Can Blockchain Help Solve the Homeownership Crisis?
Blockchain and non-fungible tokens (NFT) have become a hot investment trend in recent years. While there has been a lot of recent news regarding retail investors investing in crypto currencies, art NFTs, and digital real-estate NFTs there has been as much interest or maybe more on the institutional (venture capital, hedge funds, family offices, and angels) investment side. A recent article published by CNBC stated that 4.4 billion dollars was invested in crypto companies in Q2 2021.[1] During a recent Marshall Venture Lab discussion, the company Pacaso was presented. They are trying to remove the impediment of large sums of liquid capital being needed to own a second home. In a way Pacaso has come upon an idea to somewhat democratize the way of owning a second home.
With the development of Pacaso and blockchain/NFTs one wonders if there is a way to combat the affordable housing crisis gripping the US and countries around the world while also empowering retail investors to invest in real-estate as well?
In 1985, the median house price in the US was $82,800 while the median wage was $53,337. While the median house price in 2020 was $329,000 and the median wage was $67,521. [2],[3] The percent of housing price over annual median income in was 55% and 387% for 1985 and 2020 respectively. This stark difference is one reason for the affordable housing crisis. If one wants to purchase a house in a hot home selling market such as Austin, TX (625%) or Los Angeles, CA (1,039%) it become a bigger disparity. 3
One could utilize the transparent nature of blockchain built upon a blockchain like Solana or Ethereum to maintain clear transactional records.[4] Participants could apply to be part of the program where they could be vetted for future income growth and default risk. These participants could determine how much home they would buy and where just as if they were a traditional buyer. The participants would then enter a limited partnership with investors where the percentage of ownership would distributed according to percent invested by all parties.
For example, if the homeowner could only purchase a home of the value of $200,000 and had an equivalent down payment and the house price was $300,000 then investors would obtain ownership of 33% of the home while the homeowner would keep 67%. The owner then would be able to get a loan for the remaining based upon the price of the home minus the invested amount.
As the owner advances in his or her career and their income increase, they would also have the right to buy out the investors ownership stake at current market rates. Upon the sale of a property the profit will be dispensed according to the ownership in the property.
The investors can invest in as little as $1000 dollars into an owner and can choose which owner to invest in according to data points based on an individual’s education, creditworthiness, income level, occupation, etc… This can help minimize the biases gender, sex, etc can place on the barriers to homeownership.
The simple answer to the question if blockchain can help solve the affordable housing crisis griping the US and the world, YES! Allowing investors to invest such small amounts into real-estate lowers the barriers to those who have some investable capital and want to invest in real-estate but don’t have large sums of liquid capital necessary in today’s property landscape. The idea to incorporate blockchain pushes transactions and operations towards security and transparency since ownership is distributed via a series of NFTs. Perspective homeowners are also given the opportunity to become homeowners where there is no other way and provides the next generation of homeowners the change to build generational wealth.
[1] https://www.cnbc.com/2021/07/22/blockchain-start-ups-raise-record-funding-despite-crypto-slump.html
[2] Federal Reserve Bank of St. Louis (2021).
[3] US Census Bureau, https://fred.stlouisfed.org/series/MEHOINUSA672N
