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Technology’s Role in Making Our Cities More Affordable

Cities all over the world are looking for ways to solve the same problem: how to develop economically and still remain affordable for every citizen. The entire use case of a city hinges on the idea that they are a generator of upward mobility, not a preventer of it. In theory, putting people closer together should be more efficient than each of us building our own infrastructure. But market forces dictate property value, not the cost of the resources to build them, so high demand locations quickly become unattainable for most.

The dilemma is so pervasive that we have even created a cute moniker for it: “the housing affordability crisis.” We roll our eyes and throw up our palms and talk jokingly about how expensive it is to live in our cities and “where does everyone get all this money!” Even the word “crisis” makes light of the situation. It makes it seem like this is part of a temporary unavoidable setback, like a flood or heatwave, that will fix itself over time. Calling attention to the problem with a shared lament and a standardized term is a positive thing, of course. But accepting it as inevitable in our modern world breeds a convenient apathy, the sweet aftertaste of privilege.

The reality is that the affordability of our cities is much more than a crisis, it is a symptom of a systemic problem in the way our economy, and thus our property industries, function. Without any end in sight, we are nearing an inflection point, where all of us have to make some hard decisions about what can be done to solve the issues that are dragging our societies down into dystopian nightmares of economic inequality. 

This point was driven home at the MIPIM PropTech conference in Paris this year. Outside the event a small protest emerged, calling for a more inclusive application of technologies in order to spread their benefits past the chosen few who can afford them. The exact words of the pamphlet they handed out where: “These new technologies contribute to the development of ‘smart cities,’ ‘connected cities,’ ‘intelligent cities,’ which we know will be reserved for the rich and will continue to exclude the working and middle class.”

Personally, I feel like this sentiment is misguided. The technologies that are being created for the property industry can help make our space more efficient, more profitable and therefore more affordable. Technology holds the promise to help bring equality to the property industry if done right. But, they do bring up a valid concern. Technology is an investment that often only those with money can make. If the PropTech companies only make solutions for the privileged few that can afford them it might exacerbate the economic inequality of our cities and disproportionately benefit the privileged while bypassing the “working and middle classes.” The future of our cities depends on how the property industry adapts and innovates.

A lot has been said about how innovation can help housing affordability. But almost all of it revolves around new construction techniques. This is because many people think that the answer to high property prices is a simple one: just to build more housing. More supply, same demand creates lower prices. It is Economics 101. But, like any short answer to a hard question, it is much, much more complicated than that.

First, many of the most expensive cities, like Manhattan, San Francisco, Paris, or Hong Kong, have geographic constraints. There is nowhere to build unless something else is torn down. This computes to risk for property owners and risk needs to always be offset by its counterpart, reward. Plus, if you only build more units on the outskirts of big cities, you negate the original promise of the growth generators that are our city centers. 

Governments across the world have realized the problem, to varying degrees, and are acting accordingly. There have been hundreds of new laws passed that require affordable units as part of any new development. The thought is that every landlord should have low-income units as part of their mix. Administrations are doing everything from offering tax incentives to issuing fines in order to push the property industry into including low-income housing as a bigger part of their development plans.

But it is important to remember that these types of properties require additional work, surveying and reporting on tenants to make sure that they qualify for the housing in the first place. Because of this these low income units are typically only managed by a certain type of operator since many traditional real estate firms are not set up for it. But this might be changing.

I was tipped off to this change by two people working at MRI Software, one of the biggest developers of software for property, facility and asset managers. One was Allen Feliz, Industry Principal of Affordable and Public Housing and the other was Mark D. Lewis, Senior Public Housing Product Manager. Together they were able to bring me up to speed with the separation that has existed between the property firms that specialize in affordable housing and the rest of the pack and how, more and more, real estate companies are starting to embrace the low-income segment of the market. “The affordable industry has been driven by people who focus on it. It has gotten larger and more sophisticated so you are seeing more conventional asset and property managers coming into it,” Mark told me.

Allen and Mark are working on a feature that they think will further help this convergence. Until now, affordable units had their own suite of software tools that would be needed to collect, verify and communicate renter info to the various agencies that need it. Now, MRI is working on incorporating those features into their software so there is much less extra work for property companies that want to own low-income housing as part of their portfolio. “When a property manager has our software, we want to make sure that they can use the same system for both traditional and affordable units,” Allen said.

As much as creating more affordable units can help the affordability of our cities, access to cheap housing is only one part of the affordability equation. Much of the innovation around real estate consists of companies that are creating a better living situations for tenants, not just solutions for owners. These applications and devices have the potential to give more options to renters that use them and can end up saving them time and money. 

The problem is that these technologies are often deployed in luxury, showpiece buildings first. This makes perfect sense as a business decision. High-end properties have more margins and are often looking for more ways to attract top tier tenants that have their choice of the available listings. For “PropTech” to make a mark on the lives of the general population, it will have to “trickle down (apologies for using such a discredited term) to buildings that the majority of us live and work in.

One of the biggest innovations in the way the property industry utilizes space is a concept that is being called co-living. A new breed of “built-to-rent” property companies are developing buildings that have private living quarters but shared common spaces like kitchens and living rooms. I asked Brad Hargraves, founder of a co-living company called Common about his company’s approach to the problem. He told me that housing affordability is one of the reasons that he saw the opportunity to start his company, saying “It is a pervasive problem in America’s biggest cities: rents are rising but incomes are not. We design shared apartments to increase housing stock and give people more choices. This is the guiding light behind what we’re doing.”

But, the biggest opportunity for services like co-living is the most expensive markets. Common operates in the countries most unaffordable markets New York, L.A., San Francisco, D.C., Chicago and Seattle, where they can create the most savings. It might be a while before lower income neighborhoods see a co-living development. 

I had a similar conversation with Marcela Sapone, co-founder of Hello Alfred, a company that provides in-home services to renters such as helping with household chores and running daily errands. Few things scream luxury more than a personal concierge but Marcela and her team have made it their mission to make their company a social good as well as a profitable entity. It could easily be argued that a single working mother might benefit even more from help around the house than high-earning young professionals. Marcela admitted that the luxury end of the market was an obvious place to start. “From a learnings standpoint, beginning at the top of the market does allow you to stretch the limits of your services in ways that you may not have previously imagined, and to gain valuable insights that you’re then able to bring to a more mass model,” she told me. 

But she doesn’t think that companies should stop there. She pointed to companies like Uber, who started with their “black car” service as a way to fund their expansion into a more comprehensive offering that was accessible by a larger part of the overall population. She even got a little emotional as she told me about her plans to make sure that her company services everyone, not just those at the top of the economic food chain, “our goal has always been to extend our services to as many varieties of buildings—and the residents who inhabit them—as we possibly can. City to city, neighborhood to neighborhood, unit to unit, bring their own unique lifestyles, income levels, and individual needs…and we’re privileged to serve all of them.”

Technologies are expensive to build and often take years before they can become profitable. This means that many companies developing tech solutions rely on investment to get them through their delicate early stages. Investors take these risks in order to be part of highly valuable tech platforms and thus can add additional pressure for companies to pursue a profit motive, even if it comes at the expense of a public welfare. But this doesn’t have to be the case. Profitable investments and socially conscious technologies are not mutually exclusive, especially in the property industry. 

MetaProp is one of the most active early-stage PropTech investors. They recently formed a partnership with Enterprise Community Partners, a non-profit working to create “affordable housing in diverse, thriving communities.” I spoke with MetaProp co-founder Aaron Block about this unlikely alliance. He told me, “For a while now we have seen the stars align that make technologies focused on housing affordability great investments with great growth potential.” He dismissed the idea that innovation in the property industry was only benefiting those on the top of the economic food chain.

One of the companies that Aaron gave as an example of tech helping make the real estate more equitable is their portfolio company Jetty. They have created a solution that can replace security deposits for rental housing, which can add up to the price of a new car in some expensive cities. Jetty’s co-founder and president Luke Cohler told me about a recent renter sentiment report that they conducted that estimates that high move-in costs have prevented almost 60% of renters from moving into the rentals that they want, so the social need is clear. Since he sells his product to landlords he has to be able to show them a benefit. “Offering these financial services products help properties expand their applicant pools and sign leases faster, and can even add protection for properties that have been forced to reduce deposits amounts (or not charge deposits at all) in order to stay competitive,” he explained.

With growth expected in almost every major city around the world, figuring out ways to create economic equality will be something we will be grappling with for the foreseeable future. There are a lot of factors that play into the Gini coefficient (a numeric representation of wealth disparity amongst a population) but the costs and benefits of the buildings that we live our lives in represents a large piece of it. Currently, a flywheel of innovations are making many in the property industry rethink the value propositions of their real estate, creating opportunities to empower all of us with choices that we never had before. Co-working and co-living are both great examples of this. But it is important to keep in mind that many new technologies tend to focus on the problems of those most capable of paying a premium to solve them. Only by including metrics for success like “what creates the most good” alongside the usual considerations like “what creates the most profit” will we be able to harness the new property industry as a source of equality and not another generator of the wealth disparity that none of us want to see in our cities.

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