Real Estate Has Finally “Bottomed,” Says Top Investing Expert

14:05Dave:It's too many.

14:06Ben Miller:Yeah. And it doesn't actually cause unemployment to go through the roof? Maybe unemployment goes to 5.5 % or 6%. Is it mostly, it suppresses hiring?

14:18Dave:Well, that's kind of what's going on right now, right? We're not seeing layoffs. We're just seeing no one hiring.

14:23Ben Miller:Yeah. I think that a generation of people who are in their early 20s are going to really get impacted.

14:30Dave:Yeah. I mean, you look at unemployment for 16 to 24 year olds right now, it's already 10%. Like that's really high. And it's hard to imagine that picking up anytime soon. That's what I mean about the societal challenges here. Like there's obviously benefits to it, but there's a lot of stuff that just feels uncertain. Another reason why going back to your previous point about people not wanting to make a lot of investments, It just feels like so uncertain about these things, how these things are going to play out. We've had chat GPT for two or three years now, but it's still so brand new. There's going to be so many different forms of AI that start to come in, not just in large language models that could do totally different things.

15:16Dave:So I buy the idea that this could be deflationary, at least in the short to medium term. And I can't really think in my head of like precedent for that in the economy where it's been a sustained deflationary period. We've had lagging wage growth for 40 years in this country, but this seems more serious than that.

15:38Ben Miller:Yeah. I guess I'd argue the opposite of that. You've probably seen this graph, but corporate profits have been going up for like 25 years. Yeah. And if you look at the number of people it takes to produce something, it's been falling. It used to take eight people per corporate dollar, and now it takes like two, and it's falling to one. So technology has been making the economy more productive, need less workers, and it's been mostly gains to capital, not gains to labor. That's right. So I think this is very consistent with that.

16:10Dave:That's a good point. So there is precedent, yeah.

16:13Ben Miller:Yeah, I think it's more similar, but more extreme.

16:16Dave:It's just more dramatic, yeah. It's basically the acceleration of a pattern we've seen.

16:21Ben Miller:Right. And it's a pattern that is both very productive, very counterproductive. counterproductive politically, but productively from a capital point of view. I'm not as bearish. I think that an optimistic view would be that AI is really designed for the young people. They're much more adaptive. So it could be that at some point, all these young people start getting hired to really be the person in the office who understands how to use AI. I'm following you.

16:53Dave:I mean, obviously no one really knows, but I think this is very plausible. This is a very plausible line of thinking here to continue sort of your thesis here about real estate in general. How do you think this impacts? Like you're saying deflationary that could lead to lower mortgage rates. I totally buy that if it is deflationary. So then like, is this kind of where the thesis about real estate bottoming comes from is like, we're going to get cheaper cost of borrowing and asset prices are going to go back up?

17:23Ben Miller:That's my expectation, my belief that, yeah, that basically the, we end up in a new era. This era is different. We go through these paradigms. You and I have been through, I don't know how many now, three or four. So we're going into a new one. And that new one, it's not like the old one. COVID almost accelerated it or something. We went through, usually they're about a decade, and this one ended up being five years or something instead of being 10. And so the old one was money printing, inflation, high rates. And now we're going to go into something that's like high productivity growth, high returns to capital, lower inflation, but higher real interest rates.

18:02Ben Miller:Because what happens is we have really high GDP growth and high growth that drives the real interest rate up, but it drives inflation rate down. So it's a little bit of a, you get some and you lose some. But generally, that's good for growth in which real estate is a levered investment in growth. And so the leverage part gets cheaper and you get more growth. And so I think you're just going to see a lot of benefits. And then it's going to be more asymmetric. I think that high end does better than low end real estate. So San Francisco, New York, places that are selling to a multimillionaire. The high end is absolutely crazy how much money is going to be created for top 0.1 % of the country.

18:44Ben Miller:So a high end real estate, I think, is where you want to be. I've spent 20 years focusing on workforce real estate, real estate for middle class, because usually middle class real estate is more resilient. This is where I don't have my thinking as refined, but I think that could be impacted by this hollowing out dynamic.

19:04Dave:I haven't thought about it that way. I buy the idea, if you're right, that we'll have a lot of wealth creation at the top. That's certainly a continuation of a trend that's existed in the US for a while now. I guess I've made my own investing thesis more about affordability and trying to find places similar to what you're saying about workforce housing, trying to find places where the average person can afford the average price home. is your move away from that thinking that affordability for the average American could get even worse than it is right now?

19:38Ben Miller:That's the political dynamic that's really quite ugly. Yeah. There's affordability in terms of goods and services, and there's affordability in terms of assets. Sure. Yes. I think assets get more expensive, but goods and services get cheaper. So it's harder to buy a house, but you can afford the healthcare. Maybe it gets cheaper for the first time, not in the short term, but really like healthcare is very impacted by AI. And so that's why I was saying if you're going to buy assets, which is real estate, you want to be in assets that benefit from the wealth effect. And we haven't shifted our real estate strategy yet around this.

20:14Ben Miller:It's still early, early days on this, but like high-end San Francisco, for sure, no question. High-end New York, you probably want to be in the suburbs. I think it's like a challenge for where you want to invest. You really have to think about that. So you want to be near these big economic centers, but not actually probably in them.

20:32Dave:I'm curious. This is kind of another tangent, but how does the average person afford rent in this scenario? Asset prices are going up. People are making less and less money. I see a lot of people talking about universal basic income. Is that kind of the avenue you go down?

20:48Ben Miller:I don't think so. Have you heard this thing? It's a new concept to me. I heard it recently. It's as opposed to redistribution, you have pre-distribution.

20:57Dave:No, I have not heard of that.

20:59Ben Miller:It's actually comes from the right, but it's the argument from Oren Kass from New Compass. The argument is people don't want handouts. They want a job and they want a purpose. And so we'd rather do it as effect. So like unions are pre-distribution, minimum wage pre-distribution, things that like are before you get to the government. So you sort of like, you affect the workplace. So rent control is kind of a pre-distribution thing. Anyways, I think it's going to be really popular. And so I think that like there'll be this new movement around how you address this inequality. You know, rent control is obviously an example of that.

21:39Ben Miller:And it's, I mean, it's pretty crazy in some places where you can't evict people and you can't raise rents and probably a million units in New York will go bankrupt because like they essentially, their costs went up. Their mortgage went up. Their insurance went up. Everything went up, but their rents didn't go up. So all these affordable housing projects in San Francisco and D.C. and New York are going bankrupt. So that's a taking, right? That's a way of redistributing wealth from the owner to the renter. So that's a version that's already happening. So what's the next version of that? I think it's hard.

22:12Ben Miller:I think maybe Europe, you can't fire people. Maybe they start making it so you can't fire. Maybe like unemployment insurance becomes like 10 times more expensive. So you have to like support people. So there's all sorts of possibilities. But I think it's like in a world where you have an extreme effect on AI, I think you see extreme government intervention to the private economy.

22:32Dave:Yeah. I mean, something would have to happen in this scenario. I just don't think you can have a functioning society where people continue to make less and less and unemployment goes up and up and all the money's going to a very small percentage of people. That's just the recipe for civil unrest, if you look at history. Yeah, it's scary. Something would have to happen.

22:52Ben Miller:Yeah. And what you'd hope is that somebody has a good idea. Yes, I would definitely hope that. Right. Well, mostly I'm giving you bad ideas.

23:01Dave:Yeah, I mean, but this is not your job. You're not a policymaker. So I understand. I'm just curious if you had any, if you had seen any good ideas.

23:11Ben Miller:Have I seen any good ideas? I have to think about that. But anyways, you understand what where I'm coming from. I do understand what you mean, yes. But I mean, the point is, when people say AI is a bubble, what I hear is deflation. Yeah. Because I say, oh, so you're going to put two, three, four trillion dollars into AI? It's either deflationary or very deflationary. So the two versions of it is they put trillions of dollars into building artificial people. It's software that can do the work of 20 % to 50 % of people's work. That's like my base case. Or worse, it is a bubble, it blows up, and then we have super deflation because you have built trillions of dollars of AI data centers that are pumping out all these tokens that are replacing people's tasks, and the AI economy blew up and deflated.

24:01Ben Miller:So I'm like, oh, it's just a question of how deflationary it is.

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27:34Dave:Welcome back to the show. Let's jump back in with Fundrise CEO Ben Miller. All right. Well, you've given me a lot to think about. A lot. Before we get out of here, though, just curious. You've given us a couple of hints that you think about investing near these big economic hubs, being careful about where around those hubs you choose to invest. What about different asset classes? Do you think residential versus multifamily or commercial will perform differently in the coming years? Well, I definitely don't touch office.

28:05Ben Miller:Yes. Me neither, thankfully. Yeah. I mean, it's obvious because I'm talking about eliminating jobs, which eliminates office and office was already bad. No, I mean, I'm a big believer in industrial and in multifamily. I think you're high on for sale housing and then also rental housing in places that are not going to be over-regulated. And then we don't do high-end, super high-end residential, maybe super even high-end retail, where it sort of caters to that upper class. It's not something I think I want to do, but I think that it has a class around like Greenwich and Sosolito and places that are extreme wealth would just get even crazier.

28:45Ben Miller:And then, I mean, I'd be remiss not to talk about our AI product that we've been building.

28:49Dave:Yeah, let's do it. Because I mean, we talked a lot about AI. So tell me how you and Fundrise are using AI in your own investing.

28:58Ben Miller:Yeah. So we, for the last couple of years, have been building a real estate AI product called Real AI. It's not realai.com. It's still kind of in beta, but you can go in there and it's pretty amazing.

29:12Dave:I've got to use it. It's really cool.

29:14Ben Miller:It's amazing to me because I'm like, oh my, it makes me understand the potential of AI in a different way.

29:21Dave:Yeah. Yeah. It makes me glad that I'm a podcaster now and no longer a data analyst. Yeah.

29:27Ben Miller:I mean, it turns ordinary people into advanced data scientists.

29:32Dave:Yeah, it does. It's crazy.

29:33Ben Miller:We built real estate, one called Real Estate AI, and that's basically to help you do analysis. We're building more things so you can like, if you take like, oh, I have an OM from a broker, maybe I have a T12, I have some information, I upload a deal and I start using it to like interrogate the deal. Like, do you think these rents are realistic? What if tariffs get removed? And what if you can do like all this thinking, all this analysis with these tools and then have it produce like drafts for you that you can then edit? It both saves you a lot of time, but it makes you so much smarter. I mean, so much smarter.

30:08Ben Miller:It really does.

30:08Dave:Yeah. I find myself doing the same amount of thinking that I used to. Like, I don't feel like I'm necessarily spending less time working, but it's like, I just get better information to consider so much faster. And ideas are like introduced that I would have taken me a longer time to come to, or just like, you know, I'm an analyst. So like sometimes AI will suggest a data set I didn't even know existed. And that means that I can now start thinking about something else, or there's just framing it somewhere away. I wouldn't think of it. I still find myself working, of course, but it just seems it's just a much more robust and like rich set of information that I can work with.

30:51Dave:At least that's how I'm using it right now.

30:53Ben Miller:That's a funny way to think about it. I was on a podcast three years ago and I was on again this week and they said, three years ago, you recommended a bunch of podcasts. What do you recommend now? And I was like, I think I spend all my time now in AI where I used to spend it like on listening to podcasts. Yeah, listening to podcasts, right. Yeah. Because I just spend so much time essentially like it's a form of content. Yeah. Where I'm like, what about this? What about that? And I'm thinking about things and It's producing things for me. And so I want to ask you, because you've played around with real AI.

31:22Ben Miller:Yeah. What do you have to say about it?

31:24Dave:I love it. I'm being sincere that someone like me who analyzes housing markets, don't go into that career right now. Aggregating real estate data is a huge pain in the butt. We don't need to get into why, but it's really disparate. There's MLSs. There's private sources. There's public sources. There are county and national. It's a lot of stuff. And what Ben and his team has done and allowed us to access all this information about a city, dig into comps, dig into migration patterns, dig into ARVs, like all of it in one place. It's incredible. It just this is like a true time saver. Like I felt like I could do this analysis before, but I was probably one of few people who could do it confidently.

32:12Dave:but now not only can anyone do it, but you could do it in a fraction of the time. It even took me to do it. And so I think it's going to be an interesting thing, but I can even feel myself feeling a little overwhelmed by it almost, where if you're not an analyst, digesting just, you know, tons of data might be a little bit intimidating, but for people like me who are analytical, it's a playground, you know, it's super, super fun. And I'm sure what you and everyone else is working on is just like, how do you make this different levels? Like, how do you create a level for a beginner investor to understand things and then a little bit more sophisticated and more sophisticated and have like different levels of communication?

32:55Dave:But the fact that it's all there is just fascinating. I am guessing because I get messages from our audience all the time, people saying like, where do I get data about the housing market? And they're not even talking about anything like what you're doing. But it's frustrating for regular investors even to go to Redfin, then to go to the BLS, then to go to the Fred website and just even get four or five data points, even if you're not trying to aggregate them. It's frustrating to do just that. And so I think the merging of all this information into one digestible place is going to make the job of an investor, I think, just more fun.

33:31Dave:You get to do more of the enjoyable part and less of the admin kind of back-end stuff that someone like me does, at least. I think it's going to become more fun.

33:43Ben Miller:My friend, I have a friend who's a very inappropriate person, but he says, like, you know, I wake up in the morning, I should have an omelet. There's the insight. He's got to go to the store. He's got to get these eggs. He's got to get the butter. He's got to cook it. And finally, at the end, you get to eat it, right? But how much of the time was like not the insight, not the eating?

34:00Dave:Oh, my God. I'll spend an hour cooking and four minutes eating. I just inhale food. It's embarrassing.

34:06Ben Miller:That's how I think a lot of work is. I don't think AI is going to get rid of the four minutes. I think that we're nowhere close to AI replacing people. There's so much of your work is just not valuable. It's just grindy, administrative, sucky work. That's the stuff AI is so good at.

34:26Dave:All right, let's end there because to me that is an optimistic, I love that idea. That's a great positive view of how AI might impact all of us on our work. Well, Ben, thank you so much for joining us. It's always a pleasure.

34:39Ben Miller:Yeah, thanks for having me.

34:40Dave:And thank you all so much for listening to this episode of the BiggerPockets podcast. We'll see you all next time.

34:44Ben Miller:Okay, Nicola, quizfrage.

34:46Dave:Homeoffice-Bastad or Fahrtkosten? Was bringt uns mehr?

34:49Ben Miller:Moment, I check that just. Oha, Homeoffice wins. Bringt uns 150 Euro more im Jahr. Ja, richtig. Aber why do you know so?

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