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Amazon and Housing:
Not a Question of If, But When

Friday, February 2, 2018

By John McManus, Builder Pulse Editor

This morning's quiz: Which is the bigger deal in its meaning, significance, and ramifications for residential development and construction?

Amazon's HQ2 final decision? or yesterday's jaw-dropper announcement that Amazon is teaming up with Berkshire Hathaway and JP Morgan to develop a technology-fueled juggernaut whose mission is to rein in health care costs (for their employees)?

As far afield of everyday homebuilding strategies, operations and business focus as the Seattle-based online retail behemoth’s drive into the throes of America's health-care-cost challenge may seem, we see an inevitable moment approaching at an accelerated pace.

It is not a question of if.

Only one of when and how.

Amazon, not as a marketer of goods and services to residential construction and development firms, but as one of those residential construction and development organizations.

A competitor.

People ask, “Will Amazon buy a home builder?”

Maybe.

What is a good home building enterprise other than a company strategically and culturally wired to generate value on real estate sites, disproportionate to the value similar properties throw off?

This morning, investors, insurers, and operators in every part of the U.S. healthcare ecosystem wake up to a reality that status quo business and economic models providing health services to Americans is over. The Amazon, Berkshire Hathaway, and JP Morgan co-venture’s goal is nothing less than to disrupt a broken healthcare system. Wall Street Journal staffers Anna Wilde Mathews, Emily Glazer, and Laura Stevens write:

The companies said the venture would be “free from profit-making incentives and constraints” and would develop technological solutions to provide simplified, high-quality health care for their hundreds of thousands of U.S. workers, but they offered few other details.

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy,” Berkshire chairman and chief executive Warren Buffett said in a statement. The companies, he said, believe “putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes.”

Now, think of another dimension of American economic life whose costs are “ballooning,” and whose chasm between those who participate actively and those who are priced-out grows wider and deeper by the day.

Will Amazon buy into the home construction business? The procurement and distribution and manufacturing-facility infrastructure business, as Menlo Park, California-based Katerra – which last week announced it had secured $865 million in new venture capital funding led by Softbank's VIsion Fund – has done? The real estate business? Financial services?

Maybe all of it.

The HQ2 process, on the surface of it, is a very public speed-dating-service-like pageant, winnowing 238 prospective municipal mates down now to 20, who are now competing not just for who and what they are, but what they are willing and able to do and become.

In its search for a new headquarters, Amazon is rewriting rules for how cities and their environs make policy on basic building blocks like housing, transit, accessibility, environment, investment, education, reflecting a far more active and engaged stake in who the winning place wants to be when it grows up to be an Amazon base. It will be interesting to watch what happens to NIMBY-ist instincts and effectiveness in blocking needed development in light of the economic adrenaline cities and most of their citizens believe would trigger upon selection.

Too, the sally into health care begins to express the “something” in “something’s got to give.” Everyone knows health care in America is a broken system. Amazon and its two partners are betting they can model and scale a fix for their combined million or so employees and associates, and possibly, in the process, create a template that could iterate and scale up even further – this worries incumbent, established giants of the health care industry, whose positions and future rely on their role in shaping what health care systems can and can’t do.

Amazon and its partners plan to upend that status quo because they believe that’s the only way to exert agency with respect to an issue that is unraveling out of control to the detriment of American society.

Interesting thought about the venture’s trio of masterminds – Jeff Bezos, Warren Buffett and Jamie Dimon: It would be unlikely to imagine them not at least chatting about another of their shared interests, investments, and strategies – housing and community development.

Will Amazon buy a home builder? Maybe. What Amazon – which despite myths that it has never turned a profit, has done so for six straight quarters after almost two decades of running in the red – represents in any business community is dynamism, the capacity to take on tried and true rules and make new ones.

So, the idea that Amazon might buy a home builder, or Home Depot, or a large, already-established infrastructure of manufactured housing might be plausible, or it might not be a big enough idea for Amazon.

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