How micro-apartment-building-economies can reshape the capital entry barriers in real-estate
I think the cost of land will not be a barrier in the real estate industry.
This is why:
- Dense building - as urbanization increase drives more dense construction that allows for more people to inhabit the same land area.
- Improved transportation is causing a slow expansion of suburbs - making the size of cities bigger and mitigating the cost of scarce land
but the real, perhaps counter-intuitive, reason is this:
- It is starting to be possible to amortize the cost of land over the lifetime use of it: Even if the nominal value of land is high if you have access to capital you may be able to pay back loans with accumulating value created over the lifetime of the property. Now, I know that the question "if you have access to capital" is the crux - but here's my point - anyone can get access to capital if they have strong stable sources of income (value creation and capture). This is how you get a mortgage. Today the source of value that backs the mortgage is your salary. What if the sources of value backing the mortgages were the micro-economies that will evolve building communities? What if people living in aprtment buildings, start collaborating with each other - trading goods and services and creating mutual value? What if we could add to that the data, information, and insight they would generate? My point is that if you have a strong source of value you have something to trade and with improved collaboration platforms and improved p2p transactions and crowdfunding etc., I see no reason why landowners would not accept these as collateral for the value of their land. It is not dissimilar to feudal times - only not abusive. You give me land and I will use it to create value of which some I will give back to you. I will give you back a fair amount and I may very well end up owning the place (or not - depending on what I want, you want and what rates we set). The basic principle I am suggesting here is well known in finance - CAPEX is not a barrier at all if you have a return on the asset that is higher than the cost of capital. I think this is what we are helping realize.