January 29, 2019

Investing in Market-driven, Tech-enabled Solutions to Make Homes Affordable

HousingTech

Matt Hoffman, Enterprise Vice President of Innovation
& Managing Director of HousingTech Ventures

 

Leila Collins, MetaProp Senior Associate
& Enterprise Venture Capital Investor-in-Residence

 

 

The Case for a New Housing Model

People of all income levels are deeply concerned about the state of the housing market and what it means to them, their families and their communities. Housing is on everyone’s minds not just because it is the largest expense in most people’s annual budget, but because where you can afford to live, now more than ever, affects your access to jobs, good schools, transit and health care.

A “good” job no longer guarantees being able to find a home you can afford in the community of your choice. In fact, a perverse trend has evolved: locations with concentrations of higher paying jobs are fueling even higher housing prices, while incomes remain stagnant for too many families. It is an unsustainable model that is hurting people and our nation’s economic future. 

The U.S. housing market is in desperate need of more housing supply and greater affordability. The numbers below paint a stark picture:

  • Communities nationwide face a shortage of 7.2 million affordable rental homes
  • Household formations outpaced housing construction by 43 percent annually between 2010-2016
  • By 2060, the U.S. population will increase by almost 75 million people (404 million total)

It would cost over $2.1 trillion to brute-force build our way out of the shortage. Even if we could amass that capital and get over the zoning and permitting hurdles, it would take more than a decade to bring the homes to the market. Labor markets and material supply chains are already strained from our current rate of new construction. Moreover, the effects of climate change, from sea-level rise to wildfires, have put additional pressure on the market, constraining where and how we build.

We need to fix current housing market dynamics before they get further out of control. What if we could make housing more affordable by almost instantaneously changing the way it is supplied and consumed – without laying a brick or applying for a construction permit? We believe it’s possible.

MetaProp and Enterprise are collaborating to inject capital into early-stage companies with technology-enabled solutions that have the potential to drive increased housing affordability. Our shared belief is that technology can facilitate new business models and opportunities to fundamentally change how supply and demand functions in the current housing market.  

A similar phenomenon occurred in the taxi and hotel industries when Uber and AirbnB brought their disruptive models online. Without buying one new car or building one new hotel, both companies built tech-enabled platforms that tapped into existing underutilized assets and facilitated commerce between suppliers and consumers.  Our intent is to do the same thing for the housing sector by pairing MetaProp’s deep-seated experience in the venture capital world with Enterprise’s fluency in capital, policy and providing programmatic solutions to housing affordability. Together, we’ll provide the companies we invest in with access to an unsurpassed network that will facilitate market penetration at scale.

Through this partnership between a venture capital firm that has helped define the PropTech space and a national mission-driven social enterprise committed to helping people thrive through the power of home, we expect to bring new attention and capital to entrepreneurial approaches that can augment more traditional public policy and production-oriented methodologies. Although over the past few years billions have been invested into PropTech, much of the early PropTech capital invested in the residential sector of the market has been devoted to increased production efficiency (modular and 3-D printing), brokerage efficiency and virtual amenities. 

Enterprise and MetaProp are focusing their joint efforts on a narrower segment of the PropTech market that we believe can deliver outsized impact on affordability: rapidly scalable tech-enabled platforms that we are categorizing as HousingTech.  

The partnership will identify early-stage, tech-enabled companies with platform solutions that have potential to change the housing market dynamic in a way that increases affordability, whether as a primary focus or a secondary effect. As we evaluate appropriate companies, we’re raising questions such as:

  • How can we help people find an affordable home that already exists but is not part of the formal housing stock (e.g., the 3.6 million empty bedrooms in the top 100 housing markets)?
  • How can we enable homebuyers and renters to enter into new forms of tenure, whether it is fractional ownership or rental agreements that allow greater mobility and flexibility?
  • How can we overcome NIMBYism and other constraints on supply?  
  • What new tools can provide better outcomes from regulatory structures – helping protect the public interest and unlocking more supply on the market (whether new or repurposed)?
  • What new capital and credit structures can give more people access to the home-buying market and more predictability, or even upside, in the rental market?  

The housing affordability challenge is currently touching every corner of the nation is solvable. But only if we bring entrepreneurial market forces to bear to complement the policy, program and traditional market approaches that are effective but limited in their breadth due to resource constraints and timing. We believe that the housing market is on the cusp of a transformational change in terms of how housing is supplied and consumed. 

HousingTech’s tech-enabled platforms will unlock tremendous value that creates a fair housing system and aligns the market to ensure it strengthens our economy and creates a more viable path for families with low- and moderate incomes. Stay tuned. Or better yet, join us on this journey by signing up to follow our HousingTech work.

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