"I think the next generation of marketplaces are going to be full stack where you don't just do marketing, you actually help the renter and landlord through the entire transaction on one platform." – Anthemos Georgiades (21:33)
"Why can't I book a 12-month lease online? Why do I have to go in person?"
Fast forward a few years to the birth of Zumper, which aims to make renting an apartment as easy as booking a hotel.
Mitch sits down with Anthemos to discuss its acquisition of PadMapper, the similarities and differences between the US and Canadian rental market, as well as the impact of COVID-19 on rent rates, and Zumper's cutting edge solution "Instarent".
What we talked about:
- Zumper's business model and its future
- The impact of COVID-19 on the rental market
- The importance of new technologies in the rental industry
Highlights from this episode:
How Zumper is Becoming a Dominant Force in North America
(1:49) Between Canada and the US we have 15 million visitors a month, so it's a big piece of the future.
(3:32) I want to retain that urgency in our company, where we know we have to work fast, smart, harder than the big public competitors in the space like Zillow because we're smaller than them and we have to be more nimble to catch them.
(4:32) I think we saw an amazing opportunity, we saw very similar consumer behaviour to the US so we knew that our platform would work in Canada and that the same filters were popular, the same method of searching, and I think the US has fierce competition for decades now between Costar, and Zillow, and RentPath, and no one was looking at Canada, but the Canadian market is enormous, and you have 5 or 6 major cities that are bigger than most American cities we operate in, and no one taking advantage of it. And we're familiar that you have Kijiji there, it's been there for a long time, and when we acquired Padmapper the main rationale was at the time they were the same size as Zumper in the US so we wanted to double. Since then Zumper's grown much faster but there's a side benefit of acquiring Padmapper was understanding the Canadian market, and so Padmapper spent years understanding how to build for Canada and crucially had built up great inventory. And as any two-sided marketplace knows, it's really hard to solve chicken and egg; do you get listing's first or do you get the eyeballs first? And Pamapper kind of solved that, where i think many people listening to this would kind of know this, they were very popular in Toronto and very popular in Vancouver and we could have cheated our way into Canada with the inventory, and now what's crazy is, now on SEO and online branded searches, we're really big in Canada, and we're really excited that we kind of got there very quickly, both through Pampapper, but now actually by piping the listings onto Zumper, I think Zumper actually has more traffic than Padmapper in Canada now, which is wild, given how big Padmapper was there 3 years ago.
3 Factors Influencing the Current Rental Market
(10:08) There are 3 factors pushing prices down, 2 are demand, 1 is supply. On the demand side, it's unemployment and a recession, and then it's work from home and shelter-in-place, where people don't need to live in cities anymore, so there's reduced demand. So, demand is being reduced for those two reasons.
There's one supply factor that is forcing prices down, which is more supply, and there is a huge movement of short-term, you know weekend-to-weekend or month-to-month rentals, that have come back into the long-term housing stock, meaning like 12 months leases plus. On Zumper there is a testament to this, we've had 20% more listings in the last 3 months, than last year, which is extraordinary given we already have most of the listings in the US and Canada already.
So there has been a huge movement from short-term leases into long-term 12-month leases, since the vacation you know, travel market has been depressed, and as landlords need more stable income to cover their mortgage, so extra supply has been the third factor that has driven the prices down in major metros.
Long-Term Effects of COVID-19 on Business & the Rental Market
(7:56) When you think about COVID, as you would expect, there's been somewhat of a flight from cities to secondary markets, or what people would have called secondary markets before, where it's cheaper, but also you have more space, you have an extra bedroom you can now turn into an office. So, naturally given shelter-in-place, but also given a recession where an unprecedented amount of people in Canada and America lost their jobs, there has been a flight to more affordable places to live. In San Francisco that has absolutely happened, but there's been this compounded effect in all of North America, I think the Bay Area has had the biggest work from home experiment, and biggest talk about permanent remote work. Facebook told 40,000 employees they may never have to come back to work, Google this week told people they're not going to be back till at least June 2021, so rents, in general, are down in big cities. In Mountainview near Facebook and Google, they've been down 16% year on year, for like a one-bedroom apartment, so you see this compounded effect in tech hubs which have typically pioneered the experiment of remote work and doing everything over Zoom and Slack, so there's no signs that that's going to end. There's definitely an equilibrium point where rents in New York and San Francisco are not going to half, there is a point which they will get low enough that people will move in. So this sensationalist argument that these cities are going to empty is not true, however, they are going to be reset and COVID is going to be the occasion for that.
(12:13) COVID in America might be a real thing even beyond the vaccine till next summer, so I think we're in this till the medium term at least. I think the plateau of prices will happen before then, I don't think prices will continue to fall as long as COVID because I think you'll hit an equilibrium where people will still move in. right now, the deceleration is continuing so we're in the midst of it so we're not about to call rents plateauing or coming back, actually, the pressure is still downwards, and we're about to announce some data next week, where New York rents are down kind of sizeably year-over-year, and also not showing signs of abating. We're in the midst of it. It won't last forever. But we're in this for a while.
(15:17) The experiment that we've been running as a society is showing many people that the old way of working that we inherited isn't potentially the most efficient.
(15: 39) I think actually the best companies will keep a culture that does meet up because I think that's how you build your bonds but I don't know if that requires you to be in the office 5 days a week anymore.
The Influence of Technology on the Rental Industry
(21:13) I think COVID will make people much more comfortable doing online tours before you go visit, committing to tours and booking them in. Committing to deposits through the app like you're used to using Venmo.
(21:33) I think the next generation of the marketplaces are going to be full-stack where you don't just do marketing, you actually help the renter and landlord through the entire transaction on one platform.
(23:01) Zumper's typical user in Canada and the US is a 28-year-old woman, who's professional, she's moving every year. I think things that allow her to live her life with one touch point rather than multiple touch-points are helpful. so whether you can keep her in property management software or can work with a platform like Rentsync or Zumper, to help her move in, and do all these things in one place, she doesn't want 6 different logins, part of her move in experience, which is so emotional, is she just wants to feel safe, and she's in one kind of flow. We're seeing the management companies in the US who do that are seeing significantly higher close rates on leases. I think that's where software companies can really help landlords and managers succeed in becoming more transactional. She just doesn't want to use 4 search platforms, 2 property management systems, a different company to pay her rent, it's too much in today's world. She just wants as much of a one and done software system as possible, which helps management companies attract and then retain their tenants.