You know, I was driving through my neighborhood
this morning, just, you know, doing the school
run, and I passed a for sale sign. And it was
one of those classic wooden posts hammered into
a slightly overgrown lawn, white paint peeling
a little bit. And I had this moment where I just,
I just stared at it at the stop sign. Just a
sign on a lawn? Right. But it struck me. We look
at that sign and we think, oh, someone is moving.
Or maybe I wonder how much they want for it.
Sure. We see a house. We see a house. We see
a family packing boxes. Yeah. But what we don't
see is the machine. The machine. The invisible,
colossal, global machine that is actually churning
behind that piece of painted wood. I realized
I didn't actually understand what was happening.
I mean, sure, I know you pay money and you get
keys, but what is actually happening when that
sign comes down? That is the question, isn't
it? It is so deceptively simple. We live in these
boxes. We work in these boxes. Real estate is
the literal background of our entire existence.
But the moment you decide to trade one of those
boxes, you are stepping into a web that involves
international economic modeling, centuries -old
philosophy, high -stakes sociology. And a level
of legal complexity that would just make your
head spin. It absolutely would. And that is exactly
what we're doing today. We are peeling back the
drywall. We're looking at the wiring. We're taking
the topic of the real estate business, which
sounds dry, I know. It can, yeah. And we are
going to find out why the OECD, Karl Marx, and...
Software engineers are all somehow involved in
selling a three -bedroom ranch in the suburbs.
It is a journey from the kitchen table all the
way to the United Nations. So let's ground this
before we get too abstract. When we say real
estate business, what is the actual definition
we're working with here? Okay. Because I feel
like everyone has a slightly different idea.
Some people think it's just flipping houses.
Others think it's, I don't know, being a landlord.
And it's all of those. But strictly speaking,
if we look at our source material. The real estate
business is defined as the profession of buying
leasing managing or selling real estate It is
the mechanism of transfer and management. Okay.
Buying, leasing, managing, selling. That seems
straightforward enough. But that covers a massive,
massive spectrum. Yeah. You have the obvious
one, residential. That's where you live. That's
where we sleep. That's the for sale sign you
saw this morning. That's, you know, the emotional
side of the business. Right. But then you have
commercial office buildings, retail spaces, malls,
and that operates on a completely different set
of logic. Right. Nobody buys a strip mall because
they fell in love with the lighting. Exactly.
It's purely a yield calculation and investment.
Then you have industrial factories, warehouses,
logistics centers. Oh, yeah. Think about those
massive Amazon fulfillment centers you see off
the highway. That is a huge chunk of the real
estate business. A huge and growing chunk. Immensely.
And then you have this interesting hybrid that
is sort of taking over modern cities, mixed use.
That's the target on the bottom, condos on the
top. That's exactly it. Retailer commercial on
the ground floor, residential apartments above.
It is a way of maximizing the utility of the
land, especially in dense urban environments.
It makes sense. And that is really the core mission
of this deep dive. We want to stop looking at
these things as just buildings or shelter and
start looking at them as assets within a very
complex system. We need to understand how efficiently
or in many cases inefficiently these assets change.
And that brings us to the first layer of the
onion, the people. The human element. Because
for all the talk of algorithms and Zillow and
online listings, this is still a surprisingly
human -heavy industry. Oh, absolutely. You can
buy a car online pretty easily now. You can buy
stocks in the microsecond with Thumbswipe. But
buying a house, you usually have to talk to someone.
You do. And that is by design. The source material
talks a lot about the role of the intermediary.
The middleman. The person taking a cut. The middleman.
Or the buffer. In economics, we often talk about
friction things that slow down a transaction.
Right. And usually the goal of technology is
to remove middlemen to reduce that friction.
But in real estate, the intermediary is there
because the stakes are so high that the friction
is almost protective. That's a good way to put
it. It's not like selling a used bike on Craigslist.
If I mess up a bike sale, I'm out 50 bucks. Right.
If I mess up a house sale, I'm bankrupt. Or worse.
Precisely. It is, and the source calls it, common
practice for owners to utilize dedicated sales
and marketing support in exchange for a commission.
They generally don't do it themselves because
of what economists call the asymmetric information
problem. Asymmetric information. Meaning the
information isn't symmetrical. The seller knows
everything about the house, the leaky pipe, the
weird neighbor, the drafty window. All the secrets.
All the secrets. The buyer knows nothing. The
agent is there to help bridge that gap. And crucially,
they manage the legal exposure for both sides.
But what I found funny in the research is that
while the job is the same everywhere, bridging
that gap, marketing the asset, the labels we
stick on these people are totally different depending
on where you are on the map. Oh, yes. It's a
bit of a global name game. It is. And the language
reveals a lot about the local culture. So here
in North America, we're very attached to our
titles. You have the real estate agent. You have
the real estate broker, who is sort of a step
above. And then you have the trademarked one.
Which is an important distinction. It specifically
means they are a member of the National Association
of Realtors. Like a club. It's a trade group
membership, not just a job description. It implies
a certain code of ethics they've agreed to follow.
Right. But then you hop across the Atlantic to
the UK and the vibe changes completely. They
don't have real estate agents. No. They have
less state agents. It does sound more aristocratic,
doesn't it? I must ring my estate agent. It really
does. It evokes, I don't know, landed gentry.
Hunting dogs and tweets. It sounds like they
are selling Downton Abbey every Tuesday. Well,
sometimes they are. But the function is identical.
However, when you go to Australasia, Australia,
New Zealand, the terminology just fractures even
more. Oh, yeah. This is wild. They have agents,
sure. But they also use terms like sales representative,
property consultant, or leasing agent. Or sometimes
just simply the agent. The agent. Very mysterious.
Property consultant is the one that interests
me. That feels like a very deliberate shift in
branding. How so? Well, agent sounds transactional.
I do this for you. But consultant sounds strategic,
I think, with you. That is a very sharp observation.
And the industry has absolutely been trying to
move toward that advisory role for years. Why
is that? Because if your only job is opening
a door and handing someone a brochure, an app
can replace you. A smart lock and a PDF can replace
you. But if you are consulting on portfolio strategy
and long -term value and neighborhood trends,
well, you're harder to automate. You're providing
insight, not just access. Precisely. But essentially,
the main takeaway here is that despite the label,
whether it's a broker in Manhattan, an estate
agent in London, or a property consultant in
Sydney, The economic function is universal. They
are facilitators of a high stakes exchange. They
are the oil in this very complicated machine.
A very good way to put it. OK, so we have the
people. We have the agent consultant broker.
Now let's talk about what they're actually selling,
because I think this is where most people, myself
included, have it completely wrong. Go on. Well,
if I buy a house, I think I'm buying the house.
You know, the bricks, the wood, the roof, the
dirt, the questionable wallpaper in the guest
room. A physical object. Right. But the research
made this really specific, almost pedantic distinction.
It said a real estate transaction is the process
where rights in a unit of property are transferred,
not the property itself, the rights. It's not
pedantic at all. It's fundamental. It is the
single most important concept in all of property
law. Okay, really? Absolutely. You are not buying
the atoms. You are buying the legal permission
to control those atoms in a certain way. Rights
in a unit of property. Unpack that for me. Why
does that distinction matter so much to the person
listening right now who just wants to buy a condo?
Okay, think of it this way. Imagine you buy a
beautiful farmhouse. You sign the papers. You
move in. You think you own it. I'm living the
dream. You're living the dream. But then a mining
company shows up and says, we actually own the
mineral rights under this land, and we're going
to start drilling next Tuesday. Oh, no. Or the
city says, we own an easement that runs across
your backyard for a new sewer line, and we're
bringing the backhoes next month. That's a nightmare.
Or a bank says, actually, there's a lien on this
property from the previous owner's unpaid business
loan, so we have a claim. Nightmare fuel. Total
nightmare fuel. If you thought you bought the
dirt, you're confused and angry and probably
going to court. But if you understood that you
bought a specific set of rights, a bundle of
them, which might explicitly exclude the minerals
or include the easement, then you understand
the reality of the situation. You are buying
a legal construct, not just a physical object.
So the transaction isn't here are the keys. Here
is a very long, very complicated contract listing,
exactly what you were allowed to do with this
space, and who else has a claim on it? Exactly.
And that is why the transaction itself, the process
of conveyance, is so incredibly complicated.
Right. If I sell you a banana and I hand you
the banana, the transaction is done. I don't
retain peel rights. Last good point. You don't
have to check if the government has a lien on
the banana from a prior owner, but with land.
The source points out three main friction points
that make real estate harder to trade than almost
anything else. Okay, let's hit those. Friction
point number one. The complexity of the property
rates themselves, just what we were talking about.
You have to do this whole process called a title
search to verify that the person selling the
house actually owns all the rights they claim
to own. And that nobody else does. And that nobody
else does. This is why we have title insurance.
We are terrified that a long lost cousin from
1890 has a claim on the land because of a will
that wasn't probated correctly. It sounds like
a Dickens novel. The mystery of the missing deed.
It often is. Which leads to friction point number
two. The sheer amount of money involved. Right.
It's likely the biggest purchase you will ever
make. When you are moving hundreds of thousands
or millions of dollars, the level of scrutiny
just spikes. Of course. You need banks, appraisers,
inspectors, underwriters. The entire financial
system puts up massive guardrails to prevent
fraud and money laundering. You can't just Venmo
someone a million dollars and hope for the best.
I wish you could. It would be easier. It would
be easier, but probably not better. Probably
not. And number three. Government regulations.
And this is the big one. The source notes that
conventions and requirements vary wildly, not
just between countries, but between states, counties,
even cities. Right. So what you need to do to
sell a condo in New York is completely different
from selling a ranch in Texas. Which is completely
different from selling a flat in Paris or a cottage
in Kyoto. Every single local government has its
own zoning laws, transfer taxes, environmental
disclosures, occupancy rules, you name it. It's
a patchwork quilt of red tape. It is. And all
that red tape, all that complexity, all that
money creates something that economists are obsessed
with. Transaction costs. Okay, transaction costs.
Now this sounds like the boring part of the bill
where they add the service fees and the fine
print. It can seem that way. But in the research,
this seemed to be a huge focus. This is where
the heavy hitters come in. This is the science
of the industry. It's where we move from the
local estate agent to the OECD, the Organization
for Economic Cooperation and Development. And
my first question is, why? Why does an international
economic organization care about the closing
costs on my duplex? Like, don't they have bigger
fish to fry, like global trade and stuff? To
them, this is global trade. They care because
transaction costs are the sand in the gears of
the global economy. How so? Well, think about
it. If it costs too much money or takes too much
time to buy and sell property, people stop moving.
They get stuck. Literally. Exactly. Imagine you're
an engineer living in Spain and you get a fantastic
job offer in Finland, a real career making opportunity.
Yeah. But selling your house in Spain takes 18
months and costs 15 percent of the property's
value in fees, taxes and legal bills. And then
buying in Finland is a whole separate legal nightmare
you don't understand. I might just stay in Spain.
You might just turn down the job. Yeah. So what
happened? High transaction costs killed labor
mobility. Ah, I see. And when labor mobility
drops, talent doesn't go where it's most needed.
Capital gets stuck in inefficient assets. The
whole economy becomes less dynamic. It's a huge
drag on GDP. So this isn't just a personal headache.
It's a national economic problem. It's a massive
one. So the OECD and the European Commission
actually poured a ton of resources into studying
this. They sponsored a study called Improving
Competition in Real Estate Transactions. They
wanted to figure out how do we even measure these
costs accurately? cross borders? And once we
measure them, how do we lower them to make the
market deeper and more efficient? And this is
where the research got surprisingly technical.
I was not expecting this. I saw the term modeling
real property transactions and I saw UML. Yes.
Now, I have friends in tech. UML stands for unified
modeling language. It's a tool for mapping out
software and systems architecture. That's right.
Why on earth are they using software engineering
tools for property law? That seems like a very
weird crossover. That is the fascinating part.
They realized that legal descriptions, the actual
written laws, were too vague and too different.
If you want to compare the efficiency of Finland's
market versus Spain's market, you can't just
read the laws. Too much gets lost in translation.
Exactly. The languages are different. The legal
concepts are different. A notary in the United
States is someone who just witnesses a signature.
A notary in France is a highly trained public
official who drafts the contracts and is essential
to the transaction. Same word, totally different
function. So they needed a universal translator.
They needed a model. a visual language that was
independent of any specific legal text or natural
language so they treated the property buying
process like a computer program okay they used
uml to break it down into use cases actor a the
buyer performs action b signs a contract which
triggers process c funds are moved into escrow.
They mapped every single step. It's like creating
a flow chart for the law. Exactly that. By mapping
it out in the standardized visual way, they could
overlay the process in Denmark with the process
in Portugal and see with perfect clarity exactly
where the extra steps were. Wow. They could say,
look, in Denmark, this step takes two days and
involves one person. But in Portugal, the same
logical step takes three weeks and involves four
different people and three different government
offices. That's wild. It's like debugging the
housing market. It is. They even use what's called
an ontology -based methodology. Okay, ontology.
Now we're back in philosophy class again. That's
the study of being, right? It is, but in information
science, an ontology is something very specific.
It's a formal, explicit specification of a shared
conceptualization. I have no idea what you just
said. Laughs, fair enough. It's a shared vocabulary.
It's getting everyone to agree on exactly what
transfer of deed means, what its properties are,
and how it relates to mortgage registration.
Okay. It's about creating a dictionary of concepts
so that when you collect data, it's actually
comparable. Without an ontology, you're comparing
apples to oranges. With it, you're comparing
standardized data points. So it's about extreme
precision in language to allow for clean data.
Exactly. And did this high -tech approach actually
yield results? Or was it just an academic exercise
for people who really love charts? Oh, it yielded
very specific data, particularly in the Nordic
countries. The source material specifically mentions
the Nordic connection, Finland and Denmark. Right.
They used this modeling in conjunction... with
something called the system of national accounts
to calculate exactly how much of their gross
domestic product was being eaten up by these
property transfer processes. They put a price
tag on the paperwork. A very precise price tag.
And they found that by digitizing their records
and standardizing their processes, by removing
that friction we talked about, they could save
significant amounts of national wealth. We're
talking billions of dollars. Wow. So it has a
real world impact. A massive one. And for anyone
who is really, really into land registry law.
There must be dozens of us. The source notes
that there is a detailed English translation
of the Danish conveyance and mortgaging model
available. You can actually see the flowcharts.
I'll be sure to add that to my beach reading
list right next to the thriller novels. The Danish
land registry conveyance model. Sounds like a
real page turner. It might be dry, but that dryness
is where the efficiency hides. And if you can
shave even 1 % off transaction costs in a national
real estate. market, you are saving billions.
That pays for a lot of schools and hospitals.
OK. So we've established that it's expensive
and complicated to move the rights around. But
let's zoom back in a bit and talk about the number
that everyone actually cares about. The price.
The price. The value. What makes a house worth
what it's worth? Why is a shack in San Francisco
worth more than a mansion in rural Ohio? The
eternal question. The research says there are
three main pillars. Structural, locational, and
environmental. Correct. These are the classic
determinants of value in real estate appraisal.
So structural seems easy enough. That's the house
itself. How many bedrooms? How many bathrooms?
Is the roof leaking? Do you have that weird 70s
shag carpet that smells like old cigarettes?
Right. The physical attributes of the improvement
on the land, the square footage, the age of the
building, the quality of the materials, the layout.
That's the tangible part you can touch and measure.
Then you have locational, which is the old cliche.
Location, location, location. Right. And this
is usually the biggest single driver of price.
So this is things like how close are you to the
city center? Are you in a good school district?
Is there a train station nearby? Exactly. It's
about proximity, distance to amenities, transport
links, major job centers. The key here is that
you can change the structure. You can renovate
a kitchen, but you can't change the location.
You can't move your house closer to the good
school. Very true. But the third one, environmental,
feels a bit more nuanced. How is that different
from location? It sounds similar. It's a subtle
but really important distinction. Think of location
as objective coordinates on a map. This house
is 1 .2 miles from the train station. Okay. Think
of environment as the more subjective, contextual,
and sensory experience of that location. Give
me an example. Okay. You can have two houses
in the same great location, both a mile from
the train station, but one is next to a beautiful,
quiet park. The other is next to a noisy factory
that runs all night. Ah. Got it. The environmental
attributes are things like, is there a park next
door? Is there a highway down the street? What
is the air quality like? Is there a view of the
mountains or a view of a dumpster? Crime rates,
noise pollution. The vibe. The vibe or the quality
of life. It's all the stuff that doesn't show
up on a simple map but deeply affects how it
feels to live there. So you can have a house
in the great location central downtown. But with
a terrible environment because it's next to a
construction site and the air quality is bad.
Precisely. And what's really cool is how we are
starting to measure this stuff now. It used to
be very fuzzy, but the source mentioned a specific
case study from Tehran. Yeah, this caught my
eye. They use web mining. What is that? This
represents the modernization of valuation. Traditionally,
a tax assessor would come by your house once
every few years, look at the outside, maybe check
the last sale price and guess. And it was always
wrong. Either too high or too low. Often, yes.
It was a very blunt instrument. But the Tehran
study used web mining techniques. They wrote
algorithms to scrape vast amounts of data from
online property listings, from real estate forums,
maybe even social media discussions about neighborhoods.
So they're effectively crowdsourcing the valuation.
They're using big data to detect the determinants
of value in real time. An official assessor might
not know that a specific street just got a trendy
new coffee shop and a yoga studio that boosted
values by 5%. But the web knows. The web knows.
The algorithms can pick up on keywords and property
descriptions, words like sunny, quiet, stunning
view, newly renovated, and correlate those words
with higher selling prices. They can quantify
the value of the vibe. It's amazing how tech
has infiltrated every single part of this. We've
gone from a handshake deal to web mining and
UML diagrams. It's not just an art anymore. It
is really becoming a hard science. It is becoming
a data science. And the companies that have the
best data on environmental factors, on transaction
costs, on structural attributes are the ones
who are winning the market. Speaking of the market,
I want to zoom out because we've been talking
mostly about houses and offices, pretty standard
stuff. But when I looked at the see also section
of our research. the part most people skip, I
realized the sheer mind -boggling breadth of
this business. It is a universe of different
asset classes. Real estate touches absolutely
everything. Let's just run through some of these
because the few of them really surprised me.
For example, we have healthcare real estate.
a huge and very specific sector. You can't just
turn an old office building into a modern hospital.
The infrastructure requirements are insane. The
ventilation systems for operating rooms, the
reinforced floor loads for heavy MRI machines,
the backup power generation, the specialized
plumbing. It is highly, highly specialized. And
I imagine with an aging population. With the
silver tsunami, as it's called, this is one of
the hottest sectors for institutional investment.
Everyone needs more clinics and senior living
facilities. Okay, what about garden real estate?
That sounds quaint. It's niche, but it can be
extremely valuable. These are plots of land with
significant horticultural value. Not just a nice
backyard, but, you know, professional botanical
gardens, productive orchards, or historically
significant landscapes. I see. Then there's the
more familiar stuff like vacation property and
golf property. Lifestyle assets. And they are
very sensitive to the economy. When things are
good and people have disposable income, golf
courses and vacation homes, boom. And when things
are bad. They're just very expensive pieces of
grass that need a lot of water and maintenance.
They're often the first luxury to be cut. Then
we have luxury real estate. Which is practically
its own reality TV genre at this point. Indeed.
And it operates on completely different principles.
It's often what's called a Veblen good. Meaning?
Meaning that sometimes the higher price makes
it more desirable, not less. The value comes
from the status it conveys. The exclusivity.
Right. It's expensive because it's expensive.
Exactly. And then my personal favorite from the
list. I had to read this twice to make sure it
wasn't a typo. Extraterrestrial real estate.
Yes. That is on the list. I mean, come on. Are
we really talking about buying condos on Mars?
Is that a real thing? Theoretically, yes. People
are already trying to sell plots of land on the
moon. There are websites where you can buy an
acre of the moon right now. But do you actually
own it or are you just buying a fancy piece of
paper for your wall? That is the massive unresolved
legal debate. The 1967 Outer Space Treaty says
that no nation can claim sovereignty over celestial
bodies. OK, so no country can plant a flag and
say the moon is ours. Correct. But the treaty
doesn't explicitly say that private individuals
or corporations can't. So you have these companies
that are exploiting that perceived loo hole.
Wow. But the fact that it's even categorized
as a type of real estate shows you where the
head of the industry is at. They're always looking
for new inventory and, well, we're running out
of land on Earth. For sale. Crater view, low
gravity, no atmosphere, slight radiation risk.
A real fixer -upper. But think about the transaction
costs there. There's no government to regulate
it yet, no zoning laws, no title insurance. A
libertarian paradise until the oxygen runs out.
Precisely. But it really points to the speculative,
forward -looking nature of the business. Which
brings us back down to earth and to the more
corporate side of things. The list also highlighted
the incredible financialization of all this.
This is where real estate stops being a place
to live. and starts being a line item on a spreadsheet.
We saw terms like private equity real estate
and REITs. REITs, real estate investment trusts,
are fascinating because they essentially democratize
the landlord experience. How so? Well, you and
I probably can't afford to buy a skyscraper in
Manhattan that costs billions of dollars. Definitely
not. But we can buy a share of a REIT that owns
that skyscraper and 100 others. It trades on
the stock market just like a share of Apple.
And you get a dividend. Exactly. You get a dividend
from the rent the tenants pay. It turns a physical,
illiquid, lumpy building into a liquid financial
asset that you can buy or sell in seconds. And
then there's land banking. That one sounds a
little ominous. It can be controversial. That's
the practice of buying undeveloped land on the
outskirts of a city, not to use it, but just
to hold it. For what purpose? You're making a
bet that the city will eventually expand toward
your empty field. So you just sit on it for 20
years, do nothing with it, maybe let some cows
graze on it to keep the taxes low. And then you
sell it for a fortune when the developers finally
arrive. Exactly. You're monetizing patience and
foresight. Or you're hoarding a critical resource
and driving up prices for everyone else. Or you're
hoarding a resource. It really depends on your
perspective. Which is a perfect segue to the
dark side. Because you can't have a serious discussion
about this industry without talking about when
it goes horribly wrong. No, and you shouldn't.
Real estate is cyclical. And because it's so
closely tied to our homes and our life savings,
when it crashes, it hurts people in a very direct
way. The sourceless, the obvious one. Real estate
bubbles. And the inevitable pop. The subprime
mortgage crisis of 2008, that was a catastrophic
failure of the entire machine we've been describing.
The intermediaries failed. The valuation models
failed. The financial risk assessment failed.
The regulators failed. And the cost wasn't just
transaction costs on a spreadsheet. It was millions
of people losing their homes. It was a global
recession. Absolutely. And the list in the source
also included the more chronic social issues,
gentrification, urban decay. Eviction. Foreclosure.
And it implied things like slumlords through
the mentions of related topics like just cause
eviction and rent regulation. Right. It's a reminder
that this isn't just a game of Monopoly. When
you treat housing strictly as a financial asset
to be optimized for maximum yield, you often
end up squeezing the actual human beings who
live inside the asset. It's a fundamental tension,
isn't it? Housing is a human right versus housing
as an investment vehicle. That is the central
tension of modern urban economics. If housing
is a great investment, that means prices are
going up. Prices are going up. It becomes less
affordable as shelter. You can't easily have
it both ways. Which I think is the perfect bridge
to the final and arguably most dense part of
our research. The theory. Because ultimately,
all of this, the buying, selling, evicting, mining,
the space colonization. it all rests on a very
old, very deep philosophical question. Who owns
the ground? And we are back to the bundle of
rights. I love this phrase. It sounds like something
from a fable. The old man went to the market
with his bundle of rights. It's the standard
metaphor in property law, and it's a crucial
one. When you say, I own this land, you don't
really own the land in an absolute godlike sense.
You possess a bundle of sticks. A bundle of sticks.
And each stick in that bundle represents a specific
separable right. Okay, let's name some of the
sticks. If I'm holding this bundle for a typical
house, what have I got? Okay, stick one. Air
rights. Do you own the space above your house
all the way up to the stars? Can you build a
50 -story tower? Can your neighbor build a balcony
that hangs over your yard? In a place like New
York City, air rights are a tradable currency.
Smaller historic buildings will sell their unused
air rights to the building next door so they
can build a super tall skyscraper. That is wild.
You're selling the empty air above your roof.
You are. Okay, stick to mineral rights. The oil,
the gold, the natural gas under your feet. In
many countries, the state automatically keeps
this stick. You own the surface, the king or
the government owns the gold. But not in the
U .S. In the U .S., unique among many nations,
the landowner often keeps this stick, which is
why you can have individuals getting rich off
oil found on their property. Which explains the
Beverly Hillbillies. It explains the Beverly
Hillbillies. Stick three, water rights or riparian
rights. If a creek runs through your property,
can you... Damn it. Can you divert all the water?
Can you drain the aquifer underneath to water
your almond farm? This is a source of massive
conflict, especially in the American West right
now. Then you have things like grazing rights.
Can you put cows on it? Can you farm it? What
can you grow? So ownership is really just holding
this handful of permissions and you can sell
them off one by one. I can sell the mineral stick
to Exxon, the grazing stick to a local farmer,
and I can keep the air stick and live in a tree
house. Theoretically, yes. And that is why the
legal model. we talked about earlier, the UML
diagrams and the ontologies are so necessary.
You have to have a robust system to track who
has which stick. If you lose track, you have
chaos. And it's not just what you own, but how
you own it. The source listed so many different
forms of ownership. Private, public, collective,
cooperative. Right. Common ownership. Crown ownership,
which is still a major thing in the UK, Canada,
Australia, and my personal favorite. Unknown.
That feels rare in today's world. It is. Antarctica
is largely unknown by treaty. The high seas are
unknown. It refers to terra nullius, nobody's
land. But this all leads us to the heavy hitters
in theory. Because people have been arguing about
this for a long time. The source lists the scholars
who have spent centuries debating this. John
Locke, Adam Smith, Karl Marx. It is an absolute
powerhouse list of thinkers. It's just wild to
me to see Karl Marx and Adam Smith on the same
guest list for a real estate party. They don't
seem like they'd get along very well. They wouldn't.
But they are both fundamental architects of how
we think about land and property today. So how
does Adam Smith fit in? Adam Smith, the father
of capitalism, was obsessed with how land generates
wealth. He analyzed rent not as just a payment,
but as one of the three foundational sources
of income, along with profit and wages. He tried
to understand where that value came from. And
Marx? Marx came at it from the opposite direction.
He analyzed how the private ownership of land
creates and enforces class structures. He argued
that land ownership was a primary way for the
wealthy, the bourgeoisie, to extract value from
the labor of the workers, the proletariat. You
control the means of survival for everyone else.
That was his argument. And that fundamental tension
is still with us today in every landlord -tenant
dispute and every debate about affordable housing.
What about John Locke? Where does he come in?
Locke gave us the labor theory of property. He
had this very influential idea that because you
own your own body and therefore your own labor,
when you mix your labor with something in nature,
when you till a field or build a fence, you make
it your own. You earn the right to that land.
The philosophical basis for homesteading. Yeah.
You worked it, so it's yours. Exactly. It's a
cornerstone of American property law. And Eleanor
Ostrom, she's a Nobel Prize winner. Right. But
more recent. Yes, and her work is so important.
She's famous for challenging the tragedy of the
commons. Okay, you have to remind us what the
tragedy of the commons is. The classic idea,
the parable, is that if you have a shared pasture,
a common, that everyone is allowed to use, everyone
will act in their own self -interest. Every farmer
will add one more sheep to graze because the
benefit of that extra... So eventually the pasture
is destroyed. The pasture is destroyed. The tragedy
is that rational individual freedom leads to
collective ruin. And for a long time the argument
was that we need private property to save the
land. This is my piece, so I'll take care of
it. That was the old argument. The only solutions
were believed to be hard privatization or hard
government control. Ostrom came along and said,
hold on. Actually, let's look at the real world
data. And what did she find? She studied hundreds
of real world examples. Swiss villages managing
alpine meadows, Japanese forests, irrigation
systems in Spain. And she found that, contrary
to the theory, communities are often very, very
good at managing commons without problems. private
ownership, or heavy government regulation. They
create their own rules, their own social contracts,
monitoring systems, and sanctions for cheaters.
They figure it out. So we don't always need a
landlord or a policeman. Sometimes the neighbors
just work it out amongst themselves. Exactly.
Her work provides this fascinating and powerful
counterpoint to the everything must be privately
owned mentality that dominates so much of modern
real estate. So really, every time we sign a
lease or a mortgage, we are unknowingly taking
a side in a 300 year old philosophical debate.
We are. We just don't realize it because we are
too busy worrying about the interest rate and
the home inspection report. And whether the roof
is going to leak. And the roof. Always, always
the roof. This has been. Massive. I mean, we
started with a simple sign on a lawn. We went
through software modeling of Danish property
laws. We looked at crowdsourced home values in
Tehran. We visited the moon. And we ended up
in a debate with Karl Marx and Eleanor Ostrom.
As all good deep dives should, we took the familiar
and hopefully made it strange and interesting
again. So if we have to synthesize all of this
for the listener, the person who just wants to
understand the world they live in a little better.
What is the headline? The headline is that real
estate is the ultimate convergence point. It
is where high stakes, abstract global finance
meets intensely local, personal human interaction.
OK. It is where the system of national accounts,
those big OECD studies trying to put a price
tag on the entire nation, meets the very personal
bundle of rights that defines your home. It is
not just a business. It is the physical operating
system of our society. The hidden complexity
behind the simple things. Exactly. And understanding
that complexity gives you agency. When you know
you are buying rights, not just bricks, you make
better decisions. When you understand transaction
costs, you understand a big piece of the economy.
Before we go, I want to leave everyone with that
one final, slightly provocative thought that
we hinted at earlier. Go for it. We talked about
extraterrestrial real estate and we talked about
unowned property. And we just talked about the
tragedy of the commons. That is a dangerous cocktail
of concepts. Well, as we continue to use up space
and resources here on Earth, and as those transaction
costs get higher and the regulations get denser,
we are going to look up. We're going to go to
Mars and beyond. It seems inevitable. But here's
the question. When we get there, do we bring
John Locke and Adam Smith with us? Does the bundle
of rights that we developed over centuries on
Earth even apply in a vacuum? That is the big
question. Can you own air rights where there
is no air? Can you have riparian rights to a
river of frozen methane? Exactly. Are we just
going to replicate the same system there? Landlords,
tenants, mortgages, title insurance for moon
craters? Or will we have a chance to invent an
entirely new way of defining... ownership, maybe
in Ostrom -style commons for a whole planet.
That is the ultimate test for all of these theories,
and I have a sneaking suspicion that the lawyers
are already drafting the paperwork, just in case.
Something for you to mull over the next time
you look up at the night sky. You might just
be looking at a future legal battleground. Indeed.
Thanks for diving in with us. This was a heavy
one, but I feel like I understand the world I'm
standing on a lot better now. It was a real pleasure.
We'll catch you on the next one. Goodbye, everyone.