The U.S. housing market is one of staggering proportions. With more than 100 million homesteads and an aggregate value approaching $40 trillion, housing is the largest single asset class in the country. While the numbers are stratospheric, the importance cannot be encapsulated in mere economics. For most families, the house is their largest investment and the one that radiates the most with life. Who are my neighbors? Where do my kids go to school? Am I safe? Is the air quality good? Am I close to work? These questions govern the quality of life, and as a result, housing is crucial to the very fabric of democracy itself.
Economists and commentators of all backgrounds have long understood this. Entire economic cycles are attributed to the amplitudes of the housing market. In recent memory, the 2008 recession was put squarely on the housing market and the derivatives and instruments concocted by Wall Street to transact on top of the market.
While a recession ensued and has since passed, the fates of those who lost their homes are not all as rosy as the stock market indices might indicate. Put simply, housing and peoples lives are connected symbiotically, and because of this, the housing market merits focus and attention.
The housing ecosystem
In reality, the housing marketplace is the aggregation of several aligned actors. According to Quantarium Chief Operating Officer, Malcolm Cannon, “The housing ecosystem, particularly a well-functioning one, is a collection of many cooperating entities, including private companies, government bodies, and entrepreneurs focused on improvement.
In the U.S., the market is a product of competing companies, a diverse base of buyers and sellers, the stewardship of the GSEs and a whole host of newly founded companies looking to transform different links in the long chain of ownership, transaction and equity building. The Nobel Laureate Paul Krugman wrote an aptly named tract “A Company is not a Country” some years ago.
While his concerns were larger, this idea appropriately characterizes housing. There’s no one company, or even an aggregation of companies, that can achieve “good housing” without the regulatory framework, stewardship, economic stimulus and mandate of equity provided by the government. As such, public-private partnership in this space suggests that good governance and good housing are twins. Some specific areas of partnership are:
- Maintenance of a transparent, liquid housing market
- Enforcement of fairness in the entire ecosystem
- Focus on buyers’ rights
- Adoption of vetted and tested technologies
While there are countless other areas for public-private partnership, these four are crucial.
- Transparent and liquid housing market: The housing market is a bellwether for the entire economy and is a key element in society. In order for the market to function well and in a sustainable manner, a variety of otherwise conflicting variables have to be harmonized. Private organizations — in any part of the ecosystem — have to comply with regulations, prescriptions and general rules set by the government and the GSEs in order to ensure the minimization of market abuse or collusive behavior. Transparency and liquidity are key elements of any properly functioning marketplace.
- Fairness: While the government makes laws centered on fairness and non-discrimination, private parties often work extra-judicially. The recent spate of incidents regarding unfair appraisal/valuation for homes belonging to People of Color, the devastating statistics on Black homeownership and equity in the U.S., the notorious persistence of redlining, zoning and other geographically-based modes of discrimination illuminate the need for both regulation and enforcement. In addition, they suggest strongly that those forms of systematic “unfairness” that are “built into the system” can be revisited and addressed by both existing players and the new wave of proptech companies looking to undo the errors of yesteryear.
- Buyers’ rights: In a fast-moving, high-dollar market, the rights of buyers have to be explained clearly and enforced by government agencies. These include both positive rights and negative rights. Positive rights include public-private partnerships that enable homeownership and reduce friction and costs while negative rights include rights to redress and disclosure.
- Technology adoption: A little acknowledged but clearly borne out of historical facts is that the government is a larger risk-taker and more entrepreneurial than private organizations. In her ground-breaking book “The Entrepreneurial State,” Mariana Mazzucato lays down this irrefutable case. New technologies that can serve, disrupt, enhance and change the housing market and the entire set of processes that govern the ecosystem should be vetted and adopted by the government institutions, who remain the biggest players in the housing market. Related to this is the public sector’s role in ensuring fair data access and accuracy in the data sets it uses to make decisions.
Balancing the public and private sector
There are many pillars on which a solid housing scenario rests. The variables that govern the strength of these pillars traverse economics, law, demographics, social geography and operations. In each element of the ecosystem, government entities play a crucial role, sometimes of enablement and sometimes of constraint.
It has become a truism in all capitalist economies that the lack of regulation and enforcement creates both the conditions and the manifestations of the “yo-yo effect.” A strong marketplace cannot have a high amplitude and constant oscillation. Proptech companies must understand this inherently since they are in the business of real estate, which is simply too important of a sector to be left to only one set of parties to manage.
A number of entrepreneurs have built incredible companies in the space that have closely hewed to their mission of democratizing access to homeownership and the creation of generational equity. These entrepreneurs will create sustainable and successful long-term businesses in concert with the public sector, via public-private partnerships. Walter Allen, HouseAmp president, sums it up nicely, saying, “Public sector partnerships with private companies of all sizes can together ensure that the U.S. housing market remains strong while continuing to improve with regard to fairness, equity and wealth creation.”
As the 2020 U.S. Census results show, the country is getting increasingly diverse, across races and ethnicities. This diversity extends to other categories as well: class, gender, sexuality, creed and more. With diversity, there comes opportunity and complexity. With the multitude of cultures that participate in the housing market, both scale and niche opportunities abound for entrepreneurs. This is why proptech remains an excellent and rewarding area of investment and underscores the fertile role of the government and GSEs in this crucial component of the American experience.
This was originally featured in the October/November issue of HousingWire Magazine. To read the full issue, click here.
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