Technology making property buying possible for average person
In cities like Toronto and Vancouver, real estate has become contested terrain. We’ve grown used to stories of families priced out of established neighbourhoods and beloved communities transformed into pricey playgrounds. In the process people with good jobs have been locked out of the dream of ever owning a home in the communities where they live.
Even with markets cooling somewhat in these cities as governments move to quell runaway prices, home ownership remains out of reach for a sizable chunk of the population — a function of the small footprint of urban cores combined with the persistent demand for housing in some of the most livable cities on the planet.
Given all that, it’s no wonder words such as “realtor” or “investor” draw venom from so many people struggling to keep a foothold in the places they call home. Even I feel defeated by the industry, and I’ve built much of my career in real estate technology.
But I also believe there’s an alternative. The key lies in using technology to democratize ownership, so that everyone can reap the financial rewards that property owners have come to enjoy. In the process, it’s possible to embrace a new investment paradigm — one that lets investors decide what kind of housing, and therefore what kind of communities, their money will help create.
Start by modernizing the buying process
LendingClub, Airbnb, Lyft, Taskrabbit and similar sharing platforms have shown what’s possible when you take the middlemen out of the transaction process and use smart, scalable technology instead. Without the need to pay fees to intermediaries, prices for end users go down. What’s more, transactions become more human as buyers and sellers interact directly with one another, rather than through corporate representatives.
The same can be done for real estate. Commissions can add tens of thousands of dollars to the price of a home. In hot markets with listings often selling in less than a week, that fee is charged for sometimes doing a modest amount of work. (One realtor I hired to sell a condo was a no-show for our planned open house and still tried to charge me $55,000 for his services.) Add to that legal and other administrative fees, and prices spiral even higher.
But technologies including AI and blockchain can now reduce dependence on realtors, brokers and lawyers, bringing down fees. Smart contracts, for instance, enable credible, transparent transactions to be executed without third parties. Just as online platforms have disrupted and streamlined other legacy platforms, so real estate is ripe for simplification. In fact, this fix is eminently within reach.
Open up investing to everyone
But deeper still, that same technology can be used to create a climate in which anyone can invest in property. One of the fundamental perceived injustices of the real estate boom in Vancouver and Toronto is that one must be rich to invest in one of the most desirable assets out there.
Even with dips in the market, residential real estate ranks among the best-performing and most stable investments, averaging an annual return of around seven per cent, according to a comprehensive new study from the University of California-Davis. And in hot housing markets, the returns may well be much greater than that.
Compare to that the annual return of about two per cent to four per cent on an average GIC, and the investment vehicles available to people who don’t have $1 million to drop on a starter home pale in comparison.
That, however, is starting to change. Online platforms are pioneering ways to crowdsource real estate investment, so that you don’t have to be a millionaire to invest. By buying shares of properties (in some cases for as little as $1) anyone can gain entry into the market.
Is more investment really a fix?
I know many people think the last thing these housing markets need is more investors. And if we stick to the status quo, that may be true. Speculation in some places has played a big role in driving up housing prices to the point at which they aren’t sustainable for average people. But the system can be reinvented and brought back down to earth.
The reality is real estate will always be an attractive investment — few other opportunities exist for such generous returns. Someone will always step in to capitalize on development opportunities. There exists a way to allow people who may not be able to, or want to, own their own home in Vancouver, Toronto or other hot markets to still share in some of the extraordinary wealth these markets have created.
Technology and innovation can make real estate investment more fair and provide an opportunity to reclaim our cities. We’ve already seen the potential of new technologies to disrupt and democratize everything from ride sharing to fundraising. Real estate ownership is ready for change, and new platforms may finally make that possible.
• Michael Stephenson is a real estate technologist and the CEO of IMBY.