The Invisible Hand of Hip
(and How it Impacts Real Estate)
There’s an old motivational saying in real estate where one says, “If you build it, they will come.” I’m not sure how much this applies to our struggling American cities, from Buffalo to Fresno, that have only been further distressed by the mantra that development itself will save their towns.
The list of examples are endless, from Detroit’s People Mover, a costly circular rail line that runs at a mere 2.5% percent of its capacity, to Syracuse’s Destiny USA, an expensive mall project that has yet to fulfill its destiny of eliminating long-term vacancies, a trend all too common in this region. Even the New York Times Magazine recently wondered how this “build-first” strategy will work today for places like the University of Cincinnati (“If You Build It, They Will Come … Won’t They?”), where expensive architecture encompasses a $1.1 billion financial gamble to lure the finest students into its campus.
But while the developments themselves serve as easy scapegoats for the failures or successes of some urban neighborhoods over others, in reality these constructions merely serve as a shell for another much more underrated force that defines how certain urban neighborhoods emerge as either successful or miserable engines of growth — a force that I define as the invisible hand of hip. When you strip a new construction from all of its traditionally-valued parts, from land values to building amenities to appraisals to infrastructure density, what makes two modern constructions very different from each other is, at its core, a state of mind — the belief that there’s a growing positive “vibe” in a place that makes Williamsburg, Brooklyn more of a haven for hipsters than Williamsburg, Virginia. While the hip isn’t invisible in the sense that it can’t be seen, it’s invisible because the real estate industry fails to see it as a logical way of valuing plots of land.
The Value of Sights, Smells, and Sounds
Like Adam Smith’s old invisible hand argument in economics, it seems that this invisible hand of hip points the final finger on real estate that makes all the difference in determining a development’s true value to the consumer, beyond the ROI predicted from appraisal tools on a powerful computer.
From the smell of fresh coffee beans to the sound of Macbook keyboards clicking, or the presence of homosexuals (as argued by Richard Florida), items that legally can’t be quantified in the real estate market arguably emerge as a visible qualifying factor for a buyer’s decision to settle on a place. When I published viral maps on a website called Urbane, for instance — an online gallery of maps where neighborhood name labels were replaced by crowdsourced descriptions (ex., from Midtown to “Suits and Ties”) — I was surprised to get an inquiry from a real estate investment trust out in Houston who said that their BOD in Jacksonville found our maps useful as a third-party barometer for their new development opportunities.
Don’t Ask Me Neighborhood Questions, Bro
The real estate industry, however, is inherently structured to blatantly ignore or disregard this invisible hand of hip due to laws that were historically set up to prevent racial discrimination in the housing market. For example, when you ask your real estate agent a potentially useful question that tailors to your personal interests (ex., “Are there gays and children in this neighborhood? I’d like to be in an open-minded, family-friendly community”), they are cautious of answering such inquiries out of a very broad and general fear that they will be accused of steering, a form of housing discrimination prohibited under the Fair Housing Act.
While anti-steering laws were originally structured to prevent racial housing discrimination, it has not only inhibited open dialog between clients and agents about the social context of a neighborhood, it has also failed its original mission of resolving the systematic racial discrimination that continues to impact the American housing market. Real estate power players like Zillow, for instance, are fearful of the way that they present U.S. Census data to consumers due to government concerns they are also encouraging steering, even though most of this demographic information, such as racial composition, is readily available and accessible to the American public. In early 2015, they removed the demographic information they used to present side by side with their listings.
The real estate industry, therefore, is inherently structured to blatantly disregard this invisible hand of hip. Existing infrastructure continues to embody how a property should be properly valued in Detroit, for instance, rather than images of abandoned properties — since press releases would be frowned upon as an effective means of valuing property. Yet, outside the core industry, it is strongly evident that pictures of buildings and a walk around the block strongly impact our perceptions as buyers of how real estate markets are performing in one area over another.
Don’t Blame the Building, Blame the Trend
Why is 432 Park Avenue, that trash-can inspired building redefining Midtown’s skyline, insanely priced at a value totally unrelated to its construction, in ways that most of us simply can’t make sense or afford? There is no way that the land and construction value of these properties alone can justify the price of these units alone — nor average square footage in the surrounding areas, either.
What’s really being priced here is the desire by wealthy individuals to feel like they are living within a rising social trend — a rising trend to live amongst the greatest views of a world-famous city. While this might seem evident to most of us, we continue expressing our disgust toward the building rather than the fact that we’ve increasingly restricted and out-priced our human temptation to live taller and higher.
From this perspective, then, ridiculing the price of a building or its gleaming façade, or even prohibiting its development all-together, is not the answer to preventing the have-nots from pushing out the have-nots, or gentrification issues, for that matter. What really needs to be done is to encourage a more even distribution of the “trendiness” that blesses one side of a neighborhood and disappoints another, most likely through branding campaigns and methods that have been traditionally reserved for digital marketing agencies serving consumer brands, or something as fascinating as protected geographical regions for wine that have been established in Europe.
Market Neighborhoods Like Corporate Brands
For instance, there are plenty of Williamsburg-like hot hoods that exist in other cities, but for better or for worse, the Williamsburg name has caught up as the dominant form and image of these kinds of neighborhoods, and has taken a “winner takes all” position as the hipster capital of the world. On the contrary, certain boroughs like the Bronx continue to struggle with development out of remnant images from the newspaper suggesting that their co-ops are still burning, even though this hasn’t happened for years, if not decades. Neighborhoods work in our mind like household brands we see at a supermarket, yet we have not consciously targeted to improve them like strategists do at a digital marketing agency.
Developers, therefore, can add greater flexibility to how their properties get valued by encouraging analysis and thought around how consumers are discussing their perceptions or thoughts about a sense of place. Most of this work in a geographical sense has been applied to destination marketing firms in the travel sector, but I think this applies just as much to the real estate industry as it does for vacationing.
In the posts that follow, I will continue to explore this fascinating discord between the minds of real estate developers that think about the structure they envision and create, and the minds of the buyers that buy them to immerse themselves in the state of mind they have about a particular place. From Denver to Miami, neighborhoods and developers have their own vision as to what’s being done, but do not beneficially work hand in hand.
Originally published at www.kevinchung.org on September 21, 2015.