Bloomberg recently published a good summary of Zillow's business and their move into algorithm home buying and flipping. (They are trying to avoid the "flipping" moniker because of the negative connotations associated with it.) Zillow started buying homes directly from owners last spring. They charge the seller between 6-9%, so more than using a typical agent, but inline with their competitors. There's clearly a segment of the market willing to pay a premium for the added convenience. The thinking used to be that discount brokerages were the way to disrupt the housing market. This is the opposite strategy. Interestingly enough, Zillow felt that they needed to make this pivot with their business model. It used to be about selling ads. They were definitive in that they were not a disruptor of real estate agents. But now:
If getting an offer from an iBuyer became a crucial step in the selling process, they worried, Zillow could lose its audience and its advertising base. What’s more, market researchers kept finding that consumers said they’d pay a modest premium to get a cash offer. “People expect to press a button and have magic happen,” says Rascoff, a 43-year-old former Expedia executive who’d earlier started the travel search engine Hotwire, which he sold to Expedia for $700 million. Getting into the business of buying homes directly, Rascoff says, was “the only way to remain in a leadership position.”
Here is a map of the companies in this particular space and the cities in which they operate:
Some investors aren't sold on this strategy and have begun short selling Zillow (according to the Bloomberg article). I keep getting the sense that there's a greater end game in the cards here. It is about building up A (algorithmic home buying and flipping) in order to unlock B. But what's B -- a new end-to-end transactional model for the housing market?
Yesterday's post was about Amazon pulling out of NYC. Today I thought we'd talk about another contentious city building debate that is happening closer to home. This week Sidewalk Toronto announced that it would like to expand its development focus beyond Quayside to the entire Port Lands district along the waterfront. To pay for all of this, the Alphabet company is looking for a share of the city's property taxes and development charges (impact fees), and they want to capture some of the increase in land value. Not surprisingly, many reacted poorly to this announcement. Some people are already grouchy about what Sidewalk is up to at Quayside and so this was inevitable. But sharing revenue and upside is not necessarily a pioneering idea. It is called a partnership. Perhaps the partners have different skill sets. That is usually a good thing. But regardless, the best partnerships are when all parties win. What Sidewalk allegedly wants to do is shoulder more risk upfront in exchange for a kicker on the backend. This, too, also has a name. You can call it real estate development. I don't know the specifics of the deal being proposed, but the question that comes to mind is: What is the net present value to the city -- both quantitative and qualitative -- with and without Sidewalk? (No links in today's post because I'm writing on mobile while standing at the airport.)
As I am sure you have all heard, there's a lot of debate in New York right now (city and state) about whether they should reject Amazon's decision to open up a new headquarters in Queens.
Urbanist Richard Florida has been arguing that one of the richest companies in the world shouldn't be receiving taxpayer subsidies and that Amazon should do the right thing here. They should open up in New York but without any inducements.
As a counter argument, Kenneth Jackson, professor of history at Columbia University, recently opined that this is actually business as usual. American cities have a long history of competing for companies because the benefits outweigh the costs over the longer term.
Here is an excerpt from his op-ed in the New York Times:
They are right about one thing. It is absurd that any city would agree to such a deal. But this is how the game is played. Paying companies to relocate has been the American way since 1936, when Mississippi established the nation’s first state-sponsored economic development plan. Under that plan, since followed by many other jurisdictions, cities and states agreed to pay companies to relocate by promising them new factories and low or nonexistent taxes. With those inducements, numerous businesses relocated in the decades after World War II, usually from the union-dominated Northeast and Midwest to the business-friendly South.
Perhaps this would make a good debate topic for Kialo.
Update: Amazon just cancelled its plans for a corporate HQ in NYC.
Bloomberg recently published a good summary of Zillow's business and their move into algorithm home buying and flipping. (They are trying to avoid the "flipping" moniker because of the negative connotations associated with it.) Zillow started buying homes directly from owners last spring. They charge the seller between 6-9%, so more than using a typical agent, but inline with their competitors. There's clearly a segment of the market willing to pay a premium for the added convenience. The thinking used to be that discount brokerages were the way to disrupt the housing market. This is the opposite strategy. Interestingly enough, Zillow felt that they needed to make this pivot with their business model. It used to be about selling ads. They were definitive in that they were not a disruptor of real estate agents. But now:
If getting an offer from an iBuyer became a crucial step in the selling process, they worried, Zillow could lose its audience and its advertising base. What’s more, market researchers kept finding that consumers said they’d pay a modest premium to get a cash offer. “People expect to press a button and have magic happen,” says Rascoff, a 43-year-old former Expedia executive who’d earlier started the travel search engine Hotwire, which he sold to Expedia for $700 million. Getting into the business of buying homes directly, Rascoff says, was “the only way to remain in a leadership position.”
Here is a map of the companies in this particular space and the cities in which they operate:
Some investors aren't sold on this strategy and have begun short selling Zillow (according to the Bloomberg article). I keep getting the sense that there's a greater end game in the cards here. It is about building up A (algorithmic home buying and flipping) in order to unlock B. But what's B -- a new end-to-end transactional model for the housing market?
Yesterday's post was about Amazon pulling out of NYC. Today I thought we'd talk about another contentious city building debate that is happening closer to home. This week Sidewalk Toronto announced that it would like to expand its development focus beyond Quayside to the entire Port Lands district along the waterfront. To pay for all of this, the Alphabet company is looking for a share of the city's property taxes and development charges (impact fees), and they want to capture some of the increase in land value. Not surprisingly, many reacted poorly to this announcement. Some people are already grouchy about what Sidewalk is up to at Quayside and so this was inevitable. But sharing revenue and upside is not necessarily a pioneering idea. It is called a partnership. Perhaps the partners have different skill sets. That is usually a good thing. But regardless, the best partnerships are when all parties win. What Sidewalk allegedly wants to do is shoulder more risk upfront in exchange for a kicker on the backend. This, too, also has a name. You can call it real estate development. I don't know the specifics of the deal being proposed, but the question that comes to mind is: What is the net present value to the city -- both quantitative and qualitative -- with and without Sidewalk? (No links in today's post because I'm writing on mobile while standing at the airport.)
As I am sure you have all heard, there's a lot of debate in New York right now (city and state) about whether they should reject Amazon's decision to open up a new headquarters in Queens.
Urbanist Richard Florida has been arguing that one of the richest companies in the world shouldn't be receiving taxpayer subsidies and that Amazon should do the right thing here. They should open up in New York but without any inducements.
As a counter argument, Kenneth Jackson, professor of history at Columbia University, recently opined that this is actually business as usual. American cities have a long history of competing for companies because the benefits outweigh the costs over the longer term.
Here is an excerpt from his op-ed in the New York Times:
They are right about one thing. It is absurd that any city would agree to such a deal. But this is how the game is played. Paying companies to relocate has been the American way since 1936, when Mississippi established the nation’s first state-sponsored economic development plan. Under that plan, since followed by many other jurisdictions, cities and states agreed to pay companies to relocate by promising them new factories and low or nonexistent taxes. With those inducements, numerous businesses relocated in the decades after World War II, usually from the union-dominated Northeast and Midwest to the business-friendly South.
Perhaps this would make a good debate topic for Kialo.
Update: Amazon just cancelled its plans for a corporate HQ in NYC.
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