Financial innovators responding to the housing crisis
The Oxford Housing Sprint is an assembly of 56 practitioners, academics, and disruptors aiming to bring radical realism and energy to bear on the UK’s national housing emergency, organised and hosted by Oxford Saïd.
Informed by three pieces of specially commissioned research from four University of Oxford academics, the Sprint generated 13 practical ways to boost housing supply. The ideas spanned better use of data to pinpoint housing need, new sources of finance, more flexible home types and tenures, initiatives to mobilise local support for homebuilding and ways to release more land.
Here are ways in which tech has responded to the housing crisis financially, as reported by Andrew Baum and Qizhou Xiong
Private market products
In the proptech wave of 2008-2019, there have been many innovations including online mortgage brokers, house purchase websites, rental brokers, and some products aimed directly at the intending owner occupier short of adequate equity or debt finance.
Such innovations have included crowdfunding and peer-to-peer lending, shared ownership and equity loans, crowdfunding and peer-to-peer lending. Capital raising in the private markets remains a vital, difficult activity. Equity may be appealing, but it is generally more time consuming to raise than debt. Hence, we can observe tech-driven entrepreneurial activity in the raising of equity.
The shared economy model, real estate crowdfunding, has captured the imagination of young entrepreneurs and SME developers. Crowdfunding has the potential to resolve the capital requirement problem for less financially capable buyers, but also to remove geographical barriers. Reducing the minimum deal size for an investor should widen the potential buyer base and the pool of available capital.
Capital raisers – Brickvest, Property Partner, CapitalRise, Property Crowd, Property Moose, Piggyback and Mashvisor, in the somewhat patronising yet hopeful words of the latter, have claimed to “let average people become savvy individual investors to make profitable real estate investments and rental strategy decisions through an online platform that instantly aggregates real estate data”.
Increasingly, platforms such as Cogress or Shojin are using their own crowdfunding solutions as a retail distribution channel to fund single property investments and developments. Single properties are unregulated, so the result of the collision of retail crowdfunding and regulated investment management business is yet to become clear.
The mechanism used for more sophisticated investments involves retail investors being grouped into one limited partnership, advised by the platform. Whether good advice is being proved by professionals in these platforms is at best unclear. Debt crowdfunding and mortgage platforms including Trussle and pioneer peer-to-peer real estate lending platform LendInvest are also in place. As are a fascinating group of residential co-ownership sites including the Unmortgage and Stride Up, whose proposition is to help prospective homeowners without adequate deposits co-invest with equity-rich capital providers.
Up to 2016, real estate crowdfunding had raised $3.5bn for 125 companies in the US, around 10% of global crowdfunding capital raised. However, the crowdfunding and peer-to-peer lending markets have since seen several failures and lack any real scale.
Shared ownership and equity loans
Startups offering private shared ownership schemes include StrideUp, Unmortgage, HoP, Your Home and others. These are private market shared ownership products through which no debt is used in the house purchase but a minority owner, who is also occupier, co-invests with a particular capital source or with a pool of capital which in turn charges a rent for their commitment.
This is useful for intending homeowners with insufficient deposits but has been undercut at the lower end of the market by government Help to Buy equity loans. We have also seen the emergence of equity loan providers such as Ahauz, Proportunity and others. These organisations will provide cash to bridge the deposit shortfall in return for a minority equity position. Shared ownership and equity loan products have all struggled to achieve scale, although some have managed to raise Series A venture capital funding.