Jonathan Miller on the Real Estate Industry (Podcast)

Episode Summary

Executive Summary: This podcast episode features Jonathan Miller, CEO of Miller Samuel, discussing the state of the U.S. housing market post-pandemic. Miller argues that the market is robust yet not a bubble, driven by low mortgage rates, chronic supply shortages, and pandemic-induced shifts like remote work. He refutes the 'death of cities' narrative, claiming urban centers are poised for a youth renaissance. Miller also critiques systemic racism in the real estate industry, particularly in appraisal and brokerage, and discusses the impact of the SALT deduction cap, the rise of iBuyers, and the future of office space.

Main Topics: State of the U.S. Housing Market (Priority: 5/5): Miller characterizes the market as The Future of Cities vs. Suburbs (Priority: 5/5): Miller argues reports of cities' demise are overblown, citing a youth renaissance driven by lower rents and inbound migration. He notes Manhattan's market is stabilizing while suburbs thrive, but the shift is not a permanent exodus. Systemic Racism in Real Estate (Priority: 4/5): Miller highlights racial bias in appraisal and brokerage, including stories where homes appraise for 40% more when presented as white-owned. He criticizes industry leadership for lacking diversity and failing to address systemic issues. Impact of SALT Deduction Cap (Priority: 3/5): The $10,000 cap on state and local tax deductions, implemented in 2018, has significantly impacted high-tax states like New York and California, driving migration to Florida and other low-tax states. Miller sees potential for the cap to be rolled back. iBuyers and Real Estate Technology (Priority: 3/5): Miller discusses the rise of iBuyers like Opendoor and Zillow, noting their appeal during the pandemic but questioning their viability in a down market. He sees their role as limited and niche. Office Space and Remote Work (Priority: 3/5): Miller predicts a hybrid future where office occupancy rises but remains below pre-pandemic levels. He views current conditions as 'peak Zoom' and expects a gradual return to offices, with commercial landlords facing a slow adjustment.

Key Arguments: The housing market is not in a bubble because mortgage underwriting remains tight and leverage is lower than during the 2008 crisis. The pandemic accelerated remote work, but the 'death of cities' narrative is false; cities will see a youth renaissance as rents fall and inbound migration resumes. Systemic racism is embedded in real estate appraisal, where homes owned by minorities are often undervalued compared to identical properties owned by whites. The SALT deduction cap has driven migration from high-tax states to low-tax ones, accelerated by the pandemic's enabling of remote work. iBuyers offer convenience but only work in homogeneous markets and have not been tested in a downturn, making their long-term role uncertain. Office space demand will not return to pre-pandemic levels, but a 'peak Zoom' scenario will give way to a hybrid model, with a slow reset in commercial real estate pricing. Low mortgage rates are not the sole driver of the market; the chronic lack of supply and shifting buyer preferences (e.g., desire for more space) are key factors. The appraisal profession is aging and lacks diversity, with leadership historically resistant to change, but external pressure is forcing gradual reforms.

Data Points: Manhattan rental price decline: 20-25% - Peak decline during lockdown, depending on segment. Luxury condo resale decline (157 57th Street): 40-50% - Decline in resale prices from original sponsor sales, with one sale over 50% below. Uber luxury inventory unsold: >50% - Percentage of units still unsold in recent high-end developments in Manhattan. Cash buyers in Manhattan (under $1M): 40% - Percentage of buyers paying cash for properties under $1 million. Cash buyers in Manhattan (above $5M): 80% - Percentage of buyers paying cash for properties above $5 million. Bidding wars in Manhattan during pandemic: 3.5% of transactions - Compared to 31% in 2015, showing a decline in bidding wars. Zestimate median accuracy: 5% - Median accuracy means 50% of estimates are within 5%, and 50% are outside. Mortgages without appraisal during pandemic: ~70% - Percentage of mortgages issued by GSEs during the pandemic that did not have an appraisal. Contract activity increase in Florida (March year-over-year): 40-150% - Surge in contract activity observed in Southern Florida markets. Appraisal profession size: 75,000 credentialed members - Total number of U.S. appraisers; the profession is aging and mostly white male.

Pivotal Quotes: "Cities are not dead. The driver of this narrative is just dumb... The problem with the way this is thinking is that... the false assumption is that all those people are going to be outside the city forever. And there was just a pivot. And that is not what happened." — Jonathan Miller: Miller refutes the idea that cities like Manhattan are permanently declining, arguing the pandemic caused a temporary shift, and cities will rebound. "Systemic racism is embedded in real estate. In my own appraisal profession, we are an aging professional of middle-aged white males. The leadership sets the tone, and they can't see it." — Jonathan Miller: Miller critiques the lack of diversity and systemic racial bias in the real estate appraisal industry, citing personal experience. "Remote working really works, but the big challenge is mentorship. You can't train people remotely. They're not immersed in the office and overhearing problem-solving." — Jonathan Miller: Miller highlights the limitations of remote work for training and mentorship, a key reason he expects a gradual return to offices.

Implications: Listeners should not expect a housing bubble burst due to tight lending, but should anticipate continued price growth driven by supply shortages. The shift to remote work will reshape commuting patterns and suburban demand, while cities will see a revival fueled by younger demographics. The real estate industry faces pressure to reform systemic racism. Investors should watch for commercial real estate opportunities as landlords eventually capitulate on pricing.