Housing’s Uber Challenge

So, New York Times writer Conor Dougherty has discovered “The Great American Single-Family Home Problem,” and it is us.

Us, being the people who don’t want other people in our back yards. Neighbors living in single-family communities resistant to density.

Us, being town and city officials and regulators who deep-end real estate projects that would add dwellings attainable to people whose incomes define the lower wrungs of the household earnings ladder.

But he lets off the hook another “us.” The us who should be looking to improve construction productivity as part of the effort to bring down housing costs.

Dougherty writes:

Around the country, many fast-growing metropolitan areas are facing a brutal shortage of affordable places to live, leading to gentrification, homelessness, even disease. As cities struggle to keep up with demand, they have remade their skylines with condominium and apartment towers — but single-family neighborhoods, where low-density living is treated as sacrosanct, have rarely been part of the equation.

If cities are going to tackle their affordable housing problems, economists say, that is going to have to change. But how do you build up when neighbors want down?

That’s a question we’ve seen the housing business community challenged by ever since the post-Great Recession recovery began to get legs in 2011 or so.

Now, i want to turn your attention, for just a moment slightly askew of a housing affordability crisis that lays the entire blame at the doorstep of single-family neighborhoods.

Here’s a report, taken from data from the Bureau of Labor Statistics’ Consumer Expenditure Survey, observed by Cheryl Russell, editorial director at New Strategist Media, a demographics-rooted trends expert.

Russell’s insight starts like this:

“Ride sharing has exploded since Uber rolled out in 2011.”

Average household spending on “taxi fares and limousine services” have shot up by almost 50% since Uber started in 2011.

Have a look, from the Business of Apps, at some of Uber’s business metrics:

• Uber service is available in 83 countries and over 674 cities worldwide (Source: Uber)
• Uber fulfills 40 million rides monthly and has over 77% of US ride-hailing market (Source: Wiki)
• Total number of rides by 2016 – 2 billion (Source: Forbes)
• Uber gross revenue 2016 – $20 billion (Source: BusinessInsider)
• Uber net revenue 2016 – $6.5 billion (Source: BusinessInsider)
• Venture capital raised – $11.5 billion (Source: Crunchbase)
• Uber valuation in 2017 – $69 billion (Source: Bloomberg)
• Uber driver’s average income – $364 / month (Source: Ernest.com)
• In the US, Uber has over 160,000 active drivers, receiving $656.8m of payments during Q4 2014 (Source: Benenson Strategy Group)

As astonishing as some of these business statistics are for a seven-year-old company, it’s even more mind-boggling to see how Uber is disrupting other businesses that once might have seemed immune to competitive risk or threat.

But the impact we see as most significant–and the one we’d propose is the most material and relevant take-away for residential developers and builders challenged by housing’s affordability squeeze–is the ride hailing app’s expansion of the market of people who use ride hailing services at all.

As Cheryl Russell points out here, subtracting for use of such services by people who are traveling on business or leisure, the data shows a transformational impact on households using such services in their home towns and cities to get places.

Drilling down to spending on “taxi fares” in home city only (excluding taxi fares on trips) and the increase in average household spending is even greater—55 percent overall and 181 percent for householders aged 25 to 34.

What Uber and it’s mini-me Lyft service are doing is not simply disrupting incumbent industry players, but expanding the total market for its services with a combination of value, price, and accessibility.

Dougherty’s article exposes a fissure in what has up to now seemed to be an almost impenetrable wall of resistance to affordable development in metropolitan area’s single-family neighborhoods. He writes:

The law bars cities from stopping developments that meet local zoning codes. In other words, it’s illegal for cities to ignore their own housing laws. The act is rarely invoked, however, because developers don’t want to sue cities for fear it will anger city councils and make it harder for them to gain approval for other developments.

Now, what builders and developers need to do with that is to think not just from the standpoint of competing with one another, and with for-rent developers and property owners, and with existing home sales, but actually expanding the market of demand with attainable supply.

Regulatory barriers are part of the reason affordability is such a crisis in United States housing, but not the whole reason. The other, probably equally important factor in why housing’s affordability problem is increasing, not decreasing, is architecture-engineering-construction’s productivity challenge.

Residential construction’s struggle with its own inefficiencies and risks may even add to the reason localities fear and loathe what happens when they let down their guard against greater density.

This is why the mindset of residential developers and builders needs to be more like that of the strategists driving Uber growth right now. They’re not simply competing with taxis and rental cars. They’re competing with any way you can get somewhere comfortably, dependably, for a good price.

This is why we’re filled with anticipation and excitement about the Hive session our strategy dean Maura McCarthy, co-founder and chief of market development of Blu Homes, will lead on Thursday morning in Los Angeles at the Intercontinental Hotel.

In her remarks, she will focus on the dilemma Dougherty’s NYT article raises, and she will propose, with a real-world strategy her company will introduce to the marketplace, that builders and developers are challenged to expand the market of people who can access housing they can afford.

Be there and you will hear it at Hive first.