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How to Think About the Future of Urban Housing
“It was the best of times, it was the worst of times…”
©DrorPoleg,2017
(great for consumers, not so great for incumbents)
“It was the best of times, it was the worst of times…”
©DrorPoleg,2017
©DrorPoleg,2017
18 minutes
• Why is real estate vulnerable?
• How does disruption work?
• What would it look like when it ...
THE CRUMBLING OF THE DEFENSES
©DrorPoleg,2017
Source: The Atlantic / Pew Research
More people stay single for longer, in many cases
indefinitely. Roomma...
©DrorPoleg,2017
Source: Kleiner Perkins / US Census Bureau
The average number of people per household is
declining — from ...
©DrorPoleg,2017
Total Student Loan
Debt ($ billion)
% of those under
30 owning homes
Source: New York Federal Reserve / Ce...
©DrorPoleg,2017
Rent is outpacing income growth, and the number of 18-
35-year-olds living as roommates had almost doubled...
©DrorPoleg,2017
Source: Harvard Business Review Source: Kleiner Perkins
Jobs are less stable and many knowledge workers ha...
©DrorPoleg,2017
more than one job
Source: Princton University / Krueger & Katz
Nearly all of the 10 million jobs created b...
©DrorPoleg,2017
CurtsyApp
AirBnB
Cleanly
This fluid environment drives young consumers to
prefer “experiences” to “things”...
©DrorPoleg,2017
This leads to the commoditization of social
relationships and expansion of alternatives available
to consu...
©DrorPoleg,2017
This leads to the commoditization of social
relationships and expansion of alternatives available
to consu...
©DrorPoleg,2017
Historically, real estate assets enjoyed a set of
advantages that worked to preserve their value and
limit...
©DrorPoleg,2017
Technological and social developments are
undermining each of these defenses.
Location Capital VisibilityO...
©DrorPoleg,2017
Diminishing the importance of location by facilitating
remote work, reduce commute times and costs, and
ch...
©DrorPoleg,2017
Democratizing access to capital and information;
©DrorPoleg,2017
Enabling business models that reduce tenants’ switching
costs by increasing market liquidity, encouraging ...
©DrorPoleg,2017
Redefining visibility and accessibility by channeling
demand through new (online) distribution and
marketi...
©DrorPoleg,2017
Including the ability to break the product into smaller
components, mix, and match what you find most
valu...
©DrorPoleg,2017
Shifting the focus to new types of metrics and value
propositions
©DrorPoleg,2017
Creating user experiences that make traditional
rental procedures seem unbearable.
©DrorPoleg,2017
Calling into questions the validity and power of
regulations — especially when taking the side of
consumer...
©DrorPoleg,2017
Land is still constrained, but technology makes it
cheaper to build upwards (and build in general),
unbund...
©DrorPoleg,2017
In addition, the relative stability of the residential
market, coupled with external speculation, led to
o...
DISRUPTION IN ACTION
©DrorPoleg,2017
Caveats:
Assumes customers are rational
Focused on technology
Reductive (like any theory)
Measure by opera...
©DrorPoleg,2017
For every product, there is a rate of improvement
that customers can utilize or absorb.
Time
Performance/F...
©DrorPoleg,2017
Almost always, "companies keep striving to make better
products that they can sell for higher profit margi...
©DrorPoleg,2017
By doing so, they end up having a large number of
customers who are getting (and paying for) more
than wha...
©DrorPoleg,2017
A new competitor can target these customers,
offering them a product that is less good, less
expensive and...
©DrorPoleg,2017
Time
Performance/Features
Non-Consumers
©DrorPoleg,2017
Incumbents are “motivated to go up-market, and
almost never motivated to defend the new or low-end
markets...
©DrorPoleg,2017
Imagine if I told you I have a great idea to take 3-
bedroom apartment, and instead of renting it out to a...
©DrorPoleg,2017
But it gets even trickier. Once the original product
becomes good enough, satisfied customers begin to
red...
©DrorPoleg,2017
At that point, customers start thinking about getting
“exactly what they want when they need it, as
conven...
©DrorPoleg,2017
What market did WeWork target? It began with non-
consumption, moved up to threaten the lower tier of
trad...
©DrorPoleg,2017
But some traditional landlords are starting to fight
back.
©DrorPoleg,2017
And WeWork’s value proposition is being addressed
by disruptors who offer an inferior or unbundled
experie...
©DrorPoleg,2017
In theory, these disruptors have the potential to grow faster and
achieve higher profits with less resourc...
©DrorPoleg,2017
Controlling the customer relationship gives
aggregators the ability to ultimately replace their
suppliers ...
©DrorPoleg,2017
Management software
Design
Smart components
Construction & Development
Concept Development
Basic Property ...
©DrorPoleg,2017
In NYC, for example, almost all buildings are good
enough to live in, and most neighborhoods are safe
enou...
©DrorPoleg,2017
The fastest growing customer group is 21-35 year-
old, middle-income singles. But developers keep
building...
©DrorPoleg,2017
The experience of moving is painful, takes too long,
and “success” means significant financial and legal
o...
©DrorPoleg,2017
This creates room for a new approach. Shared
Housing 2.0.
www.common.com
©DrorPoleg,2017
Defining value along new dimensions — those that
matter to actual customers…
©DrorPoleg,2017
…in a location that is (barely) good enough, where
the cost of a Manhattan studio can get you a
renovated ...
©DrorPoleg,2017
Providing a superior search and booking experience,
engendering trust…
©DrorPoleg,2017
And charging double the cost of a traditional
bedroom within the same location.
©DrorPoleg,2017
How can this be? Thanks to the behavior of
incumbents.
Focused on the most
valuable customers
Did what the...
FACING THE THREAT
©DrorPoleg,2017
The good news is that land is still valuable and
location still matters. More importantly, real estate
com...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
1. Who are my customers?
2. What do I know about them?
3. What jobs are they using my product for?
4. What...
©DrorPoleg,2017
Dror Poleg
www.poleg.net
Dislocation - The Future of Urban Housing
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Dislocation - The Future of Urban Housing

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A framework for thinking about how your business can take advantage of the most exciting decade in the history of urban living.

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Dislocation - The Future of Urban Housing

  1. 1. How to Think About the Future of Urban Housing
  2. 2. “It was the best of times, it was the worst of times…” ©DrorPoleg,2017
  3. 3. (great for consumers, not so great for incumbents) “It was the best of times, it was the worst of times…” ©DrorPoleg,2017
  4. 4. ©DrorPoleg,2017 18 minutes • Why is real estate vulnerable? • How does disruption work? • What would it look like when it comes for your business? • How to begin address these threats?
  5. 5. THE CRUMBLING OF THE DEFENSES
  6. 6. ©DrorPoleg,2017 Source: The Atlantic / Pew Research More people stay single for longer, in many cases indefinitely. Roommates, coworkers, and online friends replace spouses as life partners.
  7. 7. ©DrorPoleg,2017 Source: Kleiner Perkins / US Census Bureau The average number of people per household is declining — from 4 people 100 years ago to 2.5 today. Avg. size of US household
  8. 8. ©DrorPoleg,2017 Total Student Loan Debt ($ billion) % of those under 30 owning homes Source: New York Federal Reserve / Census.org Home ownership is at a historic low, especially for those under 30. Coupled with high student debt and low savings, this leads to the emergence of “Generation Rent”.
  9. 9. ©DrorPoleg,2017 Rent is outpacing income growth, and the number of 18- 35-year-olds living as roommates had almost doubled over the last 30 years. Source: ZillowSource: US Census Bureau / ApartmentList
  10. 10. ©DrorPoleg,2017 Source: Harvard Business Review Source: Kleiner Perkins Jobs are less stable and many knowledge workers have more than one. Freelancing and contract work are on the rise.
  11. 11. ©DrorPoleg,2017 more than one job Source: Princton University / Krueger & Katz Nearly all of the 10 million jobs created between 2005 and 2015 are temporary or unsteady positions.
  12. 12. ©DrorPoleg,2017 CurtsyApp AirBnB Cleanly This fluid environment drives young consumers to prefer “experiences” to “things”: Sharing everything on-demand rather than owning anything outright. This logic applies to anything from housing, through cars, to clothing and work tools.
  13. 13. ©DrorPoleg,2017 This leads to the commoditization of social relationships and expansion of alternatives available to consumers.
  14. 14. ©DrorPoleg,2017 This leads to the commoditization of social relationships and expansion of alternatives available to consumers.
  15. 15. ©DrorPoleg,2017 Historically, real estate assets enjoyed a set of advantages that worked to preserve their value and limit competition. Location Capital VisibilityOpacity Accessibility Regulation Scarcity
  16. 16. ©DrorPoleg,2017 Technological and social developments are undermining each of these defenses. Location Capital VisibilityOpacity Accessibility Regulation Scarcity ©DrorPoleg,2017
  17. 17. ©DrorPoleg,2017 Diminishing the importance of location by facilitating remote work, reduce commute times and costs, and changing the way we socialize and spend our free time;
  18. 18. ©DrorPoleg,2017 Democratizing access to capital and information;
  19. 19. ©DrorPoleg,2017 Enabling business models that reduce tenants’ switching costs by increasing market liquidity, encouraging the sharing of resources, and facilitating on-demand usage;
  20. 20. ©DrorPoleg,2017 Redefining visibility and accessibility by channeling demand through new (online) distribution and marketing channels.
  21. 21. ©DrorPoleg,2017 Including the ability to break the product into smaller components, mix, and match what you find most valuable..
  22. 22. ©DrorPoleg,2017 Shifting the focus to new types of metrics and value propositions
  23. 23. ©DrorPoleg,2017 Creating user experiences that make traditional rental procedures seem unbearable.
  24. 24. ©DrorPoleg,2017 Calling into questions the validity and power of regulations — especially when taking the side of consumers (who are also voters).
  25. 25. ©DrorPoleg,2017 Land is still constrained, but technology makes it cheaper to build upwards (and build in general), unbundles some parts of the home, frees up locations previously used for retail, office, and parking. Kitchen Laundry Storage Closet
  26. 26. ©DrorPoleg,2017 In addition, the relative stability of the residential market, coupled with external speculation, led to overshooting. Time Performance/Features
  27. 27. DISRUPTION IN ACTION
  28. 28. ©DrorPoleg,2017 Caveats: Assumes customers are rational Focused on technology Reductive (like any theory) Measure by operational profit
  29. 29. ©DrorPoleg,2017 For every product, there is a rate of improvement that customers can utilize or absorb. Time Performance/Features
  30. 30. ©DrorPoleg,2017 Almost always, "companies keep striving to make better products that they can sell for higher profit margins to not-yet satisfied customers on more demanding tiers of the market". Time Performance/Features
  31. 31. ©DrorPoleg,2017 By doing so, they end up having a large number of customers who are getting (and paying for) more than what they actually need. Time Performance/Features
  32. 32. ©DrorPoleg,2017 A new competitor can target these customers, offering them a product that is less good, less expensive and/or focused on other dimensions. Time Performance/Features
  33. 33. ©DrorPoleg,2017 Time Performance/Features Non-Consumers
  34. 34. ©DrorPoleg,2017 Incumbents are “motivated to go up-market, and almost never motivated to defend the new or low-end markets that the disruptors find attractive”. HIGH MARGIN LOW MARGIN BEST CLIENT WORST CLIENT KNOWN UNKNOWN
  35. 35. ©DrorPoleg,2017 Imagine if I told you I have a great idea to take 3- bedroom apartment, and instead of renting it out to a family for $6,000, I would put a bunk bed in each room and rent it to 6 strangers who will pay $1,100 each. Would you do it?
  36. 36. ©DrorPoleg,2017 But it gets even trickier. Once the original product becomes good enough, satisfied customers begin to redefine their needs. Air Conditioning Fire Safety Elevator Quality Internet
  37. 37. ©DrorPoleg,2017 At that point, customers start thinking about getting “exactly what they want when they need it, as conveniently as possible”. www.wework.com “Escape” Design Social Flexible
  38. 38. ©DrorPoleg,2017 What market did WeWork target? It began with non- consumption, moved up to threaten the lower tier of traditional office (startups), and then to blue chip renters. Serviced Office Traditional Office No Office (non-consumption)
  39. 39. ©DrorPoleg,2017 But some traditional landlords are starting to fight back.
  40. 40. ©DrorPoleg,2017 And WeWork’s value proposition is being addressed by disruptors who offer an inferior or unbundled experience.
  41. 41. ©DrorPoleg,2017 In theory, these disruptors have the potential to grow faster and achieve higher profits with less resources and more flexibility. Suppliers Platforms Victims
  42. 42. ©DrorPoleg,2017 Controlling the customer relationship gives aggregators the ability to ultimately replace their suppliers completely.
  43. 43. ©DrorPoleg,2017 Management software Design Smart components Construction & Development Concept Development Basic Property Management Asset Management Marketing AddedValue Pre-development Development Marketing & Inventory Management Data & Recommendation Market Makers & Aggregators Change shifts profits within the value chain, usually towards areas where performance is not yet good enough.
  44. 44. ©DrorPoleg,2017 In NYC, for example, almost all buildings are good enough to live in, and most neighborhoods are safe enough and are reasonably accessible.
  45. 45. ©DrorPoleg,2017 The fastest growing customer group is 21-35 year- old, middle-income singles. But developers keep building high-end apartments. Age Specific Migration by Borough 1990-2010 1.25 million Studio and One-Bedroom Apartments 1.9 million One- and Two-person Households in the City More than Only
  46. 46. ©DrorPoleg,2017 The experience of moving is painful, takes too long, and “success” means significant financial and legal obligations. 15% Broker Fees $1,000-2,000 For Buying or Replacing Furniture $500-1,000 Cost of Moving within the City 3-4 weeks To Find and Secure an Apartment
  47. 47. ©DrorPoleg,2017 This creates room for a new approach. Shared Housing 2.0. www.common.com
  48. 48. ©DrorPoleg,2017 Defining value along new dimensions — those that matter to actual customers…
  49. 49. ©DrorPoleg,2017 …in a location that is (barely) good enough, where the cost of a Manhattan studio can get you a renovated 3-bedroom apartment.
  50. 50. ©DrorPoleg,2017 Providing a superior search and booking experience, engendering trust…
  51. 51. ©DrorPoleg,2017 And charging double the cost of a traditional bedroom within the same location.
  52. 52. ©DrorPoleg,2017 How can this be? Thanks to the behavior of incumbents. Focused on the most valuable customers Did what they do best (sticking to what they know). Unable to justify under their existing cost structure. Customers can’t find affordable rooms anywhere. Off-center locations benefit by serving as an alternative at a modest discount. Built too many high-end apartments. Focused on adding more and more amenities. Catered to temporary speculative investors and not to actual users’ needs. Asymmetric Motivation Price UmbrellaOvershooting
  53. 53. FACING THE THREAT
  54. 54. ©DrorPoleg,2017 The good news is that land is still valuable and location still matters. More importantly, real estate companies have shown an ability to think like a business — especially around retail and hospitality.
  55. 55. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  56. 56. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  57. 57. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  58. 58. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  59. 59. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  60. 60. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  61. 61. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  62. 62. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  63. 63. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  64. 64. ©DrorPoleg,2017 1. Who are my customers? 2. What do I know about them? 3. What jobs are they using my product for? 4. What is valuable to them? 5. Do I have a relationship with them? 6. What part(s) of the experience in my value chain is not good enough? 7. What is my core product or service? (bundle) 8. What informal transactions are happening around my market? 9. Is there an opportunity to expand the market (or create a new one)? 10.What can happen if I do nothing?
  65. 65. ©DrorPoleg,2017 Dror Poleg www.poleg.net

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