Saturday, June 14, 2014

"How Smart Houses And Big Data Will Change Real Estate Economics" (just wait 'til your house gets a virus)

From Modeled Behavior (now at Forbes):
One of the features of big data is the accumulation of massive amounts of information that are not suited to traditional econometric and statistical techniques. I predict that this phenomenon will someday change the way real estate economics are done.

Models of house prices are used in a lot of ways. This is how a lot of cities and counties do “mass appriasals”. It’s how house price indexes separate price changes from quality changes. When companies like Zillow generate Zestimates of what a house is worth, these are the models underlying them. It’s how the Bureau of Labor statistics adjusts housing rents for quality changes and depreciation when computing the CPI.

The general form of these models is to take the log of price as the dependent variable, and housing and neighborhood characteristics as the independent variable. But the list of independent variables that is usually available gives you a relatively limited description. While the exact list varies form data source to data source, typically it might look like: building square footage, lot square footage, number of stories, number of bedrooms, number of bathrooms, central air (yes/no), number of fireplaces, garage size, finished basement (yes/no), and of course address.  Using this last variable you can get a lot more information about the neighborhood from other data sources.

This is the basics of what a lot of house price models are dealing with. It might not sound like a lot of information, but in many circumstances you can explain a huge amount of the variation in house prices using relatively limited information like this. In fact using just neighborhood indicators and square footage you can usually explain a significant amount of the variation. However, even 80% of the variation explained still leaves a lot unexplained. And intuitively these kinds of variables still leave a lot of information out. This is where I think things will be changing in the future due to what people are calling “smart homes”.

There are a variety of “smart home” products on the market now, but these things are going to get more and more sophisticated soon. The cuurent generation of Roombas just sort of bounce around the room, but other robot vacuums scan the room first and make a plan. The Nest smart thermostat that Google recently acquired recently pays attention to where you are in your house and when and remembers this. It’s easy to imagine where this leads in the future: Robot vacuums will know the dimension of every room in the house, the kind of flooring in each, and maybe even the quality and age of the flooring; smart TVs will know which room is the living room; Nest knows which room is the kitchen, which are the bedrooms, and how energy efficient the home is. What’s more Nest will be able to measure the extent to which the house is fully utilized and therefore how convenient the layout is; in other words, a Walkscore for your home.

And this is just the information that smart homes will bring. There is a whole other set of high dimension data coming on neighborhoods....MORE
Meanwhile Wired takes a more prosaic view:

The Nightmare on Connected Home Street
Illustration: Getty
I wake up at four to some old-timey dubstep spewing from my pillows. The lights are flashing. My alarm clock is blasting Skrillex or Deadmau5 or something, I don’t know. I never listened to dubstep, and in fact the entire genre is on my banned list. You see, my house has a virus again.
Technically it’s malware. But there’s no patch yet, and pretty much everyone’s got it. Homes up and down the block are lit up, even at this early hour. Thankfully this one is fairly benign. It sets off the alarm with music I blacklisted decades ago on Pandora. It takes a picture of me as I get out of the shower every morning and uploads it to Facebook. No big deal. 
I don’t sleep well anyway, and already had my Dropcam Total Home Immersion account hacked, so I’m basically embarrassment-proof. And anyway, who doesn’t have nudes online? Now, Wat3ryWorm, that was nasty. That was the one with the 0-day that set off everyone’s sprinkler systems on Christmas morning back in ’22. It did billions of dollars in damage.
Going back to sleep would be impossible at this point, so I drag myself into the kitchen to make coffee. I know this sounds weird, but I actually brew coffee with a real kettle. The automatic coffee machine is offline. I had to pull its plug because it was DDOSing a gaming server in Singapore. Basically, my home is a botnet. The whole situation makes me regret the operating system I installed years ago, but there’s not much I can do. I’m pretty much stuck with it.

When I moved into my house in the 20s, I went with an Android-compatible system because there were more accessories and they were better designed. But then I changed jobs and now my home doesn’t work with my company-issued phone. Which is a bummer because I have to keep this giant 7-inch tablet around to control everything and Google doesn’t support the hardware anymore so I can’t update it and now the door just randomly unlocks. Ugh, I’m going to have to start using keys again.

I’d just reinstall the OS, but that would be too expensive. Besides, all my Nexus Home® stuff uses proprietary chargers, and I can’t deal with having Amazon drones come in and rip out the drywall again. 
Everyone thought the connected home would be Apple or Google’s game. Turns out, that was short-sighted. An Internet-connected thermostat? LOL. Of course it was entirely about who would gain control of your SmartWall. It was the thing that controlled the screens and the lights and alarm clocks and burglar alarm and outdoor atmospheric monitoring system and interior climate control and mirrors and irrigation system and solar collector and water filtration and grocery inventory management database and kitchen appliances and communications center and automobile docking system and exercise equipment and biofeedback monitoring and medicine dispensary and stereo that mattered. But in fairness, who could have foreseen the Microsoft-Samsung deal or its consequences?...MORE