There is not a sector that technology is not starting to penetrate. We are seeing everything start to be disrupted by technology.
One area that remained fairly consistent is real estate. For a variety of reasons, the real estate/construction world has not changed all that much. Instead, with the exception of a few upgrades, it is basically the same as it was decades ago.
That is all starting to change. We are seeing projects that are seeking to disrupt every facet of those industries. While the impact is not great at the moment, give it another 5-10 years, and we will see things start to change. What impact will this have in 20 years?
The key to understand about technology is that it is deflationary. It pushes prices down over time. We only need to look at laptops, smartphones, and televisions to understand how it works.
Here we see something that could be a significant factor. What if we find that real estate becomes deflationary?
Before answering this question, let us look at some of the factors that could affect it.
To start, there are attempts to change how real estate is bought and sold. Leaving tokenization aside for a moment, there are companies looking to operate in the traditional realm but in a different manner. One is Zillow. This company is seeking to use AI and large quantities of data to match buyers and sellers. This starts with an easy appraisal process. Here is where Zillow seeks to use its large trove of data to produce better pricing metrics.
At the same time, with all the visitors to its site each month, it provides a treasure trove of buyers. Even if 90% are there for other purposes, the remaining percentage can add up to a lot of buyers.
Essentially, Zillow wants to take your home off your hands. They will buy it and let you walk away, moving onto your new property. Then, they will list it and access their resources to get the property moved.
It is a revolutionary concept. Thus far, it has not unfolded as planned. In the last earnings report, they admitted houses are being held longer than they expected. Nevertheless, this is one innovation that is seeking to provide liquidity to the market.
We see a lot of other projects, many application based, that are also seeking to grease the selling process. Real estate is a non-liquid market meaning it is costly (and slow) to get in and out of a home. Many are seeking to make the industry more liquid. This will serve to raise prices since there is usually a penalty for markets that lack liquidity. Estimates are that real estate takes a 5% hit because it is slow and costly to unload.
Tokenization could speed things up a great deal. When a property is tokenized, it instantly can be traded. As long as there is an exchange the tokens can be swapped. We are already seeing some projects set up in the commercial real estate realm that are structured in this manner. Investors buy tokens in the deal which entitles them to a piece of the asset value plus the profits.
When I think about real estate long term, there is one technology that really could impact things.
3D printing could be the biggest game changer that real estate sees. The entire world of manufacturing and construction is about to undergo an enormous shift due to this technology. Housing, because of the sheer cost of things, stands to benefit greatly.
We already see a number of projects that are 3D printing homes. Again, we must bear in mind that this is the early stages of things. So far, homes of roughly 800 square feet were printed out. What this means is the "shell" of the structure was produced using a printer. After that, the windows, doors, and interior had to be put together along with the roof.
The advantage to this is it saves time, eliminates waste, and costs a lot less to produce. While only a piece of the puzzle, it does take the hit out of the cost of creating the basic structure.
One thing that we must keep in mind is how this technology is going to access all facets of manufacturing. Thus, we could see a time when everything that is put into the house is printed out. Fixtures, appliances, and plumbing all could see drastic cost reductions due to 3D printing.
Here is where things can get very interesting. What happens if this technology pushes the prices for most everything associated with a home down by 50%-75%? Imagine a time when all includes windows and roofing shingles are printed out. If we see a decline in cost like we did with other technologies, this could send the cost of constructing a home way down. Couple this with advancements in robots and automation and we an only guess the impact.
If that does happen, what happens to all those existing homes. We could see the cost of construction plummet over a 15-20 years period. While that might see like a long time out, keep in mind that we see people getting 30 and 40 year mortgages. How would it feel like to just pay off your mortgage only to realize a new home build near you was constructed for 20% of the cost?
Many will say this is unrealistic. I recall reading a post about this back in 2015 or so. I wish I have bookmarked the blog because it was buy a guy who wrote exclusively about the real estate market. He proposed a similar idea based upon his projection of what could take place.
The reality of the situation, in my view, is that nothing can be discounted long term. The old adage in real estate is you cannot create more land. This is something that is no longer true after a number of islands were created in the Middle East. Also, with a paradigm shift for society as a result of a multitude of technologies, location might become a secondary matter. Autonomous vehicles, for example, could alleviate the need to be as close to work as it is now.
There are many questions that surround this subject and it will take a couple decades for the answers to be known. However, it is a mistake to presume that things will be as they are now. When putting one's money into something, be careful about the long term consequences.
As with all investing, technology is throwing another variable into the analysis.
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