Dave Merin

April 2021

Property development has historically been pursued supply first

For the past few centuries, the standard model of property development has been for a promoter to get control of a plot of land and then work to make it more attractive to others, thereby increasing its value and allowing the promoter to profit. The work of the promoter once they get control of the land usually takes the form of some combination of improving the land with physical / social infrastructure and, crucially, marketing the land to the world.

If a promoter is unable to effectively market the land to potential inhabitants, you end up with a high risk of a white elephant project. If you build it, they will not necessarily come. The risk of this sort of epic squandering of resources on vanity projects no one particularly wants is particularly high in a MMT world.

The great irony of the old real estate aphorism of location, location, location is that it's not necessarily about the land itself.

While the natural beauty of certain spectacular plots of land, like Santa Barbara or Cape Town, can be enough to create incredibly valuable pieces of dirt irrespective of their inhabitants. It's really the mimetic desire of people to be in the same place that drives the truly epic land values (see, e.g., Tokyo).

You can often witness this play out in a single lifetime via gentrification in legacy cities. First the artists and other culturally rich, but monetarily poor, people move into an undesirable and cheap area that's geographically proximate to a mimetic center of gravity, then they gradually make the area more desirable by opening up their own businesses, like vegan latte cafes or local craft shops, thereby attracting the next level of slightly monetarily wealthier and culturally poorer individuals, which will almost definitionally be a larger cohort of individuals. This gradually drives out the “less desirable” initial inhabitants of the area and repeats in a "virtuous" cycle that eventually results in $6M condos in a place that once had some of the cheapest rents in the city.

The maturation of the social and economic internet has made it dramatically easier to pursue demand first property development

Despite the speed at which gentrification can sometimes seem to occur and the speed at which talented leadership can increase the desirability of already desirable places, developing a truly new and durable mimetic center of gravity in the physical world has historically taken generations to play out.