Albert Saiz uses big data to understand real estate dynamics. As a professor in the Department of Urban Studies and Planning and director of MIT’s Center for Real Estate, his work is at the confluence of urban policy and city-making and the factors that drive real estate markets. An urban economist and director of the MIT Urban Economics Lab, Saiz studies the industrial composition of cities with an eye toward understanding what makes cities successful. He also creates and studies incredibly-detailed information about housing markets and how urban growth impacts real estate markets.
Immigration explains half of city growth
Saiz’s focus is primarily on housing markets, with a particular view on understanding the demographic influences impacting their growth. “Immigration explains 50 percent of the differences in growth between metropolitan areas in the United States,” he says. “If you want to understand real estate markets or housing markets, construction values, etc., you have to understand immigration and immigration trends.”
He also studies several other key drivers of city growth and demand for housing and real estate assets. These include areas of low taxation, high levels of an educated population, and more lifestyle-oriented influences. “As recently as 20 years ago, we tended to believe that people followed jobs,” Saiz explains. “It is still the case that productive areas are becoming more attractive for housing demand, but it is also true that jobs are following people. And people are moving more for lifestyle and amenities.” Today, Saiz’s students are more likely to indicate they want to work in a particular city than for a particular company. That means firms that want to attract young professionals have to locate in these more highly desirable areas.
Saiz studies how all of these influences interact and influence housing supply. How does the local production of real estate assets, specifically housing, react to demand shocks? To answer that key question, Saiz has identified two main factors: land values (including the complexity of the zoning and development approval process) and construction costs. After performing a survey of all metro areas in the United States, Saiz and colleagues were able to identify very specific areas that were more amenable to development and those that are not. Where development could be accomplished easily, i.e. in areas with accessible, buildable land and less restrictive zoning/approval requirements, the result was more housing and real estate construction without an upward push on housing values. In attractive areas with relatively inelastic housing supply, such as Boston, New York, and San Francisco, housing demand pushes housing prices and construction costs upward.
Center for Real Estate
Since 1983, the Center for Real Estate (CRE) has partnered with companies and organizations in all areas of the global real estate industry. “The CRE is in the business of applying intelligence to real estate products,” Saiz explains. “Our research goes anywhere from land use policy, land taxation, understanding housing markets and urban growth, to finance, mortgages, securitization in the real estate sector, and global investments in real estate and global finance.” Today, the CRE includes nearly two dozen industry partners and friends. “Our industry partners are quite sophisticated, entrepreneurial firms that want to be engaged at a highly intelligent level in understanding real estate markets,” says Saiz. “They are committed to using IT and data to forecast and make intelligent, well-founded decisions where they can gain some competitive advantage by using these methods.”
Big data for big decisions
The big data revolution is already changing parts of the real estate industry, including the mortgage industry and the marketing of homes and real estate. But Saiz believes things are still a bit “in process” when it comes to fully using big data approaches to better understand investment, volatility and taking a portfolio strategy. As recently as 20 years ago, real estate profits were to be made without having so much information. “We’ve reached a point of maturity in both capital markets and real estate markets where small advantages can make a real difference for successful players to be more successful,” Saiz explains. That is where MIT and CRE play a key role. “We bring the data driven approach, the analytical approach that we marry with our engineering and entrepreneurial spirit and apply to tangential problems our industry partners are interested in.”
One of Saiz’s particular strengths is the measurement of market features that are typically difficult to quantify. “I have come up with indexes to measure local regulations, zoning regulations, land availability, the quality of land, access to transport, etc. so that at this point we have huge data sets for most census blocks in the United States,” he says. He and his team are very skilled at using big data to forecast variables critical for real estate developers, investors, portfolio investors, and investors in mortgage markets.
“At the CRE, we typically deal with enlightened entrepreneurs who understand we are in a very competitive world now,” says Saiz. Most partners look to the CRE because they are producing lots of data and want to understand it better — or they want help producing it. Other partners engage on more strategic levels to understand the big trends in markets and to strategize for ways to minimize the risks they are facing.
Some CRE partners lean more heavily on the educational aspect of the relationship. They take executive developmental classes, partner in research projects with the Center’s Master of Science in Real Estate Development students, or join the CRE network to gain access to more than 900 global CRE alumni. “Of course, our partnerships are a symmetrical two-way street and we really benefit from the partners,” adds Saiz. “It is in the DNA at MIT that we engage the industry and the world. Our duty as professors is to take knowledge from the world and bring it back. In that way, our partners give us the knowledge and we in turn give it back to them and the broader world.”