October 11, 2022

Proptech is changing the definition of a home

The inability to buy a home is one of the biggest struggles millennials are currently facing. However, this young generation, which has already changed the way we do retail, entertainment, and finance, is also set to disrupt the once unchangeable real estate industry. 

Millennials are known for their unique consumer behaviors: a new mindset towards cost performance ratio along with a preference for flexibility and digital-first options. Take Uber’s shared ride model, which allows everyone to enjoy the freedom of having a car, or Airbnb’s short-term rental model, a service that the company says 60% of millennials have used at some point. These models are now being applied to the real estate industry and changing the concept of assets from “ownership” to “usership”.         

In today’s housing market, factors such as economic recession, inflation, and rising house prices are strongly influencing millennials’ willingness to buy a home, with 74% still renting. This rising barrier to home ownership is creating new opportunities for Proptech startups. According to statistics from Pitchbook, VC firms invested $28 billion in Proptech companies in 2021, double the amount of the previous year. 

Companies focused on ‘Rent-to-own’ and ‘Shared Equity’ are coming out with particularly intriguing offerings. 

Proptech startup Divvy best represents the Rent-to-own model. After a would-be homeowner chooses a house that they want to buy, Divvy then purchases the house and charges a monthly rent, a portion of which is automatically transferred into a savings account for a down payment. This allows people to first live in a house that they have decided to buy while saving to buy it at the same time, effectively blurring the line between renting and purchasing. 

Meanwhile, Pacaso is the best example of the Shared Equity model by making it possible for those who already have a house to realize the dream of owning a second home. The startup buys luxury properties across the US and splits ownership across up to eight shareholders, who each receive access to the house for 44 days a year, time which they can give to friends or family. Pacaso even takes care of all housekeeping and repairs.

Another Shared Equity startup is Point, which pays homeowners cash upfront in exchange for a 10 to 20% share of the house’s equity, providing more flexible financing options and changing the concept of total ownership. 

However, these flexible financial options won’t have much impact on affordability, and many real estate market practices remain traditional, demanding lots of red tape and paperwork. These are problems still awaiting a Proptech solution to enhance the home buying experience. One thing is for sure – as millennials emerge as the strongest consumer group, the future definition of “home” will be something very different than what we know.

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