Our Firm
Resi Wrap - If you give a mouse a cookie
April 2021

Friends of ResiShares -

You may have to be a certain kind of nerd to appreciated it, but this is just delightful.

For those who don’t like to start their weekends with academic research papers (It was my understanding that there would be no math), I’ll summarize the author’s take as follows: the language of economics, because it must always represent a concept that can be shown as algebra, contains only nouns. To more closely approximate reality, it should also contain verbs.

Practically, what this means is that the author believes economists should explain themselves less with algebraic formulae like AE = A + mpc (Y) and more with if/then algorithms that describe the path-dependent decisions faced by economic actors.

By way of example for those of you with young children, if you give a mouse a cookie, he’s going to want a glass of milk to go with it. Which leads us to this story about timberland owners selling carbon offsets.

Everyone in the housing and construction space is acutely aware of the nationwide lumber price spike, and its contribution to the current housing shortage. The supremely enlightened subset of those folks that constitutes Resi Wrap’s readership know that this is caused by a shortage of milling capacity, rather than trees. The idea, then, of timberland owners selling offsets when their end market is capacity-constrained, funding another year of the trees’ growth while mills clear out their backlog, seems like a really fantastic outcome for everyone involved. Any model that assumes fixed (or no) market barriers to the uptake of this innovation would quickly land at a highly beneficial equilibrium.

But can you see the potential for trouble on the path to equilibrium? These markets are new, local, and shallow. What would happen, for instance, if the global demand from polluting multinationals for carbon offset were to swamp the supply of participating timber owners in a particular local area (like the US) for some period of time while the housing market was still in shortage? Can you imagine the backlash from builders and housing advocates in Florida when they realize the cost of housing went up 10% due to carbon regulations in Europe?

Also, here’s Bloomberg’s Matt Levine with a far funnier and more thoughtful reaction to the same story.

Rest of Resi

Smartrent going public in a $2.2 BN SPAC from Fifth Wall - At nearly $12k of enterprise value per door, there are clearly some high growth expectations for this group. This makes sense, given the obvious value of digitization for the rental business and the relatively low penetration of integrated solutions. As for which vendor wins the race to the future and what margins look like when it arrives, however, is the question.

Summer’s going to be epic (for Vacasa) - There are a lot of crosscurrents affecting the short term rental business this summer, but it’s hard to disagree that the property management business benefits from numerous tailwinds with Zoomtowners becoming landlords.

Go west, young SFR buyer - Many of us, including ResiShares, have been salivating over the high-growth markets of the Rockies for some time now, but with low cap rates and little in-place scale, a would-be mogul needs to bring significant scale along for the ride. We’re watching closely.

“Arbitrary outcomes” for wealth in housing amidst shortage - I’m going to take the other side of Lawrence Yun’s comment on this one, as a person who spent several months conducting research and building Excel models before I bought my first home in San Francisco in 2010, followed by 3 years of sleepless nights wondering if it was the right trade. That said, his comment speaks to an idea core to ResiShares, which is that many consumers think of a home purchase the same way they think about buying a car that may appreciate, rather than buying a stock that you can inhabit. We beg to differ.

Have a great weekend,

Michael Greene

Co-Founder and CEO

ResiShares |