I had the pleasure the other week of lecturing to second year Property students at the University of Auckland Business School. The subject of the lecture was the structure, processes and practices of residential real estate. In putting together the slides for the lecture, I was wanted to provide some facts around the 'typical' real estate agent and therefore went over to the Real Estate Authority website to check out the latest stats on licenses held by those in this industry.
This single slide provided the students with a visual insight into the industry some might be interested in joining, or so I thought. I took the opportunity to ask the assembled c.100 students how many were considering a future career in residential real estate?
Not a single hand rose.
The fact is most of these students see their future career in commercial real estate or property management or valuations, so I took the opportunity to open up a discussion as to the students' views of residential real estate.
However before sharing the thoughts and feedback let's dwell a moment on the facts as presented in this chart.
The age demographic of the NZ residential real estate industry has hardly changed over the past couple of decades. It is regarded by many as a 'second career' with that median age hovering in the late 50's. (No surprise here that my recent entry into this industry as a practicing agent puts me squarely in that age bracket!)
Across the more than 15,000 individual licensees the gender balance is slightly more skewed to men, having said that within the age bracket with the most agents, being 40 years to 60 years; women are in the majority, representing 52% of all agents. However in my opinion, the most glaring statistic relates to the two age extremes. The fact is that less than 1 in 10 of all licenses held by agents (both men and women) are under the age of 30. Whilst the proportion of men over 65 years in the industry is 1 in 6. These are the facts, and whilst I have no historical data to hand, I recall from earlier readings that even 10 years ago these demographics were pretty similar.
It is interesting to compare these numbers with the latest data from the US and their National Association of Realtors whose 2018 Member Profile Report shows that 63% of agents in the US are women, the median age is a similar 54 years but over there, the age bracket of under 30 years represent just 5%, whilst over 65 years represent 20%!
Across the ditch whilst I could not find any published statistics, I know from first hand experience that it is a far younger industry, with I would imagine probably around a quarter of all agents under 30. The industry in Australia certainly has a more youthful feel.
Now back to the question and the subsequent discussion - why is it that young people are so under represented in the make up of the real estate industry in NZ? Here are 4 possible explanations as voiced and discussed by the students.
The first explanation voiced by the students was money. As I had outlined the NZ real estate industry is a commission-only industry and it is hard reality that a new agent entering this industry will need to support themselves for up to 6 months with no income and in addition would likely require to fund total costs of many thousands of dollars to get established. Students already saddled with debt are highly unlikely to be able to survive such a start to a career.
Secondly, trust came up as a point of relevance. How could a twenty-something be able to build trust when perception is that wise older individuals with the relevant life skills engender greater trust around a process that is fraught with emotion and risk? It is a fair comment, especially when you also consider that twenty-somethings have not bought and sold a property. However I could well counter that with the fact that in any line of business such new entrants to the workforce are often handling contracts and responsibility for multi-million dollar value goods and services, the difference being that they are operating within a structure that supports them and backs them within the 'organisation'. In real estate the fact is that you are the organisation.
The industry is a reflection of the current incumbents and this is self perpetuating and a hard cycle to break, there is no denying that. However there are well over a thousand agents under 30 years who are making a success in this industry. They are overcoming these hurdles and breaking the perception.
The NZ industry as I have outlined in the past articles is very concentrated with 6 leading companies holding more than half the share of offices around the country. This strength in the major brands and franchise structure that the majority operate, could be seen to perpetuate the same business model that attracts the same demographic profile of agents and does not foster innovation.
So that's 4 perspectives as to why the industry demographic is the way it is and the way it has in someways always been. So what could change, what could be the seeds of change that could be sown to foster a greater diversity amongst the league of agents in the next 10 years?
Here then are a few of my own ideas to stimulate some debate as to solutions.
Tackling the issue of income has been broached by some companies in the industry through cadetship - offering a base level of salary for an initial contract period rather than commission-only earnings. This base income sustains the cadet and still offers an adjusted commission which would give the young and aspiring agent a vital leg up. I know of some of these schemes from Harcourts, Barfoot & Thompson and I know first hand of such a series of schemes at Bayleys.
I recall very well the discussions back in 2007 when the revision to the Real Estate Agents Act was being debated and the issue came up as to the status of 'independent contractor' which was challenged, but finally upheld for this industry. As I recall at the time it was limited to real estate agents, share milkers and courier drivers. Maybe in time, just as in Australia a minimum salary becomes mandatory and provided to all agents in real estate.
Would a change to employed agents change things?
In someways it would, as it would seriously challenge the business owners in their recruitment and performance management of all agents as to costs of supporting a non-performer would be very real. It would though at the same time not fundamentally change the open commission opportunity and with it the core appeal of the industry to the majority of top performing agents.
I am not actually sure this is an issue that needs addressing. It is a perception that is so easily overcome when dealing face to face with a smart professional who can deliver a great service and age is no barrier to that.
I think there are a number of things that can be done to change the perception of the industry from a career opportunity perspective. There is an organisation that specifically focuses (as the name suggests) on young real estate professionals: Young Professionals in Real Estate (YPIRE) - it's an Australasian organisation but has held a number of events in NZ, however none lately and none planned. It has the backing of the Real Estate Institute of NZ and Realestate.co.nz but judging by its Facebook page and website it has all the signs of a distinct lack of attention.
Engaging young people I think has a lot to do these days with creating an entrepreneurial spirit, young people are inspired by peers who are leveraging technology to transform industries and processes. I have been impressed over the past few years by a US initiative driven by Realogy (the leading US real estate franchise conglomerate) - FWD is an annual innovation summit where budding startups pitch their technology solution within the real estate industry and stand the chance to win the top prize of $25,000 and with it the kudos of being profiled in front of the most influential people in the US real estate industry.
Why not adopt this approach in NZ. There are a number of smart tech innovators looking to offer solutions to the real estate industry here in NZ who have ambition to capture a global market. How hard would it be for one of the leading real estate companies or even REINZ to put such an event together and in so doing reframe the perception of the industry, one that is open to new ideas and willing to support innovation.
What am I doing?
Something I am doing personally is to participate in the Business School 'buddy' system - acting as a mentor and allowing a couple of students to tag along with me as I do my day-to-day work over the next few weeks giving them what I hope is an insight into the industry, and in so doing foster some greater appreciation of the way this industry works and highlight the opportunities open to smart graduates.