Can Technology Solve the Housing Crisis?

Published in

Rebel One — RBL1

9 min readAug 5, 2020

I have always questioned if startups and technology are positioned to solve public problems. My optimistic disposition makes me inherently inclined to answer with an enthusiastic yes. With the eviction relief component of the CARES Act expiring, however, I decided to explore solutions within the housing landscape, focusing on this central question: can technology solve the U.S. housing crisis?, and in turn, uncovering solutions that democratize access to accessible and sustainable housing.

Problems

In one year 1.4 million Americans utilize homeless shelters or transitional housing, a number that is swelling in the wake of COVID-19, as unemployment increases and prisons release people to ease crowding.¹ Compounding this is the trend of rising rents and stagnated incomes, resulting in nearly half of renters spending huge proportions of their income (more than 35%) on housing costs. This dichotomy is underscored by the job-housing gap — an increase in jobs has swelled urban populations, but housing availability has not kept pace.² Cities are not built to keep pace with this job growth, which gives landlords outsized power over rent prices, resulting in a shortage of 7 million affordable rentals.³⁴

It is widely acknowledged that owning a home leads to a stronger financial future with more certainty, but 50% of millennials are delaying home buying due to financial concerns.⁵⁶ High rental costs make it harder to save for a down payment, creating a flywheel that leads to decreased home-ownership and obstacles to establishing intergenerational wealth.

High costs of construction intensify these problems as rising raw material costs (lumber, gypsum, steel, aluminum etc.) lead to subsidized units costing ~$500,000 each.⁷ Adding to building costs, is the notion that federal government support for housing assistance is one-third of what it was in the 1970s, and cities incentivized by maximizing revenue build commercial buildings over residential ones. Complex zoning-laws that differ by city, county and/or state along with bureaucratic red-tape, make it exceedingly difficult to assemble necessary housing units, and the 2017 tax bill diminished the value of the low-income tax credit, a formerly key source for new affordable housing construction.⁸

Taken together, these problems of accessibility, affordability and sustainability make it harder for individuals to find housing, retain their place of living, and move up the economic ladder.

Landscape and Market Map

Technology-based solutions alone cannot solve the housing crisis. Only policy-makers can revise regulations to incentivize local authorities, expand housing credits for building affordable units, create workforce housing for middle-income earners, and expand housing vouchers. Only policy-makers can streamline land use approvals, reduce the time it takes to obtain construction permits, and alter zoning laws.⁹ Only policy-makers can roll-back exclusionary zoning for single-home family policies (similar to Minneapolis¹⁰) or set annual rent-control caps, aligned with inflation rates (similar to Oregon¹¹). Only policy-makers can authorize new tools such as inclusionary zoning, linkage fees, and tax increment financing that capture some of the value created through market-driven real estate development and channel it towards subsidized and affordable housing. These policy changes are necessary for widespread and lasting change.

Technology, however, can make it cheaper to generate new units, expand access to capital, improve risk prediction models for payment, and reduce the cost of loan administration.¹² In the past year, venture capitalists have allocated over $400M to early-stage PropTech (property technology) startups, a $100M increase from the year prior.¹³ While these startups improve the broader housing landscape, they do not all democratize access to accessible and sustainable housing. The market map below identifies over 70 organizations (startups, nonprofits and more established companies) that are easing housing accessibility for consumers. The purpose of analyzing this niche area of PropTech is to define current trends, highlight organizations striving to solve the public problem of housing, and illustrate areas of opportunity.

**Market Map:** Solutions to democratize access to accessible and sustainable housing

Financing — This category of the map is, in my opinion, the area where technology has helped the most. Financial Management solutions deepen the savviness of consumers, allowing them to grow their savings (Acorns, NerdWallet), while also implementing mechanisms to streamline rent payment. Flex, for instance, permits tenants to pay rent on their own schedule by splitting the bill into smaller payments throughout the month. Till provides financial tools that enable renters stay current on payments and weather unforeseen financial circumstances. Taken together, Flex and Till enhance consumer power by presenting flexible options to manage rent payments, thereby making housing more accessible. Loans & Mortgage companies make renting and ownership more feasible with platforms to compare rates and streamline the application process (Morty, Blend). Lenda and Better simplify lending with no-fee mortgages and loans. Insurance solutions such as LeaseLock and Rhino reduce barriers by eliminating security deposits, while HAI Group grants insurance for affordable housing units. Companies under Increased Ability to Purchase are innovative ideas that produce pathways towards attainable home ownership. For example, Divvy allows individuals to rent their homes while saving up for purchase, while Noah partners with homeowners to provide home equity sharing without debt or monthly payments. Furthermore, Point lets homeowners sell small fractions of their home equity to investors, allowing for convenient repayments and alleviating the debt burden commonly associated with home ownership. The overarching goal of companies under the finance umbrella is to ease entry barriers, increase accessibility, and give consumers more control and optionality.

Building & Construction — Solutions in this category aspire to solve the supply imbalance associated with several urban centers. They speed up the pace of construction, manufacture better buildings, and take advantage of easing zoning restrictions. For example, Mighty Buildings and Icon are construction technology companies that use 3D printing to reduce the cost of building a home, Modern Empathy designs homes that can be placed in family backyards, and Blokable reduces the cost and time required to create and operate multi-family housing units. Module takes an incremental approach to home building, manufacturing homes based on consumers current needs. Owners have the ability to modify the size of their home overtime, and as their financial situation permits. These early-stage companies are re-defining the word home by developing new types of spaces. On the other hand, nonprofits in this category including Path Ventures and Habitat for Humanity address the supply issue and increase stability by creating high-quality affordable homes.

Discovery & Support — For tenants, this category encompasses organizations that alleviate the burden of finding and staying in homes. Find (for Tenants) solutions NYC Housing Connect and OneApp Oregon are nonprofits that empower tenants to learn about the affordable housing they qualify for. Additionally, Rentlogic gives tenants more bargaining capacity by analyzing multi-family buildings and preparing a history of building violations, while Whose Your Landlord provides landlord, property manager and building reviews. Support (for Tenants) solutions including nonprofits Enterprise Community Partners and Coalition for the Homeless provide services such as crisis intervention and emergency cash assistance to prevent eviction, create opportunities for low and middle income individuals, and raise awareness around affordable housing. For-profit companies in this area aim to amplify tenant power. Nomad strives to lower vacancy risk by guaranteeing rent for two years, while Flip allows renters to get out of unwanted lease contracts. Lastly, For Landlords solutions simplify the relationship between landlords and tenants. RentBerry, a rental service platform, mediates price negotiations, while Dwell City Solutions helps landlords reduce evictions by finding jobs and community resources for their tenants. These tools improve communications between tenants and landlords, and also assist landlords with building management.

Innovative Methods & Manners for Living — This area includes companies that are changing how we live. Co-living has become increasingly popular. It allows people to not only live more affordably by sharing resources and living spaces, but also to create strong communities. The landscape is currently fragmented with companies targeting specific cities such as PadSplit (Atlanta) and Starcity (SF and LA). Moreover, Kin Families, based in NYC, is a co-living solution for families, offering on-demand childcare and shared play spaces. Home Sharing is a small segment that differs from co-living as it does not focus on community or communal living. Rather, home sharing takes advantage of the trends discussed in building & home construction. For example, Homestead and Rent the Backyard let people, respectfully, convert their garage into a rental property and rent out an apartment in their backyard. Taken together, this segment makes housing more sustainable by redefining the manner in which people live.

Areas for Tech Opportunity

There are areas where for-profit players can build on the existing ecosystem, make human-capital investments, and construct solutions that ease barriers to entry. On the Finance front, companies can utilize AI, in an unbiased manner, to improve risk prediction models and determine other factors that are relevant to loan performance. Current credit building mechanisms leave out several categories of recurring payment such as rent and utilities. Casting a wider net, augmenting the factors that determine loan eligibility, will magnify the number of people who qualify for financing (loans, insurance, etc.), and thereby expand housing accessibility. More importantly, companies could focus on giving renters additional ownership through renters equity, the ability to co-own rentals, or the ability to purchase a portion of the rental unit and grow that portion over time (similar to Divvy). Companies could generate revenue by selling other portions of the unit to investors, and charging a fee, as investors would benefit as housing prices increase with time. There are also opportunities for companies under the finance umbrella to develop online training or tutorials on the importance and benefits of home-ownership. Awareness about and pipelines towards home ownership could change the status quo, and both allow and encourage individuals to grow their finances.

Within Discovery & Support, there are opportunities to provide greater knowledge, autonomy and resources. Although tools such as Zumper, Zillow and Trulia exist, a more robust platform could be deployed (similar to Whose Your Landlord) to help lower-income tenants in the Find stage. Features such as a categorized grade on the building and its operations, landlord response times, testimonials from other residents, and linking ignored repair requests to government databases so house agencies are aware, could make tenants more informed about the buildings they are renting. Systems that raise awareness will make landlords more accountable, in turn reducing some of their power. More importantly, in the Support stage, a company could assist with eviction prevention, providing loans in exchange for collateral, during times of crisis. Such solutions could limit the number of evictions and provide support to tenants when they need it most.

However, the biggest opportunity area is one that involves cooperation. As VCs deploy additional capital into PropTech, they should learn the significance and debilitating nature of previous and current policies, understand the implications (both positive and negative) of the companies they support, collaborate with government officials and nonprofits to establish more favorable regulations, and invest in communities. VCs should also ascertain the dynamics they can change and the ones in which technological solutions will not remedy the underlying problem. Furthermore, if possible, VCs should adjust their return expectations and time horizons to give accessible housing solutions facing bureaucratic hurdles time to scale. These actions could have a stronger, and more widespread, impact on the housing landscape.

Concluding Thought

As federal eviction protections and the supplemental $600 a week in unemployment benefits granted under the CARES act expire, housing advocates anticipate a wave of evictions.¹⁴ The inequity and inequality within the system and areas that technology has not solved will be further exposed. This creates, however, an opportunity for partnerships across the private and public sector, as organizations work together to solve these issues.

Can Technology Solve the Housing Crisis?

Written by Rebecca Milian