Purplebricks – failure of a one-trick pony
Purplebricks was a victim of the post SVB financial landscape, akin to the Dotcom bust of the 2000’s where we live in a world where the cash has been turned off, where new investment and continued investment into Technology and Proptech ventures has evaporated. Where VC rounds have diminished in number and value, banks failed and liquidity became problematic.
The hidden reason for Purplebricks failure is set out in its announcement of May 17th, 2023, its, ‘Proposed sale of business and assets to transfer of substantially all of its trading business and assets to Strike … (other than certain excluded assets) through its subsidiary Strike Bidco Limited (the “Purchaser”) for a consideration of £1’.
The most interesting details in the announcement are the words,
‘The Board did not consider the other potential offers provided either sufficient certainty or would be deliverable in the timeframe needed to resolve the Group’s short term funding issues arising from the agreement with its pay later financing provider being close to expiry and the Company’s cash balance declining’.
You see at the beating heart of the Purplebricks estate agency model, was a brilliantly simple cash cow mechanism that kept the whole business afloat. Purplebricks were not selling homes, its one party trick was to instantly monetise property inventory at the very point it became a listed instruction.
In its early days it set up a financial agreement with a merchant bank so that every instruction that came to the market, they would pay Purplebricks for that contract instantly, but clearly this revolving door of cash, vendor signs agreement, cash flows into the coffers of Purplebricks was about to end. Meaning the golden goose was no longer going to provide cash up front.
With dwindling cash reserves at the Purplebricks, due to c-suite mismanagement, laying off the very staff who listed housing stock, a slowing housing market, and a class legal action pending with multi-million fines a possibility, it was only a matter of time before an asset sale took place.
Interestingly Charles Dunstone, one of Strike’s high net backers is bullish about the future. But given Strike has burnt over £74M of cash, showing no profit, and Purplebricks trades each month with a burn rate of over £2M, and has had inward investment and cash through the business of over £400M, and has to stop operations, it is hard to see the ‘turnaround’ strategy here.
In my mind 10% of all vendors looking to list are fee conscious, when Purplebricks started their fee was so low it had a unique selling proposition, cheap fees and a 50% chance of getting you sold. Online agents collectively have never achieved market penetration above this level, so it is not for the present a mainstream method of going to the market.
In fact in a more difficult market, vendors tend to want certainty of sale, with the fee being a small consideration, maybe why the heady days of Purplebricks bringing in £90M of revenue off 85,000 instructions, has diminished to almost half of that.
As an ex-estate agent of 30 years, and in my day job having met over 800 Proptech and Fintech founders and had over 100 as clients, the online model of agency has fascinated me. So too has the spectacular lack of funding that has ever been put into the development of the technology.
Purplebricks was like a new car selling franchise, or a sofa selling SME, in reverse. Where these companies were not really selling cars or sofas, but setting up higher purchase agreements that they monetised, Purplebricks was getting cash from the listings, with a questionable ride for the vendor once they had signed on the dotted line.
If the new ‘Purplebricks’ – I assume they will adopt the trading name, want to get it right they need to first recapture 80,000 vendors, the 10% of movers who use an agent annually but like low fees.
That means implementation of a huge amount of technology, and if they build it that will take 30-months minimum, and a big multi-million cost, but that is what is needed for a full digital transformation of the whole process.
Amazon is a multi-trillion-dollar business, it sells things quickly, it has a 99% ranking in SEO and so is everywhere, its back-office functionality is beyond most other companies hence its dominance.
The real answer is to get some bright minds to re-plumb how agency is done and what tools would be used to transact property, if no legacy system existed, bearing in mind the present level of tech, and the channels people use to do business.
Having met so many Proptech founders, I can assure you that they do not look at an existing system and say let’s replicate that digitally. No they say, I have a huge cupboard full of tech, utilising what I have in that cupboard how can I solve this problem, in a way that nurtures the end user, creating UX. Often they cut out whole sectors and bypass old ways of doing things, duplicated processes, gatekeepers, building in oversight and efficiencies.
Their thinking is you need a strategy to be number one, to get there quickly, add enormous value to customers, offer new business-value propositions, drive significant efficiencies and profit across your company. And digital transformation has changed the rules.
And by digital, I mean the super-fast, and frictionless way new insurgent agile companies who operate more efficiently, connect, people, products, services, devices, service chains and physical objects together. Rewriting the normal business strategies of achieving success.
That is why a banking App like Revolut is now valued with a large market cap than the Natwest Banking Group, one is a real bank the other is ‘useful software’ that is scaling the world doing bank like things but in a way, clients want, fast cheaply and cleverly.
The big push at present in the shared economy is we want Fast, Frictionless, Service – provide it and you have a Unicorn, fail to deliver and you live in a fairy-tale world where other types of Unicorns reside. Which in the present high inflation, high cost of borrowing and funding is not a place many want to live.
3Di asks what is an Inclusionary Housing Policy?
Proving that housing is a global problem with common themes, Ravi Desai CEO of 3Di Insights discusses what an inclusionary Housing policy should look like. His day job is overseeing operations of a large SME in America, which has been digitally transforming and modernising how property assets are run, providing over 300-solutions for the benefit of over 20-million people, so he knows what good looks like.
‘An inclusionary housing policy is a local policy requiring developers to allocate a certain percentage of new residential units for affordable housing, ensuring that lower-income families have access to quality homes in diverse communities.
These policies typically mandate that 10-30% of new units are made available to lower-income residents. In Los Angeles, for instance, “housing developments on certain parcels identified in the Housing Element Sites Inventory or Rezoning Program must provide a 20% affordable housing set-aside for lower-income households.”
To offset the cost of providing affordable units, many programs offer developers incentives such as tax abatements, parking reductions, or the right to build at higher densities. Inclusionary housing policies can vary from one jurisdiction to another, depending on state laws and local conditions.
Key Features of Effective Inclusionary Housing Policies:
Designing an inclusionary housing policy is a complex endeavor, but an effective program has some common characteristics:
- Clear and Measurable Objectives: Establish well-defined goals for your policy, such as a target percentage of affordable units or a specific number of new units for lower-income residents.
- Flexibility: Cities often have to juggle multiple goals, such as economic development, environmental protection, and affordable housing provisions. You can offer developers a mix of options that suit your jurisdiction’s needs, such as providing affordable units on-site, paying in-lieu fees, or developing off-site units, to ensure that the policy adapts to local circumstances and market conditions.
- Incentives for Developers: Provide incentives that offset the cost of including affordable housing, making the policy more appealing and financially viable for developers. These incentives need to be sufficient enough to entice developers, while low enough to avoid excessively draining public resources.
- Monitoring and Enforcement: Implement mechanisms to monitor compliance and enforce the policy, ensuring that the intended benefits are realized and maintained over time. Beyond stats like affordable units created, you need to monitor externalities like increased traffic from reduced parking requirements, or increased gentrification that displaces existing residents in low-income neighborhoods.
- Collaboration and Stakeholder Engagement: Foster partnerships with community organizations, developers, and other stakeholders to promote shared ownership and success of the policy.
Building More Effective Inclusionary Housing Policies with Software
Finding the right affordable housing software can make it faster and easier to build and implement an inclusionary housing policy. Essential features like these will make it easier for local governments and housing agencies to develop, manage, and monitor inclusionary housing programs:
A comprehensive and up-to-date inventory of rental units in a community can help build and implement an inclusionary housing policy by allowing planners and policymakers to track the availability of affordable units.
A rental registry enables you to monitor the impact of inclusionary housing policies on the local rental market, identify areas of need, and ensure that a sufficient number of affordable units are being created as part of new developments.
Self-service payment processing capabilities provide a convenient way to accept, process, and track the flow of payments, such as fees, fines, and taxes.
For instance, if developers opt to contribute financially to affordable housing funds instead of including affordable units on-site, an integrated payment system facilitates the collection of in-lieu fees from them.
This helps ensure a steady stream of funding for affordable housing initiatives and makes it easier for local governments to allocate resources towards implementing inclusionary housing policies.
A streamlined case management solution can help local governments process and track various aspects of inclusionary housing policies, such as managing affordable unit allocations, monitoring compliance with affordability requirements, and handling requests for exemptions or modifications.
Robust case management solutions can improve the efficiency and effectiveness of policy implementation, ensuring that affordable units are being created and maintained as intended.
A robust document management system can support the implementation of inclusionary housing policies by maintaining a comprehensive repository of all relevant documentation, such as developer agreements, income eligibility certifications, and monitoring reports.
This not only helps ensure compliance with the policy but also enables planners and policymakers to evaluate the success of the policy over time and make any necessary adjustments based on data-driven insights.
Real-time access to data and analytics can make a huge impact on the implementation of inclusionary housing policies. By providing housing program administrators with the ability to analyze key metrics, such as the number of affordable units created, income levels of residents, and overall impact on the local housing market, they can make more informed decisions and adjust policies as needed to better serve their communities.
Additionally, reporting and analytics tools can help identify trends and patterns, enabling more proactive responses to potential challenges and ensuring the long-term success of inclusionary housing initiatives.
Inclusionary Housing: Building vs Preservation
While building affordable housing plays a critical role in addressing the housing crisis, it’s more cost-effective to preserve existing affordable housing. New construction costs are typically more per unit than purchasing and rehabilitating existing buildings.
On top of creating a strong inclusionary housing policy, agencies should focus on preserving the current stock of affordable homes. This way, we not only ensure long-term affordability for residents, but also maximize the impact of limited resources, creating a comprehensive approach to housing affordability.
Housing preservation can get complicated as well though, and new technology proves incredibly useful for making it easier. Solutions like a preservation database provide better data visibility and insights to help make these programs more efficient and effective.
Proptech and Property News in association with Estate Agent Networking.
Andrew Stanton is the founder and CEO of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder and editor of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.