Chronicles: February 2022

Incorporating reality into your models

Zillow thought they had a great idea, using their big data and analytical tools to not only provide valuations for properties but also flip properties by buying homes in hot markets and selling them a few months later after adding some needed repairs and updates. They could profit from the general market appreciation as well as their skilled rehab of the home.

Zillow had lots of data on the selling prices and selling times of homes which allowed them to build trend following and price prediction models for home prices in very specific geographies. However, the models did not consider how difficult it would be to find a contractor when everyone on lockdown spent the money destined for the vacation they missed during COVID on a kitchen or bathroom upgrade, or even a new home office setup. That hit Zillow in two ways: first, labor and materials costs for home renovations had skyrocketed, and second, the lack of available supplies and contractors increased the holding time on those properties.  Not only is there a time value of money, but models may be less accurate as the forecast horizon lengthens. Check out this article for an explanation of the types of drift in machine learning.

Human intelligence and artificial intelligence combined will outperform either system individually, as human translators are necessary to oversee areas the models can’t see. 

What are other business models in PropTech?

Certainly, Airbnb and VRBO count as PropTech firms, as the $87 billion vacation rental industry has revolutionized the way homeowners can access the short-term rental market, while creating a formidable competitor to the hotel industry, which suffered greatly during COVID. 

Other PropTech firms make it easier to search for homes to buy or rent. The aforementioned Zillow is a leader in this category, but don’t forget RedFin or Realtor.com. These data aggregators provide consumers and investors with estimated values of properties as well as the ability to search databases for potential purchases. The trading history of properties is archived, and browsers can see the history of purchase and sale prices, as well as the history of property taxes and asking prices. Perhaps, buyers are emboldened to offer lower prices when they see a property with a history of declining offer prices.

How does PropTech improve the tenant experience?

Once a renter moves into a building, PropTech solutions can help collect the rent, schedule repairs, and request other services from the building owner. As people migrate to more desirable climes in a time when houses sell quickly, there is an increase in the number of properties being purchased from a distance, where the buyer has not personally inspected the property. This has been enabled by video tours, virtual tours, as well as augmented and virtual reality functionality. 

Drones, satellites, and on-site cameras can provide updates on the progress of construction or renovation of properties and the potential to locate land for new building sites. 

Planting the seeds in AgricultureTech and FarmTech

Finally, we can discuss AgTech or FarmTech, the application of technology to increase the yield on farms and agricultural land. Maybe Forbes has been reading the pun-laden Chronicles of an Allocator and blog posts on Portfolio for the Future™. 

Drones and satellites can be used to plan routes for self-driving tractors and to optimize the fertilizer applied to each acre of the farm. Sensors can test soil moisture at all locations in the field and note when portions of the plantings are above or below expectations for crop yield or productivity. Blockchain data can be used to trace the food supply chain, allowing retailers to quarantine or destroy tainted produce from a specific farm while maintaining the ability to sell the balance of their inventory safely. Automated surveillance can detect pests, wayward or unhealthy livestock, or human intruders on the farm. Robots are used to plant crops and to move plants around nurseries to optimize space planning. 

As the world population grows, the amount of farmland is decreasing.

Rather than reach a Malthusian conclusion that the end of the world is near and starvation is inevitable during a population explosion, FarmTech, AgTech, and advances in chemistry can lead to ever-increasing farm productivity. 

As Walter Brooks tells Dustin Hoffman in the 1967 movie The Graduate: “Plastics. There’s a great future in plastics.” “Data is the new plastics.” The great future in data is amplified by the use of artificial intelligence and machine learning. Through PropTech and AgTech, we can make both our urban and rural landscapes more efficient, profitable, and sustainable.