The Housing Market Crisis and What to Do About it
The Problem
The property market is in trouble and the general consensus points to supply and demand as the culprit. Demand is infinitely increasing, with more foreign investors interested alongside a rising population, but the current supply is not enough to sate the public; causing asking prices to rise and rise. Hoping to address the issue, the Government has set a target of building one million new homes by 2020. However, the housing problem is more complicated and cannot be simply explained by supply and demand. Rather, it is an issue of a lack of liquidity and the difficulty behind the buying and selling process; which is costly, time-consuming, and stressful.
The real estate market is the world’s largest asset class, worth £207 trillion. The United Kingdom is the world’s 4th largest property market by value. However, due to the inefficient buying and selling process, which is liable to mistakes and errors, money is lost every day. The average sale took 102 days in 2018 — seven days longer than in 2017 — with 44 % of transactions falling through within the first four weeks of an offer being accepted. Furthermore, of the 120,000 service requests on titles processed each day by Her Majesty’s Land Registry, 53 % have mistakes, arising from human error and a lack of standardisation. Finally, in a report published in April 2018, the UK Ministry of Housing, Communities and Local Government found that the current UK home buying and selling process was unfit for its purpose.
Go Digital
To shift from the current slow, unreliable, and confusing real estate process to a faster, transparent, and more cost-effective one, blockchain should be utilised. A blockchain is a growing list of records which contain a cryptographic hash of the previous block, a timestamp, and transaction data; hence being impervious to modification of its data and being entirely secure. Information exists across a decentralised network of computers, preventing the risk of data loss. This technology would allow for titles to be verified and sold in a transparent and efficient process. Consequently, sales could be completed in a matter of days rather than months, with the buyer and seller not required to be located in the same country.
Sesamee by Fetch Blockchain Ltd, ran by CEO Carmen Benitez, is an organisation which aims to provide a much-needed shock to the real estate market by liquifying assets. First, it aims to perfect the title, then its functionality — allowing for a consumer-driven process. Digitalising property titles allow buyers to globally connect to perfected titles; enabling them to buy and sell online through secure exchanges. Furthermore, the technology can be utilised to collect and organise property records, removing the potential hazard of land title fraud. By using these blocks to record every real estate transaction, the legal owner of the property can be easily identified. Furthermore, a blockchain registry would make it easier to locate nuisance properties, such as abandoned housing, and prevent corruption.
“We want the mechanics of a title and all the functions of a title to exist within a title rather than through the separate parts that currently define the real estate process… We could make the process more liquid so we wouldn’t necessarily need to keep building more and more housing — we could just transact more efficiently and faster.” — Carmen Benitez, 30 September 2018
Another way of involving Blockchain could be through ‘smart contracts,’ which are contracts which self-execute once certain conditions are met, increasing efficiency. For example, the title to a property can be instantly transferred to the buyer once the funds have been received by the vendor’s account. In addition, communication to relevant parties to complete the transaction, such as one’s legal team, can be streamlined by using a secure, online database. Furthermore, if all transactions can be completed online, it allows for the potential of disintermediation. Near real-time updates due to the nature of blockchain will make the sale process easier. For instance, verifying the signatures of involved individuals is time-consuming and inefficient. In contrast, blockchain can almost instantaneously verify the identity of an individual based on their digital signature — helping to prevent mortgage fraud. By requiring an email confirmation alongside face identification or fingerprint identification — which can be easily done on one’s own laptop — fraudsters whom previously took out loans against the houses of others can no longer do so, they simply don’t have the necessary requirements!
Challenges
If bad data is inputted on the block, it can be accepted and added to the blockchain; as long as the correct protocols are followed. Hence, reliability may be an issue. Furthermore, new legislation focused on the electronic title transfers will need to be passed before this technology can be used safely. This will require time and could delay the blockchain registry by several years. Finally, implementation costs will be high and there exists the need to educate the public on blockchain to ensure smooth adoption.
Nonetheless, despite these obstacles, the numerous benefits that blockchain has to offer outweigh the challenges. It is easy to see how blockchain will become the future of recording land transactions and will address the issue of the property market crisis. By streamlining the buying and selling processes, and making them more cost-efficient, deals will be less likely to fall through. This will increase supply and allow for more transactions to occur over a shorter period of time and — eventually — beneficially affecting the whole housing market.
Success Stories
Ukraine is one country that adopted blockchain technology in hopes to revive its real estate market — which has fallen by 70% since 2008. By utilising a transparent and fraud-free technology, and passing a new law to allow foreign ownership of real estate, it hopes to attract foreign investors. In contrast, Sweden adopted blockchain to speed up transactions and reduce paperwork — a move that could save the Swedish taxpayer over €100 million (£87.3 million)! Currently, similar British technologies only exist in fintech sandboxes, though they will soon appear on the market.
