Practical analysis for investment professionals
26 August 2016

Weekend Reads: The “Sharing Economy,” Peak Divorce Season, and a Brexit Update

Posted In: Weekend Reads

It’s been a relatively quiet week for the financial markets, so I thought I’d kick off my inaugural Weekend Reads by looking at a trend that I find alternately intriguing and obnoxious: the so-called “sharing economy.”

I’m a perennial skeptic and a late adopter of just about every innovation, whether it’s smartphones and laptops, or social media and automatic transmission. While this frame of mind means I’m often wrong about what trends will become fixed and which will come to nothing, I’m still convinced that there is wisdom to be gained from being a doubter. At the very least, most of the kinks are worked out before I’m ready to buy in to the new thing.

But one innovation I don’t plan on buying into is this sharing economy. First off, the nomenclature, with its air of moral uprightness and the accompanying talk of “socioeconomic ecosystems,” annoys me and rings more of marketing copy than accurate description  I mean, what is anybody really “sharing,” anyway? Whatever it is, renting out a spare room for $150 a night is not sharing.

And a large part of my skepticism is a product of living amid the hyper-frenetic New York City real estate market. Whether it’s rent stabilization and rent controls or the willingness of well-heeled folks from all over the world — Chinese and Russian nationals to Axl Rose — to park money in coops, condos, and rentals, lived in or not, there are already enough distortions in the market.

An app that turns an apartment into a cash cow can only distort that market further and drive up already sky-high rents and property values in the long run. After all, if you pay $2,500 a month in rent but can make $4,000 a month by turning your apartment into a hostel, well you may as well just sign more leases, quit your day job, and make your living as an Airbnb-er, assuming it’s legal, of course.

And how long will it be before landlords and developers start pricing these factors into rents and real estate prices?

And are rising real estate prices a good thing? No doubt if you’re a real estate investor, but whatever the location, $500,000 for a studio apartment, which is not unheard of in New York City, doesn’t seem like a good use of capital, whether the value increases or not. A particular eye-opener for me was Adair Turner’s analysis on the role of debt in the ongoing financial crisis and how real estate plays into that.

But housing is just one part of the sharing equation. If all anyone needs to become a livery driver is a car and an Uber or Lyft connection, well everybody with a serviceable automobile, a few hours of spare time, and a little bit of hustle might transform themselves into self-employed part-time cab drivers, especially if they can time the surge pricing. Increased traffic aside, I’m not sure this is a good thing. And I’ve had enough conversations with yellow cab drivers about the decline in taxi medallion values to know that the creative destruction wrought by Uber and Lyft has a considerable human toll.

So count me as a skeptic of the sharing economy. With that in mind, here are some readings that confirm my bias against it as well as some other pieces that caught my eye in recent weeks.

Sharing Skepticism

The Future of the City

While we’re on the subject of cities, economic opportunity has tended to grow narrower in recent decades, confining itself to a large degree in certain major metropolitan areas. In the United States, it’s New York City, Boston, Washington, DC — the so-called Acela Corridor — Miami, Los Angeles, the Bay Area, etc. There is some logic to this. For starters, the pace of change in the economy today and the diverse skill sets required to make a business succeed necessitate a large and varied talent pool. Of course, this has brought an unending influx of newcomers to these cities, raised the cost of living, increased traffic, and strained mass transit. So what’s in store for cities in the years ahead?

The Brexit Butcher’s Bill Two Months On

Geopolitics Elsewhere (It Isn’t All Bad News)

With the turmoil in Turkey, Syria, etc., one can be forgiven for thinking that the world is in some precipitous downward spiral. But there are some stories that suggest it isn’t all as awful as it may seem.

And Finally, Some Plain Old Interesting Reads

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)
Paul McCaffrey

Paul McCaffrey is the editor of Enterprising Investor at CFA Institute. Previously he served as an editor at the H.W. Wilson Company. His writing has appeared in Financial Planning and On Wall Street, among other publications. He is a graduate of Vassar College and the Craig Newmark Graduate School of Journalism at CUNY.

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