Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
Brandon Donnelly
Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly.
Phoenix is the 5th largest city in the United States. It has a city proper population of about 1.6 million people and a metro area population of close to 5 million. It is also one of the fastest growing cities in the US.
But being the desert city that it is, its population consumes more water than its natural aquifers can support. Which is why there is something called the Central Arizona Project (CAP).
Approved in 1968, the CAP diverts water from the Colorado River into the state of Arizona. The system is 336 miles (or 541 km) and it runs from Lake Havasu to Tucson, via Phoenix.
Here is an aerial image of the canal from Wikipedia Commons:
And here is a system map from CAP:
Today, it is the single largest water source (and consumer of power) in Arizona, serving about 80% of the state's population. This obviously makes it invaluable. It delivers on average about 1.5 million acre-feet of water per year. (Acre-foot = Acre of area x one foot in depth.)
I was reading about this project today and I found it fascinating. Maybe some of you will too.
Inc. Magazine just did a profile on Opendoor, which is a company that we have, of course, talked a lot about on this blog and that I continue to follow closely. It's interesting to read about some of the challenges that they've been having as a result of their frictionless open houses. Since all you need is a smartphone, the company has been having the ongoing problem of people camping out in their listed homes. Sometimes for weeks. They've been working to address this by restricting the hours (6AM to 9PM) and by installing motion detectors. I am sure they will figure it out. The company is also having to be careful in terms of how it positions itself alongside realtors. There are many livelihoods at stake here. Here's an excerpt from the article:
During interviews, Wu has chosen his words carefully when discussing Opendoor's potential to replace Realtors. "The reality with Realtors today," he said on stage at the Startup Grind Global Conference in Silicon Valley in February, "is their role is shifting from project management--especially in our ecosystem, where we're automating a lot of the processes--to advisement."
Fred Wilson (venture capitalist) has argued many times before on his blog that business model innovation is far more disruptive than technical innovation. I think it's valuable to keep that in mind in the context of this discussion. Opendoor continues to charge a commission fee (sometimes a higher one than is typical), but it also makes money on the flipping of homes and it has plans to vertically integrate other aspects of the real estate business. Will that do it?
I have been writing about algorithmic home buying on the blog since Opendoor launched back in 2014.
I don't have anything new to report on that today, but this recent article from the WSJ is interesting in that it talks about why Phoenix, in particular, has become ground zero for algorithmic home buying, as well as for institutional investors looking to buy cheap rentals.
Across Opendoor, Offerpad, and Zillow, nearly 500 homes are now being purchased -- largely by software -- in Phoenix each month:
Phoenix is the 5th largest city in the United States. It has a city proper population of about 1.6 million people and a metro area population of close to 5 million. It is also one of the fastest growing cities in the US.
But being the desert city that it is, its population consumes more water than its natural aquifers can support. Which is why there is something called the Central Arizona Project (CAP).
Approved in 1968, the CAP diverts water from the Colorado River into the state of Arizona. The system is 336 miles (or 541 km) and it runs from Lake Havasu to Tucson, via Phoenix.
Here is an aerial image of the canal from Wikipedia Commons:
And here is a system map from CAP:
Today, it is the single largest water source (and consumer of power) in Arizona, serving about 80% of the state's population. This obviously makes it invaluable. It delivers on average about 1.5 million acre-feet of water per year. (Acre-foot = Acre of area x one foot in depth.)
I was reading about this project today and I found it fascinating. Maybe some of you will too.
Inc. Magazine just did a profile on Opendoor, which is a company that we have, of course, talked a lot about on this blog and that I continue to follow closely. It's interesting to read about some of the challenges that they've been having as a result of their frictionless open houses. Since all you need is a smartphone, the company has been having the ongoing problem of people camping out in their listed homes. Sometimes for weeks. They've been working to address this by restricting the hours (6AM to 9PM) and by installing motion detectors. I am sure they will figure it out. The company is also having to be careful in terms of how it positions itself alongside realtors. There are many livelihoods at stake here. Here's an excerpt from the article:
During interviews, Wu has chosen his words carefully when discussing Opendoor's potential to replace Realtors. "The reality with Realtors today," he said on stage at the Startup Grind Global Conference in Silicon Valley in February, "is their role is shifting from project management--especially in our ecosystem, where we're automating a lot of the processes--to advisement."
Fred Wilson (venture capitalist) has argued many times before on his blog that business model innovation is far more disruptive than technical innovation. I think it's valuable to keep that in mind in the context of this discussion. Opendoor continues to charge a commission fee (sometimes a higher one than is typical), but it also makes money on the flipping of homes and it has plans to vertically integrate other aspects of the real estate business. Will that do it?
I have been writing about algorithmic home buying on the blog since Opendoor launched back in 2014.
I don't have anything new to report on that today, but this recent article from the WSJ is interesting in that it talks about why Phoenix, in particular, has become ground zero for algorithmic home buying, as well as for institutional investors looking to buy cheap rentals.
Across Opendoor, Offerpad, and Zillow, nearly 500 homes are now being purchased -- largely by software -- in Phoenix each month:
One of the reasons why Phoenix is well suited to these platforms is that the housing stock is cheap and fairly homogenous. (The WSJ calls it "stucco sprawl.") This makes it easier for the algorithms to put a value on the homes.
A big chunk of the housing stock is also relatively new. Just over 36% of it was built in 2000 or later. And it tends to trade fairly often. Below is the percentage of homes in 2018 that were resold within a year of purchase.
It's also worth noting that Arizona is a non-recourse state, meaning you're typically not personally liable if you default on your home mortgage. You simply hand back the keys. So it's viewed as a fairly risk tolerant state, which may be one of the reasons why Phoenix's median home price chart looks like this:
I'll end with this quote from the article: “It’s the dawn of e-commerce for real estate,” said Zillow Chief Executive Rich Barton. “Phoenix is ground zero.”
Charts: WSJ
One of the reasons why Phoenix is well suited to these platforms is that the housing stock is cheap and fairly homogenous. (The WSJ calls it "stucco sprawl.") This makes it easier for the algorithms to put a value on the homes.
A big chunk of the housing stock is also relatively new. Just over 36% of it was built in 2000 or later. And it tends to trade fairly often. Below is the percentage of homes in 2018 that were resold within a year of purchase.
It's also worth noting that Arizona is a non-recourse state, meaning you're typically not personally liable if you default on your home mortgage. You simply hand back the keys. So it's viewed as a fairly risk tolerant state, which may be one of the reasons why Phoenix's median home price chart looks like this:
I'll end with this quote from the article: “It’s the dawn of e-commerce for real estate,” said Zillow Chief Executive Rich Barton. “Phoenix is ground zero.”
Charts: WSJ
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