briefcase | invest smarter | Issue #122

Did you know that you can read real estate? Desire lines tell us how people interact with the built world.

Not everything we build is interacted with the way it was designed.

Desire lines show people's true intentions, and if you can spot and pay attention to desire lines, you can see the future.

Desire always wins. What people want to do, versus how we think they ought to, are two completely different things.

These lines can be seen throughout the history of real estate, and can be explained with the help of a simple yet informative concept — Moore's Law.

Moore's Law: The observation that the number of transistors in a computer circuit doubles about every two years. Rather than a law, it is an empirical relationship linked to gains from experience in production that fuel this doubling of transistors and, therefore, computational power.

In real estate, we don't always necessarily deal with the 🤖 beeps and boops of transistors (yes, we’re super technical)…But, we do deal with square footage.

And no, Moore's Law of real estate doesn't mean our square footage doubles every two years. In fact, square footage has been increasing, but that will change.

Because of technological advances, we will start to see a decrease in square footage.

🙋🏾‍♂️🙋🏻‍♀️ Note: Anyone under 30? You can skip this next part.

Hey Boomers, think back to all those 📚 books and records 🎶 and VHS tapes you used to need space for.

Is anyone feeling nostalgic?

Didn't think so.

Today, we don't need all these physical things, we have Audible, Spotify, and Netflix. Also, who needs physical friends when you have ChatGPT to talk to?

TLDR: We don't need as much space as we did before, thanks to the 🤖 beeps and the boops.

Household sizes have decreased since the 1970s, but we’ve seen square footage slowly creep up. Households getting smaller, homes getting bigger.

That said, apartment sizes have been decreasing over the years.

Despite the trend, some believe this is all about to change.

👋 Oh, hey there COVID...

Over the past few years, consumers tended to want more space after being cooped up for a few years during lockdowns. Does this mean the desire line is changing? Don’t think so.

According to new data from RentCafe, the average size of new apartments is 887 square feet as of 2022. This is a 54-square-foot drop over the past decade. Further, it was the largest YoY decrease, down 30 square feet.

You can see the short-term desire for more space during the pandemic, only to return to the historical average of decreasing square footage.

Part of the drop can be attributed to demand among consumers for moore studios and one-bedroom apartments, reaching a historic market share of 57%.

So What? Less space, more living. Modest density, diversity, and shared ownership is the future of real estate, and Moore's Law will only accelerate this trend through continued technological innovation.

😓 We(Used To)Work: WeWork faces delisting from the New York Stock Exchange — TRD

👀 Mind The Gap: The homeownership gap between today’s young adults and those of 20 years ago is more than 3x higher than the overall homeownership rate — Urban

💰 And…: Study finds homeowner wealth is 40 times higher than renters — NAR

🏠 …But It’s A Wealth Creator: Home values of low-income owners increased 75% since 2012 — HW

📉 Back To Earth: Home prices dropped 3% in March, the largest decline in a decade — Redfin

🏨 Office-Hotel: Rockefeller Center to get a newly converted luxury hotel by Aspen Hospitality — WSJ

💼 Office Space: Brookfield defaults on Class B office portfolio debt — CO

🚪 Closed Door: Opendoor lays off 22% of its workforce in the latest round of cuts — Inman

🏘️ Agent Recoking? Real estate agents face a reckoning as home sales slow — BI