I wonder why so few here question the basic assumption of injecting from above, machine-learning models to extract profit, into a vital part of the reproductive cycle of human families.
Zillow lost money because they weren't willing to lose money
251–260 of 386 posts
Re: Zillow lost money because they weren't willing to lose money
#252Earlier quoted context omitted.
So Texas funds education at the state level via property taxes? That sounds surprisingly progressive of them. Washington state does something similar, though it’s more of a subsidy. Education is still mainly funded locally, but the state kicks in with its own funding for poorer districts, so Seattle property taxes subsidize schools across the state in Spokane.
> So Texas funds education at the state level via property taxes? That sounds surprisingly progressive of them. It sounds like that funding decision predates the current crop of state leadership
Everyone forgets it used to be a Democratic state when Republicans were the reviled coastal elites.
Re: Zillow lost money because they weren't willing to lose money
#253Earlier quoted context omitted.
> I think the housing market is so fucked no one really grasps the scale of the problem. I don't think I agree with this assessment. I live in a very rural area two hours northwest of Austin, literally in the middle of nowhere. I've studied the local economy and understand how things work here. I think the characteristics you've identified in the rural housing supply are not unusual and also not as serious in a pract…
I've noticed similar situations to this in my own area. In your opinion, what do you think the most effective way to help these families out might be?
> In your opinion, what do you think the most effective way to help these families out might be?
This is a question that I'm well-positioned to answer. I moved to this rural area in 2018 after living in Austin for 24 years. I immediately looked for ways to volunteer and help.
I developed relationships with elected and community leaders, started my own "technology incubator" to teach technology skills and classes. I explored establishing a regional technology council with my county judge and Texas state leadership. The community liked that I was volunteering but the actual uptake, expending effort to learn and implement what I was teaching, wasn't there. They didn't know what to do with it. The gap between their world and the world we know at HN was too wide to be bridged effectively.
My experience is applicable to every problem here where someone thinks they may be able to help in some way. Whether it's teaching job skills, helping those who are addicted to meth or whatever, I believe people can't be helped if they don't want to expend the effort to get from A to B themselves.
There are many reasons for this, why offering to help in an economically-depressed or disadvantaged community doesn't yield results. Locals are apathetic, comfortable living in the middle of nowhere with very low expectations, or else they have poor self-esteem and don't believe they can do better.
I don't "push" anymore. I just try to be empathetic and understand their situations. This past Thanksgiving I asked the community to tell me if anyone was unable to get a turkey for Thanksgiving and would like one. Two families responded; I was glad to help. It's little things like that which I can do to help their situation which I feel is the best approach now.
Edited to add: There is an organization here called "Mission San Saba" where a group of ~30 volunteers will pick one house per year to renovate, typically for an older or economically-disadvantaged family. That has been very successful here.
Re: Zillow lost money because they weren't willing to lose money
#254Earlier quoted context omitted.
But they lost money last quarter while the market was still rising. Seems there was some problem with their prediction process.
Rumor is that they had to put their thumb on the scales (i.e. tweak the model) to get enough sellers to sell to them. In other words, if paying what their model actually thought was the right price, not many people sold to them. Instead of saying "our division's whole business model won't work, you should fire us", they tried to cut the margin too close, resulting in losses which got the CEO's attention to the proble…
Do you have a reference for this? Is part of the rumor that not everyone in the organization knew this was happening?
Re: Zillow lost money because they weren't willing to lose money
#255> They thought they needed to build a machine learning model when they really needed to build an entirely new organization, one that possessed the technical and cultural mindset necessary to succeed in this space. I totally agree. It's not impossible to imagine their model working: why couldn't you serve as a market-maker for homes at a large scale, especially with the unique insights Zillow could have based on their…
> a market-maker for homes at a large scale…a house-flipping company These are different things. Archetypal market making involves simultaneously buying and selling an asset. Flipping involves buying, improving and later selling. One might be able to deal with the heterogeneity of houses by operating at scale. (Zillow attempted this.) One might also deal with the delay between buying and selling by hedging. (Zillow n…
I never got WeWork because it looked like they onboarded all of a 10-year lease's duration risk and then hoped to make up the difference somehow?
Re: Zillow lost money because they weren't willing to lose money
#256Earlier quoted context omitted.
I don’t think it’s just that they had a poor model, but the combination of that and adverse selection. If you pledge to purchase at the Zestimate then people who reasonably think they can get more than the Zestimate on the open market don’t have an incentive to sell their house to Zillow (besides convenience). But people who think the Zestimate is an over estimate will of course sell to Zillow. So instead of a normal…
>adverse selection According to Matt Levine's recent column, while you might think that, it wasn't what sunk them in practice. Bidding low in fact worked; it just was inherently limited in scale, which is why they switched to bidding higher. Unfortunately, being wrong in the other direction is very bad. "I know, I know, the traders are saying: “No, this is stupid, your algorithms will not be 100% precise, some of you…
If you bid low, almost no one will take the opposite side of the deal, so your overall deal flow is low and total profit is low (even if margins are high).
If you ‘open up’ the flood gates on the other end, then yes you’ll do a lot of deal flow - Buyers sense a sucker - and open up a lot of opportunities for matches. It just so happens you’re also losing your shirt.
It’s easy to ‘make money’ (close deals) by giving money to people, and losing money in the actual business.
Re: Zillow lost money because they weren't willing to lose money
#257Framing it as machine learning undersells the problem.
It's a hybrid model trading in an adversarial, real-dollar environment. The leverage comes from having a small human team trade big volume, much more than they could possibly trade directly, by augmenting their human abilities with automation and a model. Or seen from the other side, it's a model with human oversight.
Any system like that is high risk, high reward. All the successful ones started out by losing a lot of money. Paypal lost an incredible amount to fraud before they started breaking even. OpenDoor lost an incredible amount to mispricing, and took on a ton of balance sheet risk, before their business really started working.
"To live, you must be willing to die"
- poker legend Amir Vahedi
Re: Zillow lost money because they weren't willing to lose money
#258Earlier quoted context omitted.
> The reason they attempted this one is because they thought they already had good enough models to avoid taking large losses. Risk aversion and launching a new business strategy do not work well together.
Wait. There is a lot of messaging telling entrepreneurs to try to de-risk their new ventures. The common pattern I observe is having a new ideas and de-risking it into a successful business.
> The common pattern I observe is having a new ideas and de-risking it into a successful business.
That is a common pattern, but when you see a company launch a new venture and the primary goal is to not lose money, often, the desire not to lose money leads to decisions that prevent actually making money.
Re: Zillow lost money because they weren't willing to lose money
#259Good riddance. If large-scale house flipping took off, we might actually end up in a scenario where housing was treated as a speculative asset, with empty houses getting flipped between investors looking to make a quick buck, further lowering the supply of actual places to live (because housing units remain empty while being flipped), driving up the cost for families who just want a place to live. Oh wait...
My wife did some work for the Census last year. Our extremely rural neighborhood has lots of unused housing, some for a decade+. That work got her out to see some of the places not visible from the roads, and increased our awareness of the scale of the problem. At a guess, in our county, 20%+ of the housing is idle, owned by out-of-state companies, some of whom pay property taxes and some dont. The county isn't aucti…
That's been true for rural areas since the green revolution in the 1950s changed agriculture and manufacturing went overseas. Even if there is still a mine in the hills outside of town, there are fewer jobs at that mine than there were when the town was built out 100 years ago.
Jobs generate demand for homes. Homes cost a lot in areas where there's been more jobs added than homes. In the last decade, the bay area has added seven jobs per every unit of housing constructed.
Re: Zillow lost money because they weren't willing to lose money
#260Earlier quoted context omitted.
Vacant housing is a problem, but across the US less than 2% of single family homes are vacant
Vacant housing is only a problem in constrained areas. The vast majority of the U.S. is not constrained. Your summer cabin in Montana isn't depriving anyone of a home, because it isn't driving up prices. Your unoccupied condo in Manhattan is depriving someone of a home, but I suspect that there are not so many of these.
When they did the vacancy tax in Vancouver it only affected a couple hundred properties out of like two hundred thousand in the market.