WEBVTT 00:00:00.000 --> 00:00:01.760 You know, I was driving through my neighborhood 00:00:01.760 --> 00:00:03.299 this morning, just, you know, doing the school 00:00:03.299 --> 00:00:07.120 run, and I passed a for sale sign. And it was 00:00:07.120 --> 00:00:09.960 one of those classic wooden posts hammered into 00:00:09.960 --> 00:00:13.119 a slightly overgrown lawn, white paint peeling 00:00:13.119 --> 00:00:16.160 a little bit. And I had this moment where I just, 00:00:16.179 --> 00:00:20.140 I just stared at it at the stop sign. Just a 00:00:20.140 --> 00:00:24.000 sign on a lawn? Right. But it struck me. We look 00:00:24.000 --> 00:00:26.920 at that sign and we think, oh, someone is moving. 00:00:27.100 --> 00:00:29.620 Or maybe I wonder how much they want for it. 00:00:29.760 --> 00:00:32.259 Sure. We see a house. We see a house. We see 00:00:32.259 --> 00:00:34.640 a family packing boxes. Yeah. But what we don't 00:00:34.640 --> 00:00:37.659 see is the machine. The machine. The invisible, 00:00:37.820 --> 00:00:40.439 colossal, global machine that is actually churning 00:00:40.439 --> 00:00:44.079 behind that piece of painted wood. I realized 00:00:44.079 --> 00:00:45.600 I didn't actually understand what was happening. 00:00:45.960 --> 00:00:48.719 I mean, sure, I know you pay money and you get 00:00:48.719 --> 00:00:51.759 keys, but what is actually happening when that 00:00:51.759 --> 00:00:54.579 sign comes down? That is the question, isn't 00:00:54.579 --> 00:00:57.380 it? It is so deceptively simple. We live in these 00:00:57.380 --> 00:01:00.100 boxes. We work in these boxes. Real estate is 00:01:00.100 --> 00:01:02.320 the literal background of our entire existence. 00:01:02.700 --> 00:01:05.379 But the moment you decide to trade one of those 00:01:05.379 --> 00:01:08.379 boxes, you are stepping into a web that involves 00:01:08.379 --> 00:01:11.579 international economic modeling, centuries -old 00:01:11.579 --> 00:01:15.180 philosophy, high -stakes sociology. And a level 00:01:15.180 --> 00:01:16.900 of legal complexity that would just make your 00:01:16.900 --> 00:01:19.439 head spin. It absolutely would. And that is exactly 00:01:19.439 --> 00:01:21.959 what we're doing today. We are peeling back the 00:01:21.959 --> 00:01:24.400 drywall. We're looking at the wiring. We're taking 00:01:24.400 --> 00:01:26.500 the topic of the real estate business, which 00:01:26.500 --> 00:01:29.299 sounds dry, I know. It can, yeah. And we are 00:01:29.299 --> 00:01:33.579 going to find out why the OECD, Karl Marx, and... 00:01:34.750 --> 00:01:37.590 Software engineers are all somehow involved in 00:01:37.590 --> 00:01:39.650 selling a three -bedroom ranch in the suburbs. 00:01:39.890 --> 00:01:42.650 It is a journey from the kitchen table all the 00:01:42.650 --> 00:01:45.109 way to the United Nations. So let's ground this 00:01:45.109 --> 00:01:46.950 before we get too abstract. When we say real 00:01:46.950 --> 00:01:49.530 estate business, what is the actual definition 00:01:49.530 --> 00:01:51.670 we're working with here? Okay. Because I feel 00:01:51.670 --> 00:01:53.129 like everyone has a slightly different idea. 00:01:53.250 --> 00:01:54.670 Some people think it's just flipping houses. 00:01:54.750 --> 00:01:57.030 Others think it's, I don't know, being a landlord. 00:01:57.370 --> 00:02:00.290 And it's all of those. But strictly speaking, 00:02:00.590 --> 00:02:03.400 if we look at our source material. The real estate 00:02:03.400 --> 00:02:07.659 business is defined as the profession of buying 00:02:07.659 --> 00:02:11.560 leasing managing or selling real estate It is 00:02:11.560 --> 00:02:14.240 the mechanism of transfer and management. Okay. 00:02:14.400 --> 00:02:17.060 Buying, leasing, managing, selling. That seems 00:02:17.060 --> 00:02:19.319 straightforward enough. But that covers a massive, 00:02:19.379 --> 00:02:21.360 massive spectrum. Yeah. You have the obvious 00:02:21.360 --> 00:02:23.960 one, residential. That's where you live. That's 00:02:23.960 --> 00:02:25.699 where we sleep. That's the for sale sign you 00:02:25.699 --> 00:02:28.020 saw this morning. That's, you know, the emotional 00:02:28.020 --> 00:02:30.379 side of the business. Right. But then you have 00:02:30.379 --> 00:02:33.780 commercial office buildings, retail spaces, malls, 00:02:33.780 --> 00:02:36.000 and that operates on a completely different set 00:02:36.000 --> 00:02:38.139 of logic. Right. Nobody buys a strip mall because 00:02:38.139 --> 00:02:39.939 they fell in love with the lighting. Exactly. 00:02:40.199 --> 00:02:43.060 It's purely a yield calculation and investment. 00:02:43.620 --> 00:02:46.840 Then you have industrial factories, warehouses, 00:02:46.900 --> 00:02:49.180 logistics centers. Oh, yeah. Think about those 00:02:49.180 --> 00:02:51.400 massive Amazon fulfillment centers you see off 00:02:51.400 --> 00:02:54.099 the highway. That is a huge chunk of the real 00:02:54.099 --> 00:02:57.080 estate business. A huge and growing chunk. Immensely. 00:02:57.099 --> 00:02:59.419 And then you have this interesting hybrid that 00:02:59.419 --> 00:03:02.400 is sort of taking over modern cities, mixed use. 00:03:02.639 --> 00:03:04.900 That's the target on the bottom, condos on the 00:03:04.900 --> 00:03:08.430 top. That's exactly it. Retailer commercial on 00:03:08.430 --> 00:03:10.810 the ground floor, residential apartments above. 00:03:11.169 --> 00:03:14.050 It is a way of maximizing the utility of the 00:03:14.050 --> 00:03:16.629 land, especially in dense urban environments. 00:03:16.810 --> 00:03:19.050 It makes sense. And that is really the core mission 00:03:19.050 --> 00:03:21.909 of this deep dive. We want to stop looking at 00:03:21.909 --> 00:03:24.789 these things as just buildings or shelter and 00:03:24.789 --> 00:03:27.370 start looking at them as assets within a very 00:03:27.370 --> 00:03:31.270 complex system. We need to understand how efficiently 00:03:31.270 --> 00:03:34.870 or in many cases inefficiently these assets change. 00:03:34.919 --> 00:03:37.719 And that brings us to the first layer of the 00:03:37.719 --> 00:03:40.219 onion, the people. The human element. Because 00:03:40.219 --> 00:03:42.939 for all the talk of algorithms and Zillow and 00:03:42.939 --> 00:03:45.400 online listings, this is still a surprisingly 00:03:45.400 --> 00:03:47.939 human -heavy industry. Oh, absolutely. You can 00:03:47.939 --> 00:03:50.000 buy a car online pretty easily now. You can buy 00:03:50.000 --> 00:03:52.560 stocks in the microsecond with Thumbswipe. But 00:03:52.560 --> 00:03:54.780 buying a house, you usually have to talk to someone. 00:03:54.919 --> 00:03:57.659 You do. And that is by design. The source material 00:03:57.659 --> 00:04:00.280 talks a lot about the role of the intermediary. 00:04:00.379 --> 00:04:03.439 The middleman. The person taking a cut. The middleman. 00:04:04.090 --> 00:04:07.629 Or the buffer. In economics, we often talk about 00:04:07.629 --> 00:04:10.189 friction things that slow down a transaction. 00:04:10.509 --> 00:04:13.469 Right. And usually the goal of technology is 00:04:13.469 --> 00:04:16.089 to remove middlemen to reduce that friction. 00:04:16.589 --> 00:04:19.009 But in real estate, the intermediary is there 00:04:19.009 --> 00:04:21.850 because the stakes are so high that the friction 00:04:21.850 --> 00:04:25.269 is almost protective. That's a good way to put 00:04:25.269 --> 00:04:27.709 it. It's not like selling a used bike on Craigslist. 00:04:27.870 --> 00:04:30.730 If I mess up a bike sale, I'm out 50 bucks. Right. 00:04:30.850 --> 00:04:33.800 If I mess up a house sale, I'm bankrupt. Or worse. 00:04:34.579 --> 00:04:37.649 Precisely. It is, and the source calls it, common 00:04:37.649 --> 00:04:40.610 practice for owners to utilize dedicated sales 00:04:40.610 --> 00:04:42.870 and marketing support in exchange for a commission. 00:04:43.170 --> 00:04:45.550 They generally don't do it themselves because 00:04:45.550 --> 00:04:47.870 of what economists call the asymmetric information 00:04:47.870 --> 00:04:50.709 problem. Asymmetric information. Meaning the 00:04:50.709 --> 00:04:52.689 information isn't symmetrical. The seller knows 00:04:52.689 --> 00:04:54.750 everything about the house, the leaky pipe, the 00:04:54.750 --> 00:04:56.910 weird neighbor, the drafty window. All the secrets. 00:04:57.149 --> 00:04:59.230 All the secrets. The buyer knows nothing. The 00:04:59.230 --> 00:05:01.930 agent is there to help bridge that gap. And crucially, 00:05:02.050 --> 00:05:04.310 they manage the legal exposure for both sides. 00:05:05.139 --> 00:05:07.279 But what I found funny in the research is that 00:05:07.279 --> 00:05:10.259 while the job is the same everywhere, bridging 00:05:10.259 --> 00:05:13.759 that gap, marketing the asset, the labels we 00:05:13.759 --> 00:05:16.259 stick on these people are totally different depending 00:05:16.259 --> 00:05:18.740 on where you are on the map. Oh, yes. It's a 00:05:18.740 --> 00:05:21.220 bit of a global name game. It is. And the language 00:05:21.220 --> 00:05:24.639 reveals a lot about the local culture. So here 00:05:24.639 --> 00:05:26.879 in North America, we're very attached to our 00:05:26.879 --> 00:05:29.720 titles. You have the real estate agent. You have 00:05:29.720 --> 00:05:31.720 the real estate broker, who is sort of a step 00:05:31.720 --> 00:05:34.139 above. And then you have the trademarked one. 00:05:34.649 --> 00:05:38.569 Which is an important distinction. It specifically 00:05:38.569 --> 00:05:41.509 means they are a member of the National Association 00:05:41.509 --> 00:05:44.629 of Realtors. Like a club. It's a trade group 00:05:44.629 --> 00:05:47.990 membership, not just a job description. It implies 00:05:47.990 --> 00:05:51.149 a certain code of ethics they've agreed to follow. 00:05:51.310 --> 00:05:53.529 Right. But then you hop across the Atlantic to 00:05:53.529 --> 00:05:56.410 the UK and the vibe changes completely. They 00:05:56.410 --> 00:05:58.509 don't have real estate agents. No. They have 00:05:58.509 --> 00:06:00.709 less state agents. It does sound more aristocratic, 00:06:00.829 --> 00:06:03.949 doesn't it? I must ring my estate agent. It really 00:06:03.949 --> 00:06:06.750 does. It evokes, I don't know, landed gentry. 00:06:06.810 --> 00:06:09.170 Hunting dogs and tweets. It sounds like they 00:06:09.170 --> 00:06:11.550 are selling Downton Abbey every Tuesday. Well, 00:06:11.610 --> 00:06:14.089 sometimes they are. But the function is identical. 00:06:14.350 --> 00:06:16.730 However, when you go to Australasia, Australia, 00:06:16.850 --> 00:06:19.509 New Zealand, the terminology just fractures even 00:06:19.509 --> 00:06:21.800 more. Oh, yeah. This is wild. They have agents, 00:06:21.939 --> 00:06:24.839 sure. But they also use terms like sales representative, 00:06:25.220 --> 00:06:28.079 property consultant, or leasing agent. Or sometimes 00:06:28.079 --> 00:06:30.540 just simply the agent. The agent. Very mysterious. 00:06:30.800 --> 00:06:32.860 Property consultant is the one that interests 00:06:32.860 --> 00:06:35.480 me. That feels like a very deliberate shift in 00:06:35.480 --> 00:06:38.379 branding. How so? Well, agent sounds transactional. 00:06:38.379 --> 00:06:41.420 I do this for you. But consultant sounds strategic, 00:06:41.420 --> 00:06:44.420 I think, with you. That is a very sharp observation. 00:06:44.680 --> 00:06:47.019 And the industry has absolutely been trying to 00:06:47.019 --> 00:06:50.120 move toward that advisory role for years. Why 00:06:50.120 --> 00:06:54.410 is that? Because if your only job is opening 00:06:54.410 --> 00:06:57.069 a door and handing someone a brochure, an app 00:06:57.069 --> 00:07:00.029 can replace you. A smart lock and a PDF can replace 00:07:00.029 --> 00:07:03.089 you. But if you are consulting on portfolio strategy 00:07:03.089 --> 00:07:05.490 and long -term value and neighborhood trends, 00:07:05.810 --> 00:07:08.370 well, you're harder to automate. You're providing 00:07:08.370 --> 00:07:11.910 insight, not just access. Precisely. But essentially, 00:07:12.110 --> 00:07:14.410 the main takeaway here is that despite the label, 00:07:14.529 --> 00:07:16.949 whether it's a broker in Manhattan, an estate 00:07:16.949 --> 00:07:19.790 agent in London, or a property consultant in 00:07:19.790 --> 00:07:23.550 Sydney, The economic function is universal. They 00:07:23.550 --> 00:07:26.050 are facilitators of a high stakes exchange. They 00:07:26.050 --> 00:07:28.230 are the oil in this very complicated machine. 00:07:28.410 --> 00:07:30.449 A very good way to put it. OK, so we have the 00:07:30.449 --> 00:07:32.410 people. We have the agent consultant broker. 00:07:32.649 --> 00:07:34.910 Now let's talk about what they're actually selling, 00:07:34.990 --> 00:07:38.610 because I think this is where most people, myself 00:07:38.610 --> 00:07:41.509 included, have it completely wrong. Go on. Well, 00:07:41.629 --> 00:07:44.129 if I buy a house, I think I'm buying the house. 00:07:44.680 --> 00:07:47.379 You know, the bricks, the wood, the roof, the 00:07:47.379 --> 00:07:50.199 dirt, the questionable wallpaper in the guest 00:07:50.199 --> 00:07:52.720 room. A physical object. Right. But the research 00:07:52.720 --> 00:07:55.399 made this really specific, almost pedantic distinction. 00:07:55.720 --> 00:07:58.459 It said a real estate transaction is the process 00:07:58.459 --> 00:08:01.300 where rights in a unit of property are transferred, 00:08:01.459 --> 00:08:04.500 not the property itself, the rights. It's not 00:08:04.500 --> 00:08:07.290 pedantic at all. It's fundamental. It is the 00:08:07.290 --> 00:08:09.990 single most important concept in all of property 00:08:09.990 --> 00:08:12.910 law. Okay, really? Absolutely. You are not buying 00:08:12.910 --> 00:08:15.949 the atoms. You are buying the legal permission 00:08:15.949 --> 00:08:18.670 to control those atoms in a certain way. Rights 00:08:18.670 --> 00:08:23.689 in a unit of property. Unpack that for me. Why 00:08:23.689 --> 00:08:26.870 does that distinction matter so much to the person 00:08:26.870 --> 00:08:29.069 listening right now who just wants to buy a condo? 00:08:29.110 --> 00:08:31.649 Okay, think of it this way. Imagine you buy a 00:08:31.649 --> 00:08:34.629 beautiful farmhouse. You sign the papers. You 00:08:34.629 --> 00:08:37.230 move in. You think you own it. I'm living the 00:08:37.230 --> 00:08:39.730 dream. You're living the dream. But then a mining 00:08:39.730 --> 00:08:42.950 company shows up and says, we actually own the 00:08:42.950 --> 00:08:45.370 mineral rights under this land, and we're going 00:08:45.370 --> 00:08:48.230 to start drilling next Tuesday. Oh, no. Or the 00:08:48.230 --> 00:08:50.889 city says, we own an easement that runs across 00:08:50.889 --> 00:08:53.190 your backyard for a new sewer line, and we're 00:08:53.190 --> 00:08:55.370 bringing the backhoes next month. That's a nightmare. 00:08:55.570 --> 00:08:57.970 Or a bank says, actually, there's a lien on this 00:08:57.970 --> 00:09:00.549 property from the previous owner's unpaid business 00:09:00.549 --> 00:09:03.679 loan, so we have a claim. Nightmare fuel. Total 00:09:03.679 --> 00:09:05.940 nightmare fuel. If you thought you bought the 00:09:05.940 --> 00:09:08.100 dirt, you're confused and angry and probably 00:09:08.100 --> 00:09:10.919 going to court. But if you understood that you 00:09:10.919 --> 00:09:13.639 bought a specific set of rights, a bundle of 00:09:13.639 --> 00:09:16.740 them, which might explicitly exclude the minerals 00:09:16.740 --> 00:09:19.460 or include the easement, then you understand 00:09:19.460 --> 00:09:23.559 the reality of the situation. You are buying 00:09:23.559 --> 00:09:26.940 a legal construct, not just a physical object. 00:09:27.299 --> 00:09:31.820 So the transaction isn't here are the keys. Here 00:09:31.820 --> 00:09:34.940 is a very long, very complicated contract listing, 00:09:35.179 --> 00:09:37.500 exactly what you were allowed to do with this 00:09:37.500 --> 00:09:40.080 space, and who else has a claim on it? Exactly. 00:09:40.100 --> 00:09:42.480 And that is why the transaction itself, the process 00:09:42.480 --> 00:09:44.659 of conveyance, is so incredibly complicated. 00:09:44.960 --> 00:09:46.740 Right. If I sell you a banana and I hand you 00:09:46.740 --> 00:09:48.559 the banana, the transaction is done. I don't 00:09:48.559 --> 00:09:51.480 retain peel rights. Last good point. You don't 00:09:51.480 --> 00:09:53.399 have to check if the government has a lien on 00:09:53.399 --> 00:09:55.799 the banana from a prior owner, but with land. 00:09:56.509 --> 00:09:59.370 The source points out three main friction points 00:09:59.370 --> 00:10:01.470 that make real estate harder to trade than almost 00:10:01.470 --> 00:10:03.370 anything else. Okay, let's hit those. Friction 00:10:03.370 --> 00:10:05.940 point number one. The complexity of the property 00:10:05.940 --> 00:10:07.600 rates themselves, just what we were talking about. 00:10:07.659 --> 00:10:09.159 You have to do this whole process called a title 00:10:09.159 --> 00:10:11.379 search to verify that the person selling the 00:10:11.379 --> 00:10:13.480 house actually owns all the rights they claim 00:10:13.480 --> 00:10:15.779 to own. And that nobody else does. And that nobody 00:10:15.779 --> 00:10:17.799 else does. This is why we have title insurance. 00:10:18.360 --> 00:10:21.500 We are terrified that a long lost cousin from 00:10:21.500 --> 00:10:25.139 1890 has a claim on the land because of a will 00:10:25.139 --> 00:10:28.179 that wasn't probated correctly. It sounds like 00:10:28.179 --> 00:10:30.840 a Dickens novel. The mystery of the missing deed. 00:10:31.120 --> 00:10:34.250 It often is. Which leads to friction point number 00:10:34.250 --> 00:10:36.610 two. The sheer amount of money involved. Right. 00:10:36.809 --> 00:10:38.970 It's likely the biggest purchase you will ever 00:10:38.970 --> 00:10:40.809 make. When you are moving hundreds of thousands 00:10:40.809 --> 00:10:43.389 or millions of dollars, the level of scrutiny 00:10:43.389 --> 00:10:46.850 just spikes. Of course. You need banks, appraisers, 00:10:46.850 --> 00:10:49.909 inspectors, underwriters. The entire financial 00:10:49.909 --> 00:10:52.429 system puts up massive guardrails to prevent 00:10:52.429 --> 00:10:55.009 fraud and money laundering. You can't just Venmo 00:10:55.009 --> 00:10:56.970 someone a million dollars and hope for the best. 00:10:57.070 --> 00:10:58.690 I wish you could. It would be easier. It would 00:10:58.690 --> 00:11:00.909 be easier, but probably not better. Probably 00:11:00.909 --> 00:11:03.379 not. And number three. Government regulations. 00:11:03.519 --> 00:11:06.279 And this is the big one. The source notes that 00:11:06.279 --> 00:11:08.980 conventions and requirements vary wildly, not 00:11:08.980 --> 00:11:12.059 just between countries, but between states, counties, 00:11:12.220 --> 00:11:14.639 even cities. Right. So what you need to do to 00:11:14.639 --> 00:11:16.840 sell a condo in New York is completely different 00:11:16.840 --> 00:11:19.379 from selling a ranch in Texas. Which is completely 00:11:19.379 --> 00:11:22.120 different from selling a flat in Paris or a cottage 00:11:22.120 --> 00:11:25.240 in Kyoto. Every single local government has its 00:11:25.240 --> 00:11:28.679 own zoning laws, transfer taxes, environmental 00:11:28.679 --> 00:11:31.940 disclosures, occupancy rules, you name it. It's 00:11:31.940 --> 00:11:35.059 a patchwork quilt of red tape. It is. And all 00:11:35.059 --> 00:11:37.500 that red tape, all that complexity, all that 00:11:37.500 --> 00:11:40.559 money creates something that economists are obsessed 00:11:40.559 --> 00:11:44.039 with. Transaction costs. Okay, transaction costs. 00:11:44.279 --> 00:11:46.500 Now this sounds like the boring part of the bill 00:11:46.500 --> 00:11:48.320 where they add the service fees and the fine 00:11:48.320 --> 00:11:51.210 print. It can seem that way. But in the research, 00:11:51.450 --> 00:11:54.090 this seemed to be a huge focus. This is where 00:11:54.090 --> 00:11:56.049 the heavy hitters come in. This is the science 00:11:56.049 --> 00:11:57.610 of the industry. It's where we move from the 00:11:57.610 --> 00:12:00.549 local estate agent to the OECD, the Organization 00:12:00.549 --> 00:12:03.070 for Economic Cooperation and Development. And 00:12:03.070 --> 00:12:05.990 my first question is, why? Why does an international 00:12:05.990 --> 00:12:08.710 economic organization care about the closing 00:12:08.710 --> 00:12:11.710 costs on my duplex? Like, don't they have bigger 00:12:11.710 --> 00:12:14.029 fish to fry, like global trade and stuff? To 00:12:14.029 --> 00:12:15.690 them, this is global trade. They care because 00:12:15.690 --> 00:12:18.190 transaction costs are the sand in the gears of 00:12:18.190 --> 00:12:20.360 the global economy. How so? Well, think about 00:12:20.360 --> 00:12:22.700 it. If it costs too much money or takes too much 00:12:22.700 --> 00:12:25.559 time to buy and sell property, people stop moving. 00:12:25.740 --> 00:12:29.259 They get stuck. Literally. Exactly. Imagine you're 00:12:29.259 --> 00:12:31.539 an engineer living in Spain and you get a fantastic 00:12:31.539 --> 00:12:34.940 job offer in Finland, a real career making opportunity. 00:12:35.299 --> 00:12:38.299 Yeah. But selling your house in Spain takes 18 00:12:38.299 --> 00:12:41.519 months and costs 15 percent of the property's 00:12:41.519 --> 00:12:44.200 value in fees, taxes and legal bills. And then 00:12:44.200 --> 00:12:46.639 buying in Finland is a whole separate legal nightmare 00:12:46.639 --> 00:12:49.340 you don't understand. I might just stay in Spain. 00:12:49.559 --> 00:12:52.039 You might just turn down the job. Yeah. So what 00:12:52.039 --> 00:12:54.899 happened? High transaction costs killed labor 00:12:54.899 --> 00:12:57.600 mobility. Ah, I see. And when labor mobility 00:12:57.600 --> 00:13:00.740 drops, talent doesn't go where it's most needed. 00:13:00.840 --> 00:13:03.480 Capital gets stuck in inefficient assets. The 00:13:03.480 --> 00:13:05.919 whole economy becomes less dynamic. It's a huge 00:13:05.919 --> 00:13:08.379 drag on GDP. So this isn't just a personal headache. 00:13:08.460 --> 00:13:10.740 It's a national economic problem. It's a massive 00:13:10.740 --> 00:13:13.980 one. So the OECD and the European Commission 00:13:13.980 --> 00:13:16.460 actually poured a ton of resources into studying 00:13:16.460 --> 00:13:18.940 this. They sponsored a study called Improving 00:13:18.940 --> 00:13:21.299 Competition in Real Estate Transactions. They 00:13:21.299 --> 00:13:24.059 wanted to figure out how do we even measure these 00:13:24.059 --> 00:13:26.700 costs accurately? cross borders? And once we 00:13:26.700 --> 00:13:28.679 measure them, how do we lower them to make the 00:13:28.679 --> 00:13:31.559 market deeper and more efficient? And this is 00:13:31.559 --> 00:13:33.559 where the research got surprisingly technical. 00:13:33.700 --> 00:13:36.840 I was not expecting this. I saw the term modeling 00:13:36.840 --> 00:13:41.139 real property transactions and I saw UML. Yes. 00:13:41.399 --> 00:13:45.759 Now, I have friends in tech. UML stands for unified 00:13:45.759 --> 00:13:49.559 modeling language. It's a tool for mapping out 00:13:49.559 --> 00:13:52.580 software and systems architecture. That's right. 00:13:52.960 --> 00:13:54.919 Why on earth are they using software engineering 00:13:54.919 --> 00:13:57.879 tools for property law? That seems like a very 00:13:57.879 --> 00:14:00.100 weird crossover. That is the fascinating part. 00:14:00.240 --> 00:14:02.960 They realized that legal descriptions, the actual 00:14:02.960 --> 00:14:05.299 written laws, were too vague and too different. 00:14:05.440 --> 00:14:07.820 If you want to compare the efficiency of Finland's 00:14:07.820 --> 00:14:09.779 market versus Spain's market, you can't just 00:14:09.779 --> 00:14:12.059 read the laws. Too much gets lost in translation. 00:14:12.279 --> 00:14:14.580 Exactly. The languages are different. The legal 00:14:14.580 --> 00:14:17.059 concepts are different. A notary in the United 00:14:17.059 --> 00:14:19.379 States is someone who just witnesses a signature. 00:14:20.059 --> 00:14:22.700 A notary in France is a highly trained public 00:14:22.700 --> 00:14:25.639 official who drafts the contracts and is essential 00:14:25.639 --> 00:14:28.679 to the transaction. Same word, totally different 00:14:28.679 --> 00:14:30.840 function. So they needed a universal translator. 00:14:31.080 --> 00:14:33.669 They needed a model. a visual language that was 00:14:33.669 --> 00:14:36.730 independent of any specific legal text or natural 00:14:36.730 --> 00:14:39.370 language so they treated the property buying 00:14:39.370 --> 00:14:42.549 process like a computer program okay they used 00:14:42.549 --> 00:14:46.370 uml to break it down into use cases actor a the 00:14:46.370 --> 00:14:50.090 buyer performs action b signs a contract which 00:14:50.090 --> 00:14:53.029 triggers process c funds are moved into escrow. 00:14:53.110 --> 00:14:55.870 They mapped every single step. It's like creating 00:14:55.870 --> 00:14:58.629 a flow chart for the law. Exactly that. By mapping 00:14:58.629 --> 00:15:00.990 it out in the standardized visual way, they could 00:15:00.990 --> 00:15:03.309 overlay the process in Denmark with the process 00:15:03.309 --> 00:15:06.809 in Portugal and see with perfect clarity exactly 00:15:06.809 --> 00:15:09.190 where the extra steps were. Wow. They could say, 00:15:09.250 --> 00:15:11.330 look, in Denmark, this step takes two days and 00:15:11.330 --> 00:15:13.690 involves one person. But in Portugal, the same 00:15:13.690 --> 00:15:15.769 logical step takes three weeks and involves four 00:15:15.769 --> 00:15:17.409 different people and three different government 00:15:17.409 --> 00:15:20.409 offices. That's wild. It's like debugging the 00:15:20.409 --> 00:15:22.440 housing market. It is. They even use what's called 00:15:22.440 --> 00:15:25.360 an ontology -based methodology. Okay, ontology. 00:15:25.440 --> 00:15:27.879 Now we're back in philosophy class again. That's 00:15:27.879 --> 00:15:30.659 the study of being, right? It is, but in information 00:15:30.659 --> 00:15:33.740 science, an ontology is something very specific. 00:15:34.200 --> 00:15:38.120 It's a formal, explicit specification of a shared 00:15:38.120 --> 00:15:40.399 conceptualization. I have no idea what you just 00:15:40.399 --> 00:15:43.580 said. Laughs, fair enough. It's a shared vocabulary. 00:15:44.480 --> 00:15:46.379 It's getting everyone to agree on exactly what 00:15:46.379 --> 00:15:49.000 transfer of deed means, what its properties are, 00:15:49.080 --> 00:15:50.899 and how it relates to mortgage registration. 00:15:51.200 --> 00:15:53.960 Okay. It's about creating a dictionary of concepts 00:15:53.960 --> 00:15:56.419 so that when you collect data, it's actually 00:15:56.419 --> 00:15:58.960 comparable. Without an ontology, you're comparing 00:15:58.960 --> 00:16:01.440 apples to oranges. With it, you're comparing 00:16:01.440 --> 00:16:03.580 standardized data points. So it's about extreme 00:16:03.580 --> 00:16:06.259 precision in language to allow for clean data. 00:16:06.500 --> 00:16:09.299 Exactly. And did this high -tech approach actually 00:16:09.299 --> 00:16:12.860 yield results? Or was it just an academic exercise 00:16:12.860 --> 00:16:16.000 for people who really love charts? Oh, it yielded 00:16:16.000 --> 00:16:18.679 very specific data, particularly in the Nordic 00:16:18.679 --> 00:16:21.200 countries. The source material specifically mentions 00:16:21.200 --> 00:16:24.600 the Nordic connection, Finland and Denmark. Right. 00:16:24.679 --> 00:16:26.860 They used this modeling in conjunction... with 00:16:26.860 --> 00:16:28.740 something called the system of national accounts 00:16:28.740 --> 00:16:32.059 to calculate exactly how much of their gross 00:16:32.059 --> 00:16:34.480 domestic product was being eaten up by these 00:16:34.480 --> 00:16:37.000 property transfer processes. They put a price 00:16:37.000 --> 00:16:39.539 tag on the paperwork. A very precise price tag. 00:16:39.720 --> 00:16:42.899 And they found that by digitizing their records 00:16:42.899 --> 00:16:46.000 and standardizing their processes, by removing 00:16:46.000 --> 00:16:48.940 that friction we talked about, they could save 00:16:48.940 --> 00:16:51.980 significant amounts of national wealth. We're 00:16:51.980 --> 00:16:54.850 talking billions of dollars. Wow. So it has a 00:16:54.850 --> 00:16:57.070 real world impact. A massive one. And for anyone 00:16:57.070 --> 00:16:59.409 who is really, really into land registry law. 00:16:59.529 --> 00:17:01.730 There must be dozens of us. The source notes 00:17:01.730 --> 00:17:03.970 that there is a detailed English translation 00:17:03.970 --> 00:17:06.029 of the Danish conveyance and mortgaging model 00:17:06.029 --> 00:17:08.049 available. You can actually see the flowcharts. 00:17:08.289 --> 00:17:09.990 I'll be sure to add that to my beach reading 00:17:09.990 --> 00:17:12.509 list right next to the thriller novels. The Danish 00:17:12.509 --> 00:17:14.970 land registry conveyance model. Sounds like a 00:17:14.970 --> 00:17:17.569 real page turner. It might be dry, but that dryness 00:17:17.569 --> 00:17:20.150 is where the efficiency hides. And if you can 00:17:20.150 --> 00:17:23.210 shave even 1 % off transaction costs in a national 00:17:23.210 --> 00:17:25.450 real estate. market, you are saving billions. 00:17:25.509 --> 00:17:27.410 That pays for a lot of schools and hospitals. 00:17:27.750 --> 00:17:30.130 OK. So we've established that it's expensive 00:17:30.130 --> 00:17:32.910 and complicated to move the rights around. But 00:17:32.910 --> 00:17:34.930 let's zoom back in a bit and talk about the number 00:17:34.930 --> 00:17:37.410 that everyone actually cares about. The price. 00:17:37.549 --> 00:17:40.269 The price. The value. What makes a house worth 00:17:40.269 --> 00:17:43.390 what it's worth? Why is a shack in San Francisco 00:17:43.390 --> 00:17:47.069 worth more than a mansion in rural Ohio? The 00:17:47.069 --> 00:17:49.230 eternal question. The research says there are 00:17:49.230 --> 00:17:52.170 three main pillars. Structural, locational, and 00:17:52.170 --> 00:17:54.390 environmental. Correct. These are the classic 00:17:54.390 --> 00:17:56.829 determinants of value in real estate appraisal. 00:17:56.890 --> 00:17:59.869 So structural seems easy enough. That's the house 00:17:59.869 --> 00:18:02.369 itself. How many bedrooms? How many bathrooms? 00:18:02.509 --> 00:18:05.970 Is the roof leaking? Do you have that weird 70s 00:18:05.970 --> 00:18:07.869 shag carpet that smells like old cigarettes? 00:18:08.210 --> 00:18:10.970 Right. The physical attributes of the improvement 00:18:10.970 --> 00:18:13.569 on the land, the square footage, the age of the 00:18:13.569 --> 00:18:16.230 building, the quality of the materials, the layout. 00:18:16.509 --> 00:18:19.029 That's the tangible part you can touch and measure. 00:18:19.490 --> 00:18:21.690 Then you have locational, which is the old cliche. 00:18:22.329 --> 00:18:24.369 Location, location, location. Right. And this 00:18:24.369 --> 00:18:26.549 is usually the biggest single driver of price. 00:18:27.099 --> 00:18:29.240 So this is things like how close are you to the 00:18:29.240 --> 00:18:31.059 city center? Are you in a good school district? 00:18:31.200 --> 00:18:33.559 Is there a train station nearby? Exactly. It's 00:18:33.559 --> 00:18:36.359 about proximity, distance to amenities, transport 00:18:36.359 --> 00:18:40.019 links, major job centers. The key here is that 00:18:40.019 --> 00:18:42.700 you can change the structure. You can renovate 00:18:42.700 --> 00:18:44.920 a kitchen, but you can't change the location. 00:18:45.039 --> 00:18:47.140 You can't move your house closer to the good 00:18:47.140 --> 00:18:50.740 school. Very true. But the third one, environmental, 00:18:51.160 --> 00:18:53.079 feels a bit more nuanced. How is that different 00:18:53.079 --> 00:18:56.359 from location? It sounds similar. It's a subtle 00:18:56.359 --> 00:18:59.339 but really important distinction. Think of location 00:18:59.339 --> 00:19:02.819 as objective coordinates on a map. This house 00:19:02.819 --> 00:19:05.779 is 1 .2 miles from the train station. Okay. Think 00:19:05.779 --> 00:19:08.299 of environment as the more subjective, contextual, 00:19:08.500 --> 00:19:11.019 and sensory experience of that location. Give 00:19:11.019 --> 00:19:13.180 me an example. Okay. You can have two houses 00:19:13.180 --> 00:19:15.400 in the same great location, both a mile from 00:19:15.400 --> 00:19:18.200 the train station, but one is next to a beautiful, 00:19:18.299 --> 00:19:21.160 quiet park. The other is next to a noisy factory 00:19:21.160 --> 00:19:24.380 that runs all night. Ah. Got it. The environmental 00:19:24.380 --> 00:19:27.420 attributes are things like, is there a park next 00:19:27.420 --> 00:19:30.339 door? Is there a highway down the street? What 00:19:30.339 --> 00:19:33.299 is the air quality like? Is there a view of the 00:19:33.299 --> 00:19:36.259 mountains or a view of a dumpster? Crime rates, 00:19:36.480 --> 00:19:39.359 noise pollution. The vibe. The vibe or the quality 00:19:39.359 --> 00:19:41.980 of life. It's all the stuff that doesn't show 00:19:41.980 --> 00:19:44.619 up on a simple map but deeply affects how it 00:19:44.619 --> 00:19:46.859 feels to live there. So you can have a house 00:19:46.859 --> 00:19:49.710 in the great location central downtown. But with 00:19:49.710 --> 00:19:51.769 a terrible environment because it's next to a 00:19:51.769 --> 00:19:53.569 construction site and the air quality is bad. 00:19:53.829 --> 00:19:56.029 Precisely. And what's really cool is how we are 00:19:56.029 --> 00:19:58.329 starting to measure this stuff now. It used to 00:19:58.329 --> 00:20:01.730 be very fuzzy, but the source mentioned a specific 00:20:01.730 --> 00:20:04.750 case study from Tehran. Yeah, this caught my 00:20:04.750 --> 00:20:08.430 eye. They use web mining. What is that? This 00:20:08.430 --> 00:20:11.410 represents the modernization of valuation. Traditionally, 00:20:11.410 --> 00:20:13.369 a tax assessor would come by your house once 00:20:13.369 --> 00:20:15.809 every few years, look at the outside, maybe check 00:20:15.809 --> 00:20:18.170 the last sale price and guess. And it was always 00:20:18.170 --> 00:20:21.019 wrong. Either too high or too low. Often, yes. 00:20:21.220 --> 00:20:24.259 It was a very blunt instrument. But the Tehran 00:20:24.259 --> 00:20:27.480 study used web mining techniques. They wrote 00:20:27.480 --> 00:20:29.880 algorithms to scrape vast amounts of data from 00:20:29.880 --> 00:20:32.460 online property listings, from real estate forums, 00:20:32.799 --> 00:20:35.700 maybe even social media discussions about neighborhoods. 00:20:36.259 --> 00:20:38.960 So they're effectively crowdsourcing the valuation. 00:20:39.119 --> 00:20:41.900 They're using big data to detect the determinants 00:20:41.900 --> 00:20:44.769 of value in real time. An official assessor might 00:20:44.769 --> 00:20:47.589 not know that a specific street just got a trendy 00:20:47.589 --> 00:20:50.269 new coffee shop and a yoga studio that boosted 00:20:50.269 --> 00:20:53.630 values by 5%. But the web knows. The web knows. 00:20:53.970 --> 00:20:56.710 The algorithms can pick up on keywords and property 00:20:56.710 --> 00:20:59.829 descriptions, words like sunny, quiet, stunning 00:20:59.829 --> 00:21:02.589 view, newly renovated, and correlate those words 00:21:02.589 --> 00:21:04.730 with higher selling prices. They can quantify 00:21:04.730 --> 00:21:07.400 the value of the vibe. It's amazing how tech 00:21:07.400 --> 00:21:10.180 has infiltrated every single part of this. We've 00:21:10.180 --> 00:21:12.900 gone from a handshake deal to web mining and 00:21:12.900 --> 00:21:15.619 UML diagrams. It's not just an art anymore. It 00:21:15.619 --> 00:21:17.640 is really becoming a hard science. It is becoming 00:21:17.640 --> 00:21:19.680 a data science. And the companies that have the 00:21:19.680 --> 00:21:22.500 best data on environmental factors, on transaction 00:21:22.500 --> 00:21:24.980 costs, on structural attributes are the ones 00:21:24.980 --> 00:21:27.019 who are winning the market. Speaking of the market, 00:21:27.119 --> 00:21:29.059 I want to zoom out because we've been talking 00:21:29.059 --> 00:21:31.740 mostly about houses and offices, pretty standard 00:21:31.740 --> 00:21:34.440 stuff. But when I looked at the see also section 00:21:34.440 --> 00:21:37.690 of our research. the part most people skip, I 00:21:37.690 --> 00:21:41.690 realized the sheer mind -boggling breadth of 00:21:41.690 --> 00:21:43.950 this business. It is a universe of different 00:21:43.950 --> 00:21:46.470 asset classes. Real estate touches absolutely 00:21:46.470 --> 00:21:48.430 everything. Let's just run through some of these 00:21:48.430 --> 00:21:50.190 because the few of them really surprised me. 00:21:50.269 --> 00:21:52.190 For example, we have healthcare real estate. 00:21:52.519 --> 00:21:56.160 a huge and very specific sector. You can't just 00:21:56.160 --> 00:21:59.240 turn an old office building into a modern hospital. 00:21:59.380 --> 00:22:03.539 The infrastructure requirements are insane. The 00:22:03.539 --> 00:22:06.880 ventilation systems for operating rooms, the 00:22:06.880 --> 00:22:09.240 reinforced floor loads for heavy MRI machines, 00:22:09.559 --> 00:22:11.980 the backup power generation, the specialized 00:22:11.980 --> 00:22:15.220 plumbing. It is highly, highly specialized. And 00:22:15.220 --> 00:22:17.240 I imagine with an aging population. With the 00:22:17.240 --> 00:22:19.220 silver tsunami, as it's called, this is one of 00:22:19.220 --> 00:22:21.140 the hottest sectors for institutional investment. 00:22:21.420 --> 00:22:23.579 Everyone needs more clinics and senior living 00:22:23.579 --> 00:22:25.539 facilities. Okay, what about garden real estate? 00:22:25.660 --> 00:22:28.420 That sounds quaint. It's niche, but it can be 00:22:28.420 --> 00:22:31.619 extremely valuable. These are plots of land with 00:22:31.619 --> 00:22:35.079 significant horticultural value. Not just a nice 00:22:35.079 --> 00:22:37.720 backyard, but, you know, professional botanical 00:22:37.720 --> 00:22:40.220 gardens, productive orchards, or historically 00:22:40.220 --> 00:22:42.680 significant landscapes. I see. Then there's the 00:22:42.680 --> 00:22:44.859 more familiar stuff like vacation property and 00:22:44.859 --> 00:22:47.519 golf property. Lifestyle assets. And they are 00:22:47.519 --> 00:22:49.859 very sensitive to the economy. When things are 00:22:49.859 --> 00:22:52.359 good and people have disposable income, golf 00:22:52.359 --> 00:22:55.059 courses and vacation homes, boom. And when things 00:22:55.059 --> 00:22:57.319 are bad. They're just very expensive pieces of 00:22:57.319 --> 00:22:59.519 grass that need a lot of water and maintenance. 00:22:59.900 --> 00:23:02.359 They're often the first luxury to be cut. Then 00:23:02.359 --> 00:23:04.609 we have luxury real estate. Which is practically 00:23:04.609 --> 00:23:07.069 its own reality TV genre at this point. Indeed. 00:23:07.210 --> 00:23:09.289 And it operates on completely different principles. 00:23:09.549 --> 00:23:12.230 It's often what's called a Veblen good. Meaning? 00:23:12.349 --> 00:23:14.230 Meaning that sometimes the higher price makes 00:23:14.230 --> 00:23:17.190 it more desirable, not less. The value comes 00:23:17.190 --> 00:23:19.829 from the status it conveys. The exclusivity. 00:23:19.829 --> 00:23:21.730 Right. It's expensive because it's expensive. 00:23:22.049 --> 00:23:24.670 Exactly. And then my personal favorite from the 00:23:24.670 --> 00:23:26.430 list. I had to read this twice to make sure it 00:23:26.430 --> 00:23:29.029 wasn't a typo. Extraterrestrial real estate. 00:23:29.230 --> 00:23:32.500 Yes. That is on the list. I mean, come on. Are 00:23:32.500 --> 00:23:34.599 we really talking about buying condos on Mars? 00:23:34.680 --> 00:23:37.460 Is that a real thing? Theoretically, yes. People 00:23:37.460 --> 00:23:40.059 are already trying to sell plots of land on the 00:23:40.059 --> 00:23:42.259 moon. There are websites where you can buy an 00:23:42.259 --> 00:23:44.059 acre of the moon right now. But do you actually 00:23:44.059 --> 00:23:46.559 own it or are you just buying a fancy piece of 00:23:46.559 --> 00:23:49.339 paper for your wall? That is the massive unresolved 00:23:49.339 --> 00:23:53.390 legal debate. The 1967 Outer Space Treaty says 00:23:53.390 --> 00:23:56.630 that no nation can claim sovereignty over celestial 00:23:56.630 --> 00:23:59.569 bodies. OK, so no country can plant a flag and 00:23:59.569 --> 00:24:02.440 say the moon is ours. Correct. But the treaty 00:24:02.440 --> 00:24:05.140 doesn't explicitly say that private individuals 00:24:05.140 --> 00:24:08.500 or corporations can't. So you have these companies 00:24:08.500 --> 00:24:10.920 that are exploiting that perceived loo hole. 00:24:11.140 --> 00:24:13.400 Wow. But the fact that it's even categorized 00:24:13.400 --> 00:24:15.759 as a type of real estate shows you where the 00:24:15.759 --> 00:24:18.180 head of the industry is at. They're always looking 00:24:18.180 --> 00:24:20.720 for new inventory and, well, we're running out 00:24:20.720 --> 00:24:23.619 of land on Earth. For sale. Crater view, low 00:24:23.619 --> 00:24:26.559 gravity, no atmosphere, slight radiation risk. 00:24:27.079 --> 00:24:29.539 A real fixer -upper. But think about the transaction 00:24:29.539 --> 00:24:31.700 costs there. There's no government to regulate 00:24:31.700 --> 00:24:34.700 it yet, no zoning laws, no title insurance. A 00:24:34.700 --> 00:24:37.180 libertarian paradise until the oxygen runs out. 00:24:37.400 --> 00:24:40.160 Precisely. But it really points to the speculative, 00:24:40.240 --> 00:24:42.720 forward -looking nature of the business. Which 00:24:42.720 --> 00:24:45.460 brings us back down to earth and to the more 00:24:45.460 --> 00:24:48.900 corporate side of things. The list also highlighted 00:24:48.900 --> 00:24:51.359 the incredible financialization of all this. 00:24:51.819 --> 00:24:55.099 This is where real estate stops being a place 00:24:55.099 --> 00:24:58.700 to live. and starts being a line item on a spreadsheet. 00:24:59.460 --> 00:25:02.079 We saw terms like private equity real estate 00:25:02.079 --> 00:25:05.500 and REITs. REITs, real estate investment trusts, 00:25:05.720 --> 00:25:08.680 are fascinating because they essentially democratize 00:25:08.680 --> 00:25:11.420 the landlord experience. How so? Well, you and 00:25:11.420 --> 00:25:13.279 I probably can't afford to buy a skyscraper in 00:25:13.279 --> 00:25:15.519 Manhattan that costs billions of dollars. Definitely 00:25:15.519 --> 00:25:17.890 not. But we can buy a share of a REIT that owns 00:25:17.890 --> 00:25:20.890 that skyscraper and 100 others. It trades on 00:25:20.890 --> 00:25:22.829 the stock market just like a share of Apple. 00:25:23.029 --> 00:25:25.410 And you get a dividend. Exactly. You get a dividend 00:25:25.410 --> 00:25:28.069 from the rent the tenants pay. It turns a physical, 00:25:28.150 --> 00:25:31.009 illiquid, lumpy building into a liquid financial 00:25:31.009 --> 00:25:33.890 asset that you can buy or sell in seconds. And 00:25:33.890 --> 00:25:35.789 then there's land banking. That one sounds a 00:25:35.789 --> 00:25:39.430 little ominous. It can be controversial. That's 00:25:39.430 --> 00:25:42.029 the practice of buying undeveloped land on the 00:25:42.029 --> 00:25:44.410 outskirts of a city, not to use it, but just 00:25:44.410 --> 00:25:47.819 to hold it. For what purpose? You're making a 00:25:47.819 --> 00:25:50.259 bet that the city will eventually expand toward 00:25:50.259 --> 00:25:53.180 your empty field. So you just sit on it for 20 00:25:53.180 --> 00:25:56.640 years, do nothing with it, maybe let some cows 00:25:56.640 --> 00:25:59.200 graze on it to keep the taxes low. And then you 00:25:59.200 --> 00:26:01.259 sell it for a fortune when the developers finally 00:26:01.259 --> 00:26:04.119 arrive. Exactly. You're monetizing patience and 00:26:04.119 --> 00:26:06.640 foresight. Or you're hoarding a critical resource 00:26:06.640 --> 00:26:08.940 and driving up prices for everyone else. Or you're 00:26:08.940 --> 00:26:11.019 hoarding a resource. It really depends on your 00:26:11.019 --> 00:26:13.160 perspective. Which is a perfect segue to the 00:26:13.160 --> 00:26:15.960 dark side. Because you can't have a serious discussion 00:26:15.960 --> 00:26:18.299 about this industry without talking about when 00:26:18.299 --> 00:26:20.779 it goes horribly wrong. No, and you shouldn't. 00:26:20.779 --> 00:26:23.460 Real estate is cyclical. And because it's so 00:26:23.460 --> 00:26:25.900 closely tied to our homes and our life savings, 00:26:26.079 --> 00:26:28.740 when it crashes, it hurts people in a very direct 00:26:28.740 --> 00:26:31.299 way. The sourceless, the obvious one. Real estate 00:26:31.299 --> 00:26:34.059 bubbles. And the inevitable pop. The subprime 00:26:34.059 --> 00:26:36.839 mortgage crisis of 2008, that was a catastrophic 00:26:36.839 --> 00:26:39.460 failure of the entire machine we've been describing. 00:26:39.660 --> 00:26:42.440 The intermediaries failed. The valuation models 00:26:42.440 --> 00:26:44.700 failed. The financial risk assessment failed. 00:26:44.859 --> 00:26:47.660 The regulators failed. And the cost wasn't just 00:26:47.660 --> 00:26:51.460 transaction costs on a spreadsheet. It was millions 00:26:51.460 --> 00:26:53.599 of people losing their homes. It was a global 00:26:53.599 --> 00:26:56.380 recession. Absolutely. And the list in the source 00:26:56.380 --> 00:26:59.420 also included the more chronic social issues, 00:26:59.640 --> 00:27:03.849 gentrification, urban decay. Eviction. Foreclosure. 00:27:04.009 --> 00:27:06.950 And it implied things like slumlords through 00:27:06.950 --> 00:27:09.450 the mentions of related topics like just cause 00:27:09.450 --> 00:27:12.430 eviction and rent regulation. Right. It's a reminder 00:27:12.430 --> 00:27:14.549 that this isn't just a game of Monopoly. When 00:27:14.549 --> 00:27:17.289 you treat housing strictly as a financial asset 00:27:17.289 --> 00:27:19.809 to be optimized for maximum yield, you often 00:27:19.809 --> 00:27:21.769 end up squeezing the actual human beings who 00:27:21.769 --> 00:27:24.009 live inside the asset. It's a fundamental tension, 00:27:24.190 --> 00:27:26.569 isn't it? Housing is a human right versus housing 00:27:26.569 --> 00:27:28.890 as an investment vehicle. That is the central 00:27:28.890 --> 00:27:31.410 tension of modern urban economics. If housing 00:27:31.410 --> 00:27:33.190 is a great investment, that means prices are 00:27:33.190 --> 00:27:35.430 going up. Prices are going up. It becomes less 00:27:35.430 --> 00:27:37.130 affordable as shelter. You can't easily have 00:27:37.130 --> 00:27:39.710 it both ways. Which I think is the perfect bridge 00:27:39.710 --> 00:27:42.890 to the final and arguably most dense part of 00:27:42.890 --> 00:27:45.769 our research. The theory. Because ultimately, 00:27:45.890 --> 00:27:48.670 all of this, the buying, selling, evicting, mining, 00:27:48.789 --> 00:27:52.200 the space colonization. it all rests on a very 00:27:52.200 --> 00:27:56.420 old, very deep philosophical question. Who owns 00:27:56.420 --> 00:27:59.210 the ground? And we are back to the bundle of 00:27:59.210 --> 00:28:01.750 rights. I love this phrase. It sounds like something 00:28:01.750 --> 00:28:04.549 from a fable. The old man went to the market 00:28:04.549 --> 00:28:06.809 with his bundle of rights. It's the standard 00:28:06.809 --> 00:28:08.970 metaphor in property law, and it's a crucial 00:28:08.970 --> 00:28:12.049 one. When you say, I own this land, you don't 00:28:12.049 --> 00:28:14.390 really own the land in an absolute godlike sense. 00:28:14.470 --> 00:28:17.329 You possess a bundle of sticks. A bundle of sticks. 00:28:17.430 --> 00:28:19.710 And each stick in that bundle represents a specific 00:28:19.710 --> 00:28:21.869 separable right. Okay, let's name some of the 00:28:21.869 --> 00:28:24.029 sticks. If I'm holding this bundle for a typical 00:28:24.029 --> 00:28:26.339 house, what have I got? Okay, stick one. Air 00:28:26.339 --> 00:28:29.099 rights. Do you own the space above your house 00:28:29.099 --> 00:28:31.380 all the way up to the stars? Can you build a 00:28:31.380 --> 00:28:33.799 50 -story tower? Can your neighbor build a balcony 00:28:33.799 --> 00:28:35.920 that hangs over your yard? In a place like New 00:28:35.920 --> 00:28:38.440 York City, air rights are a tradable currency. 00:28:39.380 --> 00:28:41.720 Smaller historic buildings will sell their unused 00:28:41.720 --> 00:28:43.920 air rights to the building next door so they 00:28:43.920 --> 00:28:46.839 can build a super tall skyscraper. That is wild. 00:28:47.019 --> 00:28:49.000 You're selling the empty air above your roof. 00:28:49.200 --> 00:28:52.799 You are. Okay, stick to mineral rights. The oil, 00:28:53.039 --> 00:28:56.329 the gold, the natural gas under your feet. In 00:28:56.329 --> 00:28:58.950 many countries, the state automatically keeps 00:28:58.950 --> 00:29:02.029 this stick. You own the surface, the king or 00:29:02.029 --> 00:29:04.369 the government owns the gold. But not in the 00:29:04.369 --> 00:29:06.890 U .S. In the U .S., unique among many nations, 00:29:07.130 --> 00:29:10.029 the landowner often keeps this stick, which is 00:29:10.029 --> 00:29:12.289 why you can have individuals getting rich off 00:29:12.289 --> 00:29:14.750 oil found on their property. Which explains the 00:29:14.750 --> 00:29:16.829 Beverly Hillbillies. It explains the Beverly 00:29:16.829 --> 00:29:20.410 Hillbillies. Stick three, water rights or riparian 00:29:20.410 --> 00:29:22.809 rights. If a creek runs through your property, 00:29:22.930 --> 00:29:25.859 can you... Damn it. Can you divert all the water? 00:29:25.980 --> 00:29:28.599 Can you drain the aquifer underneath to water 00:29:28.599 --> 00:29:31.319 your almond farm? This is a source of massive 00:29:31.319 --> 00:29:33.380 conflict, especially in the American West right 00:29:33.380 --> 00:29:35.380 now. Then you have things like grazing rights. 00:29:35.579 --> 00:29:37.700 Can you put cows on it? Can you farm it? What 00:29:37.700 --> 00:29:40.180 can you grow? So ownership is really just holding 00:29:40.180 --> 00:29:42.359 this handful of permissions and you can sell 00:29:42.359 --> 00:29:44.779 them off one by one. I can sell the mineral stick 00:29:44.779 --> 00:29:47.200 to Exxon, the grazing stick to a local farmer, 00:29:47.299 --> 00:29:49.839 and I can keep the air stick and live in a tree 00:29:49.839 --> 00:29:52.680 house. Theoretically, yes. And that is why the 00:29:52.680 --> 00:29:54.710 legal model. we talked about earlier, the UML 00:29:54.710 --> 00:29:57.369 diagrams and the ontologies are so necessary. 00:29:57.630 --> 00:30:00.410 You have to have a robust system to track who 00:30:00.410 --> 00:30:02.869 has which stick. If you lose track, you have 00:30:02.869 --> 00:30:05.190 chaos. And it's not just what you own, but how 00:30:05.190 --> 00:30:08.130 you own it. The source listed so many different 00:30:08.130 --> 00:30:10.829 forms of ownership. Private, public, collective, 00:30:10.990 --> 00:30:14.049 cooperative. Right. Common ownership. Crown ownership, 00:30:14.190 --> 00:30:16.369 which is still a major thing in the UK, Canada, 00:30:16.549 --> 00:30:19.829 Australia, and my personal favorite. Unknown. 00:30:20.130 --> 00:30:22.630 That feels rare in today's world. It is. Antarctica 00:30:22.630 --> 00:30:24.930 is largely unknown by treaty. The high seas are 00:30:24.930 --> 00:30:27.789 unknown. It refers to terra nullius, nobody's 00:30:27.789 --> 00:30:30.150 land. But this all leads us to the heavy hitters 00:30:30.150 --> 00:30:32.730 in theory. Because people have been arguing about 00:30:32.730 --> 00:30:35.569 this for a long time. The source lists the scholars 00:30:35.569 --> 00:30:37.789 who have spent centuries debating this. John 00:30:37.789 --> 00:30:41.769 Locke, Adam Smith, Karl Marx. It is an absolute 00:30:41.769 --> 00:30:44.809 powerhouse list of thinkers. It's just wild to 00:30:44.809 --> 00:30:47.470 me to see Karl Marx and Adam Smith on the same 00:30:47.470 --> 00:30:50.109 guest list for a real estate party. They don't 00:30:50.109 --> 00:30:52.170 seem like they'd get along very well. They wouldn't. 00:30:52.170 --> 00:30:54.589 But they are both fundamental architects of how 00:30:54.589 --> 00:30:57.809 we think about land and property today. So how 00:30:57.809 --> 00:31:00.210 does Adam Smith fit in? Adam Smith, the father 00:31:00.210 --> 00:31:02.710 of capitalism, was obsessed with how land generates 00:31:02.710 --> 00:31:06.730 wealth. He analyzed rent not as just a payment, 00:31:06.769 --> 00:31:09.009 but as one of the three foundational sources 00:31:09.009 --> 00:31:12.490 of income, along with profit and wages. He tried 00:31:12.490 --> 00:31:15.009 to understand where that value came from. And 00:31:15.009 --> 00:31:17.509 Marx? Marx came at it from the opposite direction. 00:31:17.809 --> 00:31:20.250 He analyzed how the private ownership of land 00:31:20.250 --> 00:31:23.529 creates and enforces class structures. He argued 00:31:23.529 --> 00:31:25.750 that land ownership was a primary way for the 00:31:25.750 --> 00:31:28.930 wealthy, the bourgeoisie, to extract value from 00:31:28.930 --> 00:31:32.940 the labor of the workers, the proletariat. You 00:31:32.940 --> 00:31:34.900 control the means of survival for everyone else. 00:31:35.079 --> 00:31:37.839 That was his argument. And that fundamental tension 00:31:37.839 --> 00:31:40.680 is still with us today in every landlord -tenant 00:31:40.680 --> 00:31:43.079 dispute and every debate about affordable housing. 00:31:43.279 --> 00:31:44.920 What about John Locke? Where does he come in? 00:31:45.200 --> 00:31:48.019 Locke gave us the labor theory of property. He 00:31:48.019 --> 00:31:50.599 had this very influential idea that because you 00:31:50.599 --> 00:31:53.059 own your own body and therefore your own labor, 00:31:53.200 --> 00:31:55.759 when you mix your labor with something in nature, 00:31:55.900 --> 00:31:58.200 when you till a field or build a fence, you make 00:31:58.200 --> 00:32:00.500 it your own. You earn the right to that land. 00:32:00.700 --> 00:32:03.140 The philosophical basis for homesteading. Yeah. 00:32:03.279 --> 00:32:05.680 You worked it, so it's yours. Exactly. It's a 00:32:05.680 --> 00:32:08.400 cornerstone of American property law. And Eleanor 00:32:08.400 --> 00:32:10.819 Ostrom, she's a Nobel Prize winner. Right. But 00:32:10.819 --> 00:32:13.380 more recent. Yes, and her work is so important. 00:32:13.680 --> 00:32:16.000 She's famous for challenging the tragedy of the 00:32:16.000 --> 00:32:18.099 commons. Okay, you have to remind us what the 00:32:18.099 --> 00:32:20.200 tragedy of the commons is. The classic idea, 00:32:20.339 --> 00:32:22.380 the parable, is that if you have a shared pasture, 00:32:22.619 --> 00:32:25.660 a common, that everyone is allowed to use, everyone 00:32:25.660 --> 00:32:28.660 will act in their own self -interest. Every farmer 00:32:28.660 --> 00:32:31.440 will add one more sheep to graze because the 00:32:31.440 --> 00:32:40.819 benefit of that extra... So eventually the pasture 00:32:40.819 --> 00:32:43.660 is destroyed. The pasture is destroyed. The tragedy 00:32:43.660 --> 00:32:46.740 is that rational individual freedom leads to 00:32:46.740 --> 00:32:49.900 collective ruin. And for a long time the argument 00:32:49.900 --> 00:32:52.920 was that we need private property to save the 00:32:52.920 --> 00:32:55.279 land. This is my piece, so I'll take care of 00:32:55.279 --> 00:32:58.160 it. That was the old argument. The only solutions 00:32:58.160 --> 00:33:00.579 were believed to be hard privatization or hard 00:33:00.579 --> 00:33:03.380 government control. Ostrom came along and said, 00:33:03.460 --> 00:33:06.160 hold on. Actually, let's look at the real world 00:33:06.160 --> 00:33:09.220 data. And what did she find? She studied hundreds 00:33:09.220 --> 00:33:12.180 of real world examples. Swiss villages managing 00:33:12.180 --> 00:33:14.940 alpine meadows, Japanese forests, irrigation 00:33:14.940 --> 00:33:17.920 systems in Spain. And she found that, contrary 00:33:17.920 --> 00:33:20.700 to the theory, communities are often very, very 00:33:20.700 --> 00:33:23.019 good at managing commons without problems. private 00:33:23.019 --> 00:33:25.700 ownership, or heavy government regulation. They 00:33:25.700 --> 00:33:28.059 create their own rules, their own social contracts, 00:33:28.259 --> 00:33:30.420 monitoring systems, and sanctions for cheaters. 00:33:30.480 --> 00:33:32.400 They figure it out. So we don't always need a 00:33:32.400 --> 00:33:34.680 landlord or a policeman. Sometimes the neighbors 00:33:34.680 --> 00:33:36.539 just work it out amongst themselves. Exactly. 00:33:37.279 --> 00:33:39.380 Her work provides this fascinating and powerful 00:33:39.380 --> 00:33:42.059 counterpoint to the everything must be privately 00:33:42.059 --> 00:33:45.799 owned mentality that dominates so much of modern 00:33:45.799 --> 00:33:48.059 real estate. So really, every time we sign a 00:33:48.059 --> 00:33:50.339 lease or a mortgage, we are unknowingly taking 00:33:50.339 --> 00:33:52.960 a side in a 300 year old philosophical debate. 00:33:53.140 --> 00:33:55.660 We are. We just don't realize it because we are 00:33:55.660 --> 00:33:57.960 too busy worrying about the interest rate and 00:33:57.960 --> 00:33:59.839 the home inspection report. And whether the roof 00:33:59.839 --> 00:34:02.619 is going to leak. And the roof. Always, always 00:34:02.619 --> 00:34:05.539 the roof. This has been. Massive. I mean, we 00:34:05.539 --> 00:34:08.119 started with a simple sign on a lawn. We went 00:34:08.119 --> 00:34:09.679 through software modeling of Danish property 00:34:09.679 --> 00:34:11.860 laws. We looked at crowdsourced home values in 00:34:11.860 --> 00:34:14.840 Tehran. We visited the moon. And we ended up 00:34:14.840 --> 00:34:16.780 in a debate with Karl Marx and Eleanor Ostrom. 00:34:16.880 --> 00:34:20.059 As all good deep dives should, we took the familiar 00:34:20.059 --> 00:34:22.820 and hopefully made it strange and interesting 00:34:22.820 --> 00:34:25.800 again. So if we have to synthesize all of this 00:34:25.800 --> 00:34:27.940 for the listener, the person who just wants to 00:34:27.940 --> 00:34:29.539 understand the world they live in a little better. 00:34:29.800 --> 00:34:32.719 What is the headline? The headline is that real 00:34:32.719 --> 00:34:35.619 estate is the ultimate convergence point. It 00:34:35.619 --> 00:34:38.860 is where high stakes, abstract global finance 00:34:38.860 --> 00:34:42.780 meets intensely local, personal human interaction. 00:34:42.980 --> 00:34:45.460 OK. It is where the system of national accounts, 00:34:45.559 --> 00:34:47.920 those big OECD studies trying to put a price 00:34:47.920 --> 00:34:50.579 tag on the entire nation, meets the very personal 00:34:50.579 --> 00:34:53.079 bundle of rights that defines your home. It is 00:34:53.079 --> 00:34:55.639 not just a business. It is the physical operating 00:34:55.639 --> 00:34:58.289 system of our society. The hidden complexity 00:34:58.289 --> 00:35:00.849 behind the simple things. Exactly. And understanding 00:35:00.849 --> 00:35:03.969 that complexity gives you agency. When you know 00:35:03.969 --> 00:35:07.010 you are buying rights, not just bricks, you make 00:35:07.010 --> 00:35:09.610 better decisions. When you understand transaction 00:35:09.610 --> 00:35:12.670 costs, you understand a big piece of the economy. 00:35:12.929 --> 00:35:14.989 Before we go, I want to leave everyone with that 00:35:14.989 --> 00:35:17.610 one final, slightly provocative thought that 00:35:17.610 --> 00:35:19.550 we hinted at earlier. Go for it. We talked about 00:35:19.550 --> 00:35:22.369 extraterrestrial real estate and we talked about 00:35:22.369 --> 00:35:25.389 unowned property. And we just talked about the 00:35:25.389 --> 00:35:28.050 tragedy of the commons. That is a dangerous cocktail 00:35:28.050 --> 00:35:30.949 of concepts. Well, as we continue to use up space 00:35:30.949 --> 00:35:33.969 and resources here on Earth, and as those transaction 00:35:33.969 --> 00:35:36.469 costs get higher and the regulations get denser, 00:35:36.510 --> 00:35:38.809 we are going to look up. We're going to go to 00:35:38.809 --> 00:35:41.889 Mars and beyond. It seems inevitable. But here's 00:35:41.889 --> 00:35:45.289 the question. When we get there, do we bring 00:35:45.289 --> 00:35:48.469 John Locke and Adam Smith with us? Does the bundle 00:35:48.469 --> 00:35:50.369 of rights that we developed over centuries on 00:35:50.369 --> 00:35:53.480 Earth even apply in a vacuum? That is the big 00:35:53.480 --> 00:35:56.280 question. Can you own air rights where there 00:35:56.280 --> 00:35:58.960 is no air? Can you have riparian rights to a 00:35:58.960 --> 00:36:02.000 river of frozen methane? Exactly. Are we just 00:36:02.000 --> 00:36:04.599 going to replicate the same system there? Landlords, 00:36:04.780 --> 00:36:07.639 tenants, mortgages, title insurance for moon 00:36:07.639 --> 00:36:10.699 craters? Or will we have a chance to invent an 00:36:10.699 --> 00:36:14.260 entirely new way of defining... ownership, maybe 00:36:14.260 --> 00:36:16.460 in Ostrom -style commons for a whole planet. 00:36:16.619 --> 00:36:19.139 That is the ultimate test for all of these theories, 00:36:19.260 --> 00:36:21.719 and I have a sneaking suspicion that the lawyers 00:36:21.719 --> 00:36:24.639 are already drafting the paperwork, just in case. 00:36:24.940 --> 00:36:26.739 Something for you to mull over the next time 00:36:26.739 --> 00:36:28.940 you look up at the night sky. You might just 00:36:28.940 --> 00:36:31.099 be looking at a future legal battleground. Indeed. 00:36:31.420 --> 00:36:34.079 Thanks for diving in with us. This was a heavy 00:36:34.079 --> 00:36:36.000 one, but I feel like I understand the world I'm 00:36:36.000 --> 00:36:37.800 standing on a lot better now. It was a real pleasure. 00:36:38.059 --> 00:36:39.780 We'll catch you on the next one. Goodbye, everyone.