Sure, we’re evolving – everyone and everything evolves, doesn’t it? Sometimes the pace is slow other times it feels faster. In a Darwinian sense, there are winners and losers at each turn as we respond to changes in our environment, but who holds the real levers of change in the property market?
Generally, we all have a sense that the pace of change is on a strong upward curve. We can point to examples where generic technological advances have improved processes, where communication has been made easier and faster, where new data has improved understanding but can we really say (for better or worse) that the industry has broken free of the structural shackles that have shaped it over the last 50 years?
I think the emergence of Rightmove and the portal industry is the one genuine example of how the industry has been transformed in my working life. In all other respects, I see improvements to processes that are still shaped and constrained by fundamental structural barriers.
The chronology of a transaction is unchanged (except for the honourable exception of the insertion of the new portal community). The legal framework is unchanged. We still have chains. We still have caveat emptor. A purchase remains the single biggest financial transaction in most people’s lives. Members of the public remain blissfully ignorant of the process.
There are now estimated to be 7,000 PropTech businesses in the UK, all driven to make their mark but just what prospect is there that they can deliver more than improvements in process efficiencies? How can they consider making an emphatic break?
My contention is that without the explicit support of the industry power brokers – by whom I mean the lending and estate agent community, (remembering Rightmove was launched by the 4 largest estate agency groups) – then the only other driver of real structural change is government legislation, which of course as evidenced by the Home Information Pack, is not without its weaknesses.
In the face of an otherwise highly fragmented industry, these bodies effectively control the market. Crudely, lenders hold the risk reins, estate agents hold the customer reins and government holds the regulatory framework reins. Together they are formidable. They dictate and direct in equal measure their terms for facilitating transactions and all other parties acquiesce.
So, it follows that in order to deliver a step change in process rather than simple process improvement, PropTech businesses need the support of these parties. What will drive this support?
Well, a threat to their hegemony will strike the strongest chord for lenders and agents so businesses that have such an offer might expect to be quickly absorbed – but perhaps not then developed. Competitive advantage will always drive interest, but the key challenge then is to offer this, whilst dovetailing with complex structures and weak tech without cannibalising existing investments.
Established PropTech businesses (like, it must be said, LexisNexis) who have themselves grown and assumed a critical mass of clients, should be a magnet for smaller start-ups with innovative ideas but little market foothold. These businesses are themselves important parts of the overall process and have an innate understanding of the drivers of lenders and estate agents and are hungry for innovation. PropTech firms that recognise this dynamic and can answer the challenge to present innovation to the advantage of established players will be well set for success.
It might also be the third controlling party that firms should look to. Government lacks the commercial vested interest (with the important exceptions of tax revenues and shocks to employment) and ostensibly is a champion of the consumer and fair markets. To me, this feels the more interesting route for innovation. The work of HM Land Registry and Ordnance Survey with Geovation, coupled with the Department for Communities and Local Government (DCLG) and their interest in reservation agreements together with the Competition and Markets Authority’s (CMA) interest in transparency – all add up to a critical mass that shows more promise of delivering impactful change. The challenge this then creates is, to firstly, understand deeply the potential impact of reform (no small task); and secondly, convince an industry once bitten by HIPs to take another chance.
Darwinian theory (sort of) explains how we’ve ended up with a Gordian Knot of an industry – the solution to which feels as elusive as ever.