Our Firm
Resi Wrap - Availability Heuristic
July 2021

Friends of ResiShares -

Happy Independence Day (to those who celebrate. Happy 4th round of Wimbledon to our friends across the pond).

The most salient housing news of the past two weeks, unfortunately, centers around the ongoing tragedy in Surf City, FL. Those of us on the side of this business focused on spreadsheets and databases can easily overlook the importance of the side focused on hammers and nails. Each one of those data entries represents a large and complex physical structure, built to rigorous and heavily regulated specifications and responsible for sheltering human beings.

Because the system works so well, the risk that a large multi-family tower could catastrophically fail is normally outside of our consideration set. So inconceivable was this tragedy that warning signs were allegedly ignored.

Yesterday, I was talking to a developer friend, who said that the permitting department in his jurisdiction (across the country from Miami, with entirely different geological risks and building codes) has been thrown into complete disarray. When a building collapse goes from “something that cannot happen” to “something that did happen,” it forces every decision maker to reconsider their prior assumptions about risk.

Both this newfound concern for building soundness and the lack thereof before this tragedy are examples of the availability heuristic. First described by psychologists and destroyers of economic orthodoxy Kahneman and Tversky, the key finding was that human beings assume easily recalled events occur more frequently than they actually do. This creates a systematic bias towards memories that are salient and/or recent.

For an example of salience, humans routinely overestimate the risk of death by lightning strike or shark attack. Such sensational and powerful natural forces evoke in us a deep emotional response, leaving an indelible mark in our brains. Recency bias presents an even easier example - just ask anyone who passes a police cruiser on the freeway and then slows down for the next 10 miles.

The lack of recent examples caused people to underestimate the risk of a large building collapsing, assuming the risk was zero. Now that it has recently occurred, the sheer terror and grief that the incident provokes makes us overestimate the risk of a reoccurrence.

It makes sense, that we collectively adjust our prior probability of a building collapse from “precisely zero percent” to “almost zero percent,” and take future defect reports seriously. It is probably slight overreaction, however, to assume that the condominium is an inherently broken (and socialist, apparently) form of organization, doomed to an inevitable failure that will take the entire economy of Florida with it.

Rest of Resi

  • Your recurring reminder that the non-specialist media knows very little about the single family rental industry. And worse than what they don’t know, is what they know that just ain’t so. (I know it’s a lot to ask, but they could have learned that BX never owned AMH with a single Google search).

  • I know they say it’s tough to be a landlord in California, but it’s awfully nice of the government to make landlords whole out of the state treasury.

  • There are over 700,000 independent construction companies in the US, or approximately 1 for every 450 people. Let’s check back after 5 years of the current Millennial housing boom and see if that number doesn’t get cut in half by the influx of technology and capital into the space.

  • The changing face of the American comprador de casa.

  • I’m sure the realtor’s ability to sell this house has everything to do with a TikTok ad and nothing at all to do with the strongest seller’s market in history.

Have a great weekend,

Michael Greene

Co-Founder and CEO

ResiShares |