Flying back home from the NMHC Annual Meeting in Orlando, I can’t help but reflect on how fortunate we all are to be in this particular industry, at this particular moment in time. After several years of record 4-5+% rent growth, the past 16 months have seen remarkably stable rent growth with Axiometrics reporting YOY growth in the very narrow range of 2.1% to 2.5% (the long-term historical average is roughly 2.2-2.3%).
It’s not often we get to experience a sustained period of “Goldilocks” growth (“not too high, not too low”). Not surprisingly, the single biggest theme I observed at the session was a general satisfaction and confidence in the industry. The tone was clearly optimistic, but not heady. I realized that many of the CEOs and COOs attending were in the same or similar positions with their companies back in 2006-07. So while everyone feels good, the lingering memory of how that bull run came to a crashing end tempers any irrational enthusiasm.
Despite the stability of current market conditions, we are clearly in a transitional period not just in our industry, but in the larger business world as well. Here are a few key observations from my vantage point:
- We all know there are big technological changes afoot, especially in the area of managing data and the burgeoning space of “artificial intelligence,” but everyone is struggling to figure out what is really relevant to us, and maybe more importantly, when. I personally think that the first area of substantial AI use will be in call center coaching and eventually even tier 1 call handling. I’m also intrigued at the possibility of how AI could improve pricing algorithms. The latter may sound a bit scary, but pricing could be a perfect opportunity for AI. A recent HBR article discussing what kinds of problems are best suited for AI almost perfectly described pricing as it set 3 criteria: 1) lots of available data inputs, 2) a complex process that was hard to fully model and understand and produce, 3) specific results that are easily measured and thus can be fed back to create a learning loop. If you’re equally intrigued in either area, let me know. I’d love to talk to you about it.
- We are all also struggling to figure out the meaning, relevance and timing of how the sharing economy will affect us, and how we should respond. There’s the obvious near-term challenges of dealing with short-term rentals (STRs), but perhaps more important for the long term is how this will affect the design and building of future homes. On the former, I’m on the record as seeing STRs as simply another demand stream to be managed and one willing to pay a premium. I’ve recently agreed to put some of my energy where my mouth is by joining the Advisory Board of Pillow Homes, a technology platform that enables STRs to be managed and controlled. I truly believe any company not experimenting with STRs is leaving money on the table.
With respect to the latter, my crystal ball is a bit cloudier. Will micro-units and cooperative living become a larger trend? Will the recently announced creation of AirBnB branded developments succeed in driving higher occupancy and higher rents? How will we meet the more fluid expectations of today’s 20- and 30-somethings who are our current and future residents? All questions to be answered over the next 5-10 years, and questions that I saw people deeply thinking about at this conference.
- None of us are sure when the impact of driverless cars will hit us in force, but we all know it will. It’s clearly a “when,” not an “if.” And it will have dramatic impacts beyond simply reducing the need for garages. It will impact how communities are physically laid out (where will residents meet their car? How will we manage the space for cars to queue up during rush hour?). And it will impact supply. Think about all the large retail malls with their massive, often flat parking lots. All that space could suddenly become available to build for sale and for rent multi-family housing. The dramatic increase in infill space will surely create some supply bubbles but will also create numerous opportunities to create walkable living/eating/shopping neighborhoods.
- Among the more mundane but no less impactful subject is package handling. Online commerce continues to grow at double-digit pace with no end in sight. Current and future package solutions will continue to be a challenge for developers and operators. As past models mature, new possibilities from providers like Amazon challenge us to trade off cost versus control. Five years ago, who would have thought that residents would have beds, other furniture and even automobile tires sent to their homes via online ordering? Even solutions that work today may be challenged as the volume doubles every 2-4 years.
- Lastly, I saw a theme around the struggle to define the appropriate tech stack. With so many tech offerings, it’s hard to choose what to implement, and what not to. The fact that most vendors are expanding their offerings and thus competing with vendors they used to complement just makes it worse. Should you go “all in” with one of the platforms? Which new ideas will give a true ROI (and be around years from now to continue to support you)? None of these questions are easy which is why it’s a good idea to review your tech stack and your technology roadmap at least once a year.
Those are most of the things I heard people worrying about but Lest we wallow in the misery of our own fears, uncertainties and doubts, let me share one more observation, and one quite fitting for a conference that was celebrating the 40th anniversary of NMHC’s founding. The model for professionally-operated multifamily rental housing that we’ve created is such a robust business model that we are now exporting it to other countries...Great Britain, Australia and several European Union members. Not only was there a fascinating panel on this topic, but I personally had three deep conversations with companies currently developing property overseas with the explicit intent to change how rental housing is done in those countries by bringing in a more US-like operating model.
As they say, imitation is the sincerest form of flattery; so, as we contemplate the challenges that face us in the next few years, let’s not be complacent. But let’s also appreciate and enjoy how successful we’ve been and how far we’ve come!