 00:14:13.919 land. You need people to sell it. The source 00:14:13.919 --> 00:14:16.299 mentions the oldest real estate brokerage firm 00:14:16.299 --> 00:14:19.179 in the U .S. Established in 1855 in Chicago. 00:14:19.679 --> 00:14:22.159 Originally L .D. Olmstead & Co. Now known as 00:14:22.159 --> 00:14:24.700 Baird & Warner. And still operating, which is 00:14:24.700 --> 00:14:27.860 incredible. That's wild. 1855. That's pre -Civil 00:14:27.860 --> 00:14:30.600 War. It shows that Chicago was the real estate 00:14:30.600 --> 00:14:33.639 engine of America. It was the gateway to the 00:14:33.639 --> 00:14:36.399 West. If you wanted to buy a farm in Iowa or 00:14:36.399 --> 00:14:38.879 a timber lot in Wisconsin, you went through Chicago. 00:14:39.200 --> 00:14:41.179 And naturally, where there is money, there are 00:14:41.179 --> 00:14:43.600 scammers. Always. As long as there has been land 00:14:43.600 --> 00:14:45.700 for sale, there has been someone lying about 00:14:45.700 --> 00:14:48.360 it. The industry had a reputation problem. The 00:14:48.360 --> 00:14:51.240 whole snake oil salesman selling swampland in 00:14:51.240 --> 00:14:53.139 Florida, that cliche comes from somewhere, right? 00:14:53.259 --> 00:14:56.080 Buying land you've never seen was a great way 00:14:56.080 --> 00:14:58.679 to lose money. So the industry realized it needed 00:14:58.679 --> 00:15:02.759 to organize. In 1908. Again in Chicago, the National 00:15:02.759 --> 00:15:05.779 Association of Realtors was founded. And here 00:15:05.779 --> 00:15:08.480 is a squares a rectangle moment for me. Realtor 00:15:08.480 --> 00:15:10.279 versus real estate agent. I thought they were 00:15:10.279 --> 00:15:12.340 the same thing. No, and the association is very 00:15:12.340 --> 00:15:14.799 protective of this. Real estate agent is a job 00:15:14.799 --> 00:15:17.019 description. It means you have a license from 00:15:17.019 --> 00:15:19.879 the state to sell property. Okay, so anyone with 00:15:19.879 --> 00:15:23.200 a license is an agent? Realtor is a trademarked 00:15:23.200 --> 00:15:26.379 title. A trademark, like Coke or Kleenex. Yes. 00:15:26.960 --> 00:15:29.039 It means you are a member of the National Association 00:15:29.039 --> 00:15:31.720 of Realtors and you subscribe to their specific 00:15:31.720 --> 00:15:34.919 code of ethics. So all realtors are agents, but 00:15:34.919 --> 00:15:37.940 not all agents are realtors. Exactly. They coined 00:15:37.940 --> 00:15:41.539 the term in 1916 specifically to separate the 00:15:41.539 --> 00:15:44.460 professionals from the peddlers. They wanted 00:15:44.460 --> 00:15:46.919 to signal trust to the public. They wanted a 00:15:46.919 --> 00:15:49.279 badge that said, I won't rip you off. So the 00:15:49.279 --> 00:15:52.039 industry is professionalizing. Cities are growing. 00:15:52.200 --> 00:15:54.360 The roaring 20s are roaring. Everyone is making 00:15:54.360 --> 00:15:58.740 money. Everyone is buying land. And then 1929. 00:15:59.019 --> 00:16:01.740 The Great Crash. We usually talk about the stock 00:16:01.740 --> 00:16:04.200 market when we talk about 1929, but the source 00:16:04.200 --> 00:16:06.840 gives a stat about real estate that is just terrifying. 00:16:07.120 --> 00:16:09.139 In the four years after the crash, real estate 00:16:09.139 --> 00:16:12.720 values depreciated by 50%. 50%. Let's just sit 00:16:12.720 --> 00:16:15.450 with that. You buy a house for $10 ,000 of fortune 00:16:15.450 --> 00:16:18.049 then. Four years later, it's worth $5 ,000. But 00:16:18.049 --> 00:16:20.590 you still owe the bank $10 ,000. You are so far 00:16:20.590 --> 00:16:22.549 underwater. And the bank is failing. And you 00:16:22.549 --> 00:16:24.370 have no job. It was a complete systemic collapse. 00:16:24.769 --> 00:16:26.649 And the way mortgages worked back then made it 00:16:26.649 --> 00:16:28.809 even worse. The source explains that before the 00:16:28.809 --> 00:16:31.750 1930s, buying a house was awful. You usually 00:16:31.750 --> 00:16:34.830 had to put 50 % down in cash. 50 % down. Today, 00:16:34.909 --> 00:16:37.389 people complain about 20%. And the loan wasn't 00:16:37.389 --> 00:16:39.830 for 30 years. It was usually for three to five 00:16:39.830 --> 00:16:43.659 years. And here is the kicker. It was interest 00:16:43.659 --> 00:16:46.879 only. You paid interest for five years, and at 00:16:46.879 --> 00:16:48.740 the end, you had to pay the entire principal 00:16:48.740 --> 00:16:52.080 back in one giant lump sum, a balloon payment. 00:16:52.360 --> 00:16:54.299 So if you didn't have the cash at year five... 00:16:54.299 --> 00:16:56.100 You lost the house. It was a rich man's game. 00:16:56.279 --> 00:16:59.139 So the government steps in. The source says this 00:16:59.139 --> 00:17:01.519 catastrophe is actually what created the modern 00:17:01.519 --> 00:17:04.299 housing system we have today, the New Deal era. 00:17:04.539 --> 00:17:06.980 It had to. The market was completely broken. 00:17:07.549 --> 00:17:10.630 The Sourceless, the Baking Act of 1933, and the 00:17:10.630 --> 00:17:13.789 National Housing Act of 1934. What did they actually 00:17:13.789 --> 00:17:16.869 do? What changed? They created the FHA, the Federal 00:17:16.869 --> 00:17:19.170 Housing Administration. They introduced mortgage 00:17:19.170 --> 00:17:21.470 insurance. Basically, the government told the 00:17:21.470 --> 00:17:23.930 banks, if you lend to regular people for long 00:17:23.930 --> 00:17:26.410 terms and they default, we will cover your loss. 00:17:26.710 --> 00:17:28.829 That risk removal changed everything, didn't 00:17:28.829 --> 00:17:31.650 it? It invented the 30 -year fixed -rate mortgage. 00:17:32.109 --> 00:17:34.630 Suddenly, a factory worker could buy a home and 00:17:34.630 --> 00:17:37.250 pay it off slowly, like rent. And then came the 00:17:37.250 --> 00:17:40.650 big one, 1938, Fannie Mae. The Federal National 00:17:40.650 --> 00:17:43.390 Mortgage Association. I feel like I hear Fannie 00:17:43.390 --> 00:17:46.490 Mae on the news every time the economy gets wobbly, 00:17:46.589 --> 00:17:49.210 but explain what it actually does. The source 00:17:49.210 --> 00:17:51.410 describes it as creating a secondary market. 00:17:51.789 --> 00:17:54.970 What is that? Okay, this is crucial. Imagine 00:17:54.970 --> 00:17:58.250 a small -town bank. They have a vault with, say, 00:17:58.369 --> 00:18:01.670 $1 million in it. Okay, $1 million. They lend 00:18:01.670 --> 00:18:04.589 it all out to 100 families to buy homes. The 00:18:04.589 --> 00:18:07.450 vault is now empty. They have a stack of IOUs, 00:18:07.450 --> 00:18:11.190 but no cash. So when the 101st family walks in 00:18:11.190 --> 00:18:14.089 and wants a loan. The bank has to say, sorry, 00:18:14.150 --> 00:18:16.049 we're out of money. Come back in 30 years when 00:18:16.049 --> 00:18:17.690 the other guys pay us back. The lending just 00:18:17.690 --> 00:18:20.109 stops. That freezes the market completely. Exactly. 00:18:20.369 --> 00:18:22.829 Fannie Mae was created to fix this. Fannie Mae 00:18:22.829 --> 00:18:24.690 comes to that small bank and says, hey, give 00:18:24.690 --> 00:18:27.490 us those 100 mortgages, those IOUs. We will buy 00:18:27.490 --> 00:18:30.019 them from you. So the bank gets its cash back. 00:18:30.200 --> 00:18:32.000 The bank gets its million dollars back, plus 00:18:32.000 --> 00:18:34.240 a little profit. The bank's vault is full again. 00:18:34.480 --> 00:18:36.660 And now they can lend to the next hundred families. 00:18:36.880 --> 00:18:38.779 It's like refilling the bucket. It's exactly 00:18:38.779 --> 00:18:40.759 like refilling the bucket. Fannie Mae created 00:18:40.759 --> 00:18:43.640 a secondary market where mortgages are bought 00:18:43.640 --> 00:18:46.000 and sold as assets. It kept the money flowing. 00:18:46.200 --> 00:18:49.059 It greased the wheels of the whole system. It 00:18:49.059 --> 00:18:52.240 flooded the engine with oil. Without Fannie Mae, 00:18:52.480 --> 00:18:56.799 the post -war suburban boom Levittown, all of 00:18:56.799 --> 00:18:59.119 that. literally could not have been funded. There 00:18:59.119 --> 00:19:00.440 wouldn't have been enough liquid cash in the 00:19:00.440 --> 00:19:03.160 local banks. But, and there is always a but, 00:19:03.240 --> 00:19:05.400 in American history, this funding wasn't available 00:19:05.400 --> 00:19:08.460 to everyone. No, it was explicitly exclusionary. 00:19:08.539 --> 00:19:11.759 The source brings us to 1968, Title VIII, the 00:19:11.759 --> 00:19:14.599 Fair Housing Act. This was the legislative response 00:19:14.599 --> 00:19:17.259 to the civil rights movement. For decades, the 00:19:17.259 --> 00:19:19.039 real estate industry and the government itself 00:19:19.039 --> 00:19:21.740 had practiced redlining. This is where they literally 00:19:21.740 --> 00:19:25.140 drew red lines on maps. Yes. They drew red lines 00:19:25.140 --> 00:19:27.740 around black neighborhoods and said, no FHA loans 00:19:27.740 --> 00:19:30.740 here. Too risky. So white families could get 00:19:30.740 --> 00:19:33.240 these cheap government -backed 30 -year loans 00:19:33.240 --> 00:19:35.380 to build wealth and black families couldn't. 00:19:35.400 --> 00:19:37.599 It locked an entire generation out of wealth 00:19:37.599 --> 00:19:41.019 creation. Precisely. Title VIII in 1968 was the 00:19:41.019 --> 00:19:43.460 attempt to ban discrimination in renting, buying, 00:19:43.680 --> 00:19:46.210 and financing. The source notes it focused on 00:19:46.210 --> 00:19:48.369 the incorporation of African -Americans into 00:19:48.369 --> 00:19:50.710 neighborhoods. It made it illegal to say, I won't 00:19:50.710 --> 00:19:53.390 sell to you because of your race. Right. It changed 00:19:53.390 --> 00:19:55.650 the legal landscape. But as the source implies, 00:19:56.029 --> 00:19:58.529 the economic damage of the previous decades was 00:19:58.529 --> 00:20:00.769 already done. Fast forward a bit. We get through 00:20:00.769 --> 00:20:04.950 the 70s and 80s. And then we hit 1999, the tech 00:20:04.950 --> 00:20:07.559 shift. The moment real estate went online. Internet 00:20:07.559 --> 00:20:10.440 real estate. It seems so normal now. I spend 00:20:10.440 --> 00:20:12.779 half my life on Zillow looking at castles I can't 00:20:12.779 --> 00:20:15.119 afford. Don't we all? It's the modern pastime. 00:20:15.160 --> 00:20:18.059 But before 1999, information was key kept, wasn't 00:20:18.059 --> 00:20:20.359 it? Completely. If you wanted to know what a 00:20:20.359 --> 00:20:23.119 house was worth or what was for sale, you had 00:20:23.119 --> 00:20:25.980 to go to a broker. They had the book, a physical 00:20:25.980 --> 00:20:28.180 book of listings. They controlled all the data. 00:20:28.359 --> 00:20:30.880 And 1999 broke the lock. It democratized the 00:20:30.880 --> 00:20:33.579 data. Suddenly the consumer knew as much as the 00:20:33.579 --> 00:20:36.359 agent. It shifted the power dynamic permanently. 00:20:36.660 --> 00:20:39.119 So that brings us to today. The source says that 00:20:39.119 --> 00:20:43.200 as of 2021, 65 % of U .S. homes are owner -occupied. 00:20:43.220 --> 00:20:45.599 A solid majority. We are a nation of homeowners. 00:20:45.960 --> 00:20:48.819 But home is a flexible word. The source breaks 00:20:48.819 --> 00:20:50.579 down the different types of residential real 00:20:50.579 --> 00:20:53.099 estate. And honestly, some of these definitions 00:20:53.099 --> 00:20:55.519 cleared up years of confusion for me. Like what? 00:20:55.640 --> 00:20:58.039 Like apartment versus flat. I always thought 00:20:58.039 --> 00:21:00.059 flat was just what British people said to sound 00:21:00.059 --> 00:21:03.029 fancy. It is mostly linguistic, yeah. But the 00:21:03.029 --> 00:21:05.849 definition focuses on the perimeter lockable 00:21:05.849 --> 00:21:08.809 doors. It's a self -contained unit inside a larger 00:21:08.809 --> 00:21:10.670 structure. But the big one, the one that trips 00:21:10.670 --> 00:21:13.690 everyone up, is condo versus co -op. Oh, yes. 00:21:14.049 --> 00:21:17.109 This is crucial, especially in cities like New 00:21:17.109 --> 00:21:20.549 York, Chicago, or Washington, D .C. In my head, 00:21:20.549 --> 00:21:22.289 they're both just apartments in a big building. 00:21:22.369 --> 00:21:24.589 What's the real difference? The difference is 00:21:24.589 --> 00:21:27.829 what you actually own. In a condominium, you 00:21:27.829 --> 00:21:30.910 own real property. You have a deed to your specific 00:21:30.910 --> 00:21:34.190 unit. You own the drywall, the floor, the air 00:21:34.190 --> 00:21:37.470 inside your walls. It is yours. Okay, that seems 00:21:37.470 --> 00:21:39.829 straightforward. And you jointly own the common 00:21:39.829 --> 00:21:42.029 areas, the hallway, the lobby, the pool with 00:21:42.029 --> 00:21:44.589 your neighbors. But you own your box. And a co 00:21:44.589 --> 00:21:46.569 -op. In a housing cooperative, you do not own 00:21:46.569 --> 00:21:48.289 your unit. Wait, I don't own the apartment I 00:21:48.289 --> 00:21:50.250 live in. No. You own shares in a corporation. 00:21:51.130 --> 00:21:53.369 And that corporation owns the entire building. 00:21:53.589 --> 00:21:56.170 So I'm a shareholder, not a property owner. Exactly. 00:21:56.639 --> 00:21:59.259 and your shares come with a proprietary lease 00:21:59.259 --> 00:22:01.380 that gives you the right to live in apartment 00:22:01.380 --> 00:22:04.039 4B. Why does that distinction matter so much? 00:22:04.240 --> 00:22:07.619 Control. In a condo, if you want to sell your 00:22:07.619 --> 00:22:10.099 unit to a guy who plays the drums at 3 a .m., 00:22:10.099 --> 00:22:13.380 you largely can. It's your property. In a co 00:22:13.380 --> 00:22:15.900 -op, the board of directors, your neighbors, 00:22:16.099 --> 00:22:18.869 can interview the buyer and say no. We don't 00:22:18.869 --> 00:22:20.549 want a drummer here. Because they aren't just 00:22:20.549 --> 00:22:22.309 your neighbors, they are your business partners. 00:22:22.549 --> 00:22:24.890 Exactly. If the drummer stops paying his maintenance 00:22:24.890 --> 00:22:27.170 fees, the corporation suffers, and you might 00:22:27.170 --> 00:22:30.009 have to pay more. So co -ops are famously strict. 00:22:30.170 --> 00:22:32.430 They can reject buyers for almost any reason 00:22:32.430 --> 00:22:34.609 they want. The source mentions co -ops are very 00:22:34.609 --> 00:22:36.890 common in places like New York City, but also 00:22:36.890 --> 00:22:40.210 in Indian metro cities. Yes. In dense urban areas 00:22:40.210 --> 00:22:42.289 where shared infrastructure is the only way to 00:22:42.289 --> 00:22:45.170 live, the corporate model often makes more sense 00:22:45.170 --> 00:22:47.289 than the individual ownership model. Speaking 00:22:47.289 --> 00:22:49.950 of global terms, I loved some of the architectural 00:22:49.950 --> 00:22:52.910 words the source threw in. We know duplex and 00:22:52.910 --> 00:22:55.430 terraced house, which is just a townhouse. Roll 00:22:55.430 --> 00:22:57.609 houses. Very efficient use of space. But then 00:22:57.609 --> 00:23:01.349 it listed chals and havelas. These are specific 00:23:01.349 --> 00:23:04.710 terms from India. A havela is beautiful. It's 00:23:04.710 --> 00:23:07.529 a traditional townhouse or mansion, usually centered 00:23:07.529 --> 00:23:10.329 around a courtyard. It's designed for a specific 00:23:10.329 --> 00:23:12.750 climate and for an extended family structure. 00:23:13.109 --> 00:23:16.619 And a chal. A chal is more utilitarian. It's 00:23:16.619 --> 00:23:18.559 a type of residential building found in Mumbai. 00:23:19.319 --> 00:23:22.240 Think of long corridors with single rooms opening 00:23:22.240 --> 00:23:24.660 off them and shared bathrooms at the end of the 00:23:24.660 --> 00:23:26.980 hall. It was built for mill workers originally. 00:23:27.240 --> 00:23:30.059 It's high -density, low -cost community living. 00:23:30.259 --> 00:23:32.180 The source also mentioned the measurements. We 00:23:32.180 --> 00:23:34.539 are so used to square feet in the U .S. Right. 00:23:34.799 --> 00:23:37.720 It's our standard. But in South Asia, they measure 00:23:37.720 --> 00:23:41.559 in Ghaz, Quila, Marla, and Bega. It reminds us 00:23:41.559 --> 00:23:44.039 that real estate is hyper -local. We measure 00:23:44.039 --> 00:23:47.099 land in the language of our ancestors. A bega 00:23:47.099 --> 00:23:49.440 varies in size depending on which state in India 00:23:49.440 --> 00:23:51.779 you are in. It's not standardized like a meter 00:23:51.779 --> 00:23:54.740 or a foot. And we can't forget the portable dwellings. 00:23:54.799 --> 00:23:57.259 The nomads. Mobile homes, houseboats. But the 00:23:57.259 --> 00:24:00.200 source even lists tents. Usually temporary, with 00:24:00.200 --> 00:24:02.480 roof and walls consisting only of fabric -like 00:24:02.480 --> 00:24:04.660 material. It sounds funny when you define it 00:24:04.660 --> 00:24:09.019 like a lawyer. So precise. It does. But for millions 00:24:09.019 --> 00:24:12.839 of people... The refugees, the unhoused, or even 00:24:12.839 --> 00:24:16.079 digital nomads, a tent is their primary residential 00:24:16.079 --> 00:24:18.960 estate. It is their home. Okay, so we have established 00:24:18.960 --> 00:24:21.500 what real estate is, where it came from, and 00:24:21.500 --> 00:24:23.359 the different shapes it takes. But now we need 00:24:23.359 --> 00:24:27.140 to talk about the impact. The footprint. The 00:24:27.140 --> 00:24:29.019 green elephant in the room. The stats in the 00:24:29.019 --> 00:24:32.720 source are sobering. It says that in 2019, real 00:24:32.720 --> 00:24:36.619 estate was responsible for 39 % of total worldwide 00:24:36.619 --> 00:24:39.700 emissions. Almost 40%. Think about that. Yeah. 00:24:39.759 --> 00:24:41.680 We worry about cars. We worry about airplanes. 00:24:41.819 --> 00:24:44.259 We worry about plastic straws. But the buildings 00:24:44.259 --> 00:24:46.900 we are sitting in right now are the biggest culprit. 00:24:47.119 --> 00:24:49.259 And it's not just the lights and the AC, is it? 00:24:49.259 --> 00:24:50.619 I think that's what people assume. Oh, well, 00:24:50.640 --> 00:24:53.220 just turn off the LED bulbs. No. A big chunk 00:24:53.220 --> 00:24:55.940 of that 11 % is what we call embodied carbon. 00:24:56.160 --> 00:24:58.559 What does that mean, embodied carbon? It's the 00:24:58.559 --> 00:25:01.259 emissions from making the materials. The concrete, 00:25:01.539 --> 00:25:03.500 the steel, the glass. It's just the building 00:25:03.500 --> 00:25:06.059 is made of. Concrete is terrible for the planet. 00:25:06.579 --> 00:25:09.380 The chemical reaction to make cement releases 00:25:09.380 --> 00:25:12.900 massive amounts of CO2. So before you even unlock 00:25:12.900 --> 00:25:14.960 the front door of a new building... before you 00:25:14.960 --> 00:25:17.559 ever flip a light switch, that building has already 00:25:17.559 --> 00:25:20.759 done huge damage just by existing. So we can't 00:25:20.759 --> 00:25:23.319 just efficiency our way out of this with better 00:25:23.319 --> 00:25:26.460 insulation. We have to change how we build. Exactly. 00:25:26.660 --> 00:25:28.839 But the source points out that this relationship 00:25:28.839 --> 00:25:31.920 goes both ways. Real estate hurts the environment, 00:25:32.099 --> 00:25:34.440 but the environment can hurt real estate value. 00:25:34.680 --> 00:25:36.880 Drastically. We're seeing this now with climate 00:25:36.880 --> 00:25:39.920 change and sea level rise. But even locally. 00:25:40.559 --> 00:25:43.039 If a piece of land is contaminated, it's worthless. 00:25:43.240 --> 00:25:45.579 The source mentions ESA's environmental site 00:25:45.579 --> 00:25:47.640 assessments. This is now a standard part of the 00:25:47.640 --> 00:25:49.819 business. If you are buying a commercial strip 00:25:49.819 --> 00:25:52.599 mall or an old factory, you hire a firm to do 00:25:52.599 --> 00:25:55.400 a phase one ESA. What are they looking for? They 00:25:55.400 --> 00:25:58.200 are detectives. They check old records. Was this 00:25:58.200 --> 00:26:00.779 a gas station in the 1950s? Is there an old oil 00:26:00.779 --> 00:26:03.720 tank leaking into the groundwater? Is there asbestos 00:26:03.720 --> 00:26:05.900 in the walls? Because if there is, the property 00:26:05.900 --> 00:26:08.599 might be worth zero. It might be worth less than 00:26:08.599 --> 00:26:12.150 zero. You might buy the land for $100 ,000 and 00:26:12.150 --> 00:26:15.470 then find out you are legally responsible for 00:26:15.470 --> 00:26:17.690 a million -dollar cleanup. That's terrifying. 00:26:18.170 --> 00:26:20.569 So the market is reacting. We are seeing the 00:26:20.569 --> 00:26:23.210 rise of green development. The source tracks 00:26:23.210 --> 00:26:25.829 this back to the 1970s. The environmental movement. 00:26:26.170 --> 00:26:28.849 Now we have things like LED certification. Is 00:26:28.849 --> 00:26:30.369 that actually making a difference or is it just 00:26:30.369 --> 00:26:33.450 marketing? Greenwashing? It's a mix, to be honest. 00:26:33.650 --> 00:26:36.529 But the push for resource efficiency is real. 00:26:36.809 --> 00:26:40.470 Better insulation, smart glass, solar integration. 00:26:40.970 --> 00:26:43.710 The goal is to get that 39 % number down, not 00:26:43.710 --> 00:26:46.130 just to save the polar bears, but because operating 00:26:46.130 --> 00:26:48.069 an inefficient building is becoming too expensive. 00:26:48.329 --> 00:26:50.839 It feels like a necessary shift. But let's pivot 00:26:50.839 --> 00:26:53.920 from the moral cost to the financial cost. Because 00:26:53.920 --> 00:26:55.960 for a lot of people, real estate isn't just about 00:26:55.960 --> 00:26:58.160 shelter. It's about money. It is the ultimate 00:26:58.160 --> 00:27:00.480 investment vehicle for most people. The source 00:27:00.480 --> 00:27:03.480 distinguishes between buying for use, living 00:27:03.480 --> 00:27:06.480 in it, and buying for investment. And under investment, 00:27:06.720 --> 00:27:09.819 it lists flipping. The reality TV favorite. Buy 00:27:09.819 --> 00:27:13.339 it, fix it, sell it. It's arbitrage. You are 00:27:13.339 --> 00:27:15.960 betting that the market price plus the cost of 00:27:15.960 --> 00:27:18.700 repairs is lower than what someone will pay for 00:27:18.700 --> 00:27:21.589 the finished product. It's high risk, high reward. 00:27:21.769 --> 00:27:24.450 Speaking of risk, the source categorizes investments 00:27:24.450 --> 00:27:28.390 into three buckets. Core, value added, and opportunistic. 00:27:28.609 --> 00:27:31.210 This is how the big pension funds think. Core 00:27:31.210 --> 00:27:34.049 is safe. A fully rented apartment building in 00:27:34.049 --> 00:27:37.369 a nice part of Boston. Low return, but you won't 00:27:37.369 --> 00:27:41.240 lose your shirt. It's steady income. And opportunistic. 00:27:41.440 --> 00:27:43.500 That's the Wild West. Ground up development. 00:27:43.880 --> 00:27:46.099 Building a hotel in a neighborhood that might 00:27:46.099 --> 00:27:48.640 become cool in five years. You can make a fortune 00:27:48.640 --> 00:27:50.940 or you could go bankrupt. Now, here is where 00:27:50.940 --> 00:27:53.140 the expert in you needs to explain something 00:27:53.140 --> 00:27:55.420 to me. The source mentions a term that sounds 00:27:55.420 --> 00:27:58.319 like a paradox. Hedonic regression. Ah, yes. 00:27:58.640 --> 00:28:00.759 My favorite. And it says real estate structures 00:28:00.759 --> 00:28:03.339 tend to depreciate with age, according to this 00:28:03.339 --> 00:28:05.740 principle. But wait, the golden rule of real 00:28:05.740 --> 00:28:08.609 estate is it always goes up. My grandpa bought 00:28:08.609 --> 00:28:11.690 his house for $10 ,000 and sold it for $500 ,000. 00:28:12.029 --> 00:28:14.769 How is that depreciating? This is the great illusion 00:28:14.769 --> 00:28:16.990 of homeownership. You have to separate the land 00:28:16.990 --> 00:28:19.329 from the house. The land depreciates. They aren't 00:28:19.329 --> 00:28:22.269 making any more of it. Demand goes up. Supply 00:28:22.269 --> 00:28:25.750 stays flat. Price goes up. The dirt becomes more 00:28:25.750 --> 00:28:28.410 valuable. But the house itself. The house. Yeah. 00:28:28.529 --> 00:28:30.950 The physical pile of bricks and wood, that is 00:28:30.950 --> 00:28:33.730 a rotting asset. Like a car, the moment you drive 00:28:33.730 --> 00:28:36.470 it off the lot. Exactly. Every day, the roof 00:28:36.470 --> 00:28:38.549 gets a little older, the pipes rust a little 00:28:38.549 --> 00:28:42.789 more, styles change. Nobody wants a pink bathroom 00:28:42.789 --> 00:28:45.509 from the 1950s anymore. So the house is actively 00:28:45.509 --> 00:28:48.670 losing value. Hedonic regression is the statistical 00:28:48.670 --> 00:28:51.529 way of measuring that decay. It separates the 00:28:51.529 --> 00:28:53.670 value of the amenities from the land. So the 00:28:53.670 --> 00:28:56.230 reason my grandpa's property value went up is 00:28:56.230 --> 00:28:58.170 because the dirt underneath the house became 00:28:58.170 --> 00:29:00.630 insanely valuable. The house itself probably 00:29:00.630 --> 00:29:03.329 lost value unless your grandpa spent a fortune 00:29:03.329 --> 00:29:06.210 maintaining and renovating it. That is a huge 00:29:06.210 --> 00:29:08.849 aha moment. We confuse the container with the 00:29:08.849 --> 00:29:11.930 location. Every single time. We think we made 00:29:11.930 --> 00:29:13.569 money on the house, but we made money on the 00:29:13.569 --> 00:29:15.390 land. Now we have to talk about what the outline 00:29:15.390 --> 00:29:17.910 calls the dark side of real estate investment. 00:29:18.130 --> 00:29:20.410 The London and New York phenomenon. The source 00:29:20.410 --> 00:29:23.769 describes luxury real estate as a store of value. 00:29:24.009 --> 00:29:26.930 Think of a gold bar. You don't do anything with 00:29:26.930 --> 00:29:29.410 a gold bar. You can't live in it. You put it 00:29:29.410 --> 00:29:32.069 in a safe and hope it holds its value. But in 00:29:32.069 --> 00:29:36.589 this case, the gold bar is a $50 million penthouse 00:29:36.589 --> 00:29:40.410 on Billionaire's Row. Correct. The source says 00:29:40.410 --> 00:29:43.809 these units are often used by corrupt foreign 00:29:43.809 --> 00:29:46.470 government officials and business people to launder 00:29:46.470 --> 00:29:49.589 money. It's a massive issue. Imagine you are 00:29:49.589 --> 00:29:52.450 an oligarch in a country with a shaky government. 00:29:52.630 --> 00:29:55.109 Yeah. You steal $100 million from the public 00:29:55.109 --> 00:29:57.470 treasury. Okay. You can't just keep it in cash 00:29:57.470 --> 00:30:00.109 under your mattress. And you can't put it in 00:30:00.109 --> 00:30:02.170 a local bank because a dictator might seize it 00:30:02.170 --> 00:30:05.049 tomorrow. You need to get that money out of the 00:30:05.049 --> 00:30:08.160 country. and into something stable. So you buy 00:30:08.160 --> 00:30:10.279 a condo in Manhattan. It's a stable jurisdiction. 00:30:10.539 --> 00:30:12.319 Right. Property rights are protected. Remember 00:30:12.319 --> 00:30:15.200 our friend Vettel from 1758? Right. International 00:30:15.200 --> 00:30:17.599 law protects it. The U .S. government isn't going 00:30:17.599 --> 00:30:20.599 to seize it arbitrarily. So you buy the condo 00:30:20.599 --> 00:30:22.660 through a shell company. You never live there. 00:30:22.720 --> 00:30:24.539 You never rent it out. It just sits empty. It's 00:30:24.539 --> 00:30:27.420 a safety deposit box in the sky. That is dystopian. 00:30:27.420 --> 00:30:30.279 You have these needle -thin towers casting shadows 00:30:30.279 --> 00:30:33.720 over the park and nobody is even inside them. 00:30:33.920 --> 00:30:36.680 Meanwhile, the locals can't afford rent. It creates 00:30:36.680 --> 00:30:40.279 massive social tension. It turns housing, a basic 00:30:40.279 --> 00:30:43.319 human need, into a pure financial derivative. 00:30:43.720 --> 00:30:46.140 The source does mention that development is different 00:30:46.140 --> 00:30:48.680 from this kind of speculation. Yes, development 00:30:48.680 --> 00:30:51.559 is the actual hard work of building. Planning, 00:30:51.700 --> 00:30:55.119 zoning, construction. And interestingly, the 00:30:55.119 --> 00:30:57.279 source claims development can be less cyclical 00:30:57.279 --> 00:31:00.200 than pure investing. Why is that? That seems 00:31:00.200 --> 00:31:02.359 counterintuitive. Because the timelines are so 00:31:02.359 --> 00:31:04.779 long. If you start building a skyscraper today, 00:31:04.900 --> 00:31:07.000 it won't be finished for five years. You might 00:31:07.000 --> 00:31:09.380 start in a boom and finish in a bust, or vice 00:31:09.380 --> 00:31:12.160 versa. It forces you to take a long -term view. 00:31:12.559 --> 00:31:15.079 You can't day trade a skyscraper. We have covered 00:31:15.079 --> 00:31:17.680 a staggering amount of ground today. We really 00:31:17.680 --> 00:31:20.440 have. From sticks to skyscrapers. We went from 00:31:20.440 --> 00:31:22.759 the Roman concept of dominium to the four cent 00:31:22.759 --> 00:31:25.339 acres of the Louisiana Purchase. From the squirrels 00:31:25.339 --> 00:31:27.599 in your backyard to the empty penthouses of the 00:31:27.599 --> 00:31:30.140 oligarchs. From the invention of the 30 -year 00:31:30.140 --> 00:31:32.160 mortgage to the carbon footprint of concrete. 00:31:32.480 --> 00:31:35.000 It's a lot to process. So what is the takeaway 00:31:35.000 --> 00:31:37.599 here? When the listener drives home today and 00:31:37.599 --> 00:31:40.799 pulls into their driveway, what should they be 00:31:40.799 --> 00:31:43.089 thinking? I think the takeaway is that you are 00:31:43.089 --> 00:31:45.549 part of a system. You aren't just living in a 00:31:45.549 --> 00:31:49.710 box. You are holding an interest in a piece of 00:31:49.710 --> 00:31:51.490 the planet. You're holding a bundle of sticks. 00:31:51.750 --> 00:31:53.730 You're holding a bundle of sticks that connects 00:31:53.730 --> 00:31:57.269 you to history, to the law, to the global economy, 00:31:57.430 --> 00:31:59.450 and to the environment. It makes you look at 00:31:59.450 --> 00:32:02.589 the walls differently. You start wondering, where 00:32:02.589 --> 00:32:05.250 did this drywall come from? Who owned this land 00:32:05.250 --> 00:32:08.190 200 years ago? Do I actually own the air above 00:32:08.190 --> 00:32:11.250 my roof? And most importantly, Check your deed 00:32:11.250 --> 00:32:14.150 for the wild animals. Always check for the squirrels. 00:32:14.150 --> 00:32:15.950 But seriously, I want to leave the listener with 00:32:15.950 --> 00:32:18.450 a question based on what we discussed. Go for 00:32:18.450 --> 00:32:20.910 it. We talked about how real estate is a natural 00:32:20.910 --> 00:32:23.329 right, according to the old philosophers. Yeah. 00:32:23.410 --> 00:32:26.089 But we also talked about how it causes 40 % of 00:32:26.089 --> 00:32:28.470 global emissions. Right. A huge contradiction. 00:32:28.849 --> 00:32:31.269 As we move into the next century and climate 00:32:31.269 --> 00:32:34.190 change becomes the dominant story, will that 00:32:34.190 --> 00:32:37.990 right to property? start to erode? If building 00:32:37.990 --> 00:32:40.750 a single family hung becomes in itself an environmental 00:32:40.750 --> 00:32:44.069 crime, does your right to own it disappear? That 00:32:44.069 --> 00:32:46.910 is a heavy thought. Will the real eventually 00:32:46.910 --> 00:32:50.250 overtake the estate, the physical reality overriding 00:32:50.250 --> 00:32:52.630 the legal one? We'll have to wait and see. Thank 00:32:52.630 --> 00:32:54.769 you for guiding us through the invisible structures 00:32:54.769 --> 00:32:56.950 of our world. My pleasure. And thank you for 00:32:56.950 --> 00:32:59.369 listening to The Deep Dive. Go check your deeds, 00:32:59.589 --> 00:33:01.529 think about your footprint, and we'll catch you 00:33:01.529 --> 00:33:02.009 on the next one.