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How a Token Holds the Key to Affordable Housing: The Impact of the November SEC CF Regulations

By: Natalie Birnbaum

In his announcement of the November Regulation Crowdfunding amendments, the United States Securities and Exchange Commission (SEC) Chairman, Jay Clayton, acknowledged that the former SEC regulations were problematic for smaller and medium sized businesses seeking to raise capital.


“For [smaller and medium-sized companies] and their investors, there is no public market-private market choice,” and that “[t]he exempt capital markets — the private markets — are their only option. However, these companies generally do not have the resources, expertise and experience to effectively navigate our complex private offering rule sets.”

Smaller and medium-sized real estate projects, who also require resources, expertise, and experience, also struggled under the former regulations and can benefit from the Chairman’s amendments by utilizing tokenization.

What is Regulation Crowdfunding and What Exactly Changed?


Regulation Crowdfunding (CF) provides entrepreneurs with an exemption from the SEC’s registration requirements for securities-based crowdfunding and enables entrepreneurs to raise funding without having to register the transaction with the SEC. The amendment encourages Regulation CF by increasing investor offer limitations, revising investment limitations, and permitting the use of certain special purpose vehicles.

Most significantly, the amendment increases entrepreneurs’ offering limit from $1.07 to $5 million for Regulation CF, removes investment limits for accredited investors entirely, and permits measuring the greater of annual income or net worth when calculating accreditation status. Additionally, the SEC extended, for 18-months, the existing temporary relief providing an exemption from certain Regulation CF financial statement review requirements for issuers offering $250,000 or less of securities in reliance on the exemption within a 12-month period. The Regulation CF provisions will be effective upon publication in the U.S. Federal Register.

What does this mean for Tokenization?

Tokenization is an alternative process to traditional capital raises which has already proven to be a successful way of funding innovative real estate development projects in a number of jurisdictions and countries worldwide. Tokenization enables a peer-to-peer (P2P) real estate investment strategy where individuals or companies can invest a small amount of money into multiple real estate projects simultaneously.


The SEC amendment is designed to generate growth for private capital markets, eliminate costs, provide access to capital for small and medium-sized businesses, and expand the eligible investor base that can participate in relevant offerings, including security token offerings (STOs). Security tokens are initially released through an STO, the equivalent of an initial public offering (IPO) for shares in a public company. Just like traditional shares, security tokens may later increase in value thanks to secondary market trading through alternative trading systems (ATSs) or even traditional stock exchanges. Essentially STOs provide a tool to fractionalize asset ownership.

Crowdfunding platforms work in tandem with tokenization platforms, enabling them to raise capital from nonaccredited investors and lower-level crowdfunding investors and thereby offer quick access to funding from broad and local investment pools.

The opportunity for smaller investors to get involved in tokenization, and in particular real estate tokenization, increases the potential liquidity in a traditionally highly illiquid market. The amendment paves the way for greater accessibility to tokenization projects by raising the investment ceiling to $5 million. Between legal fees, marketing, financial and platform fees, the higher cap more accurately reflects the capital needed to justify the investment of time and effort by entrepreneurs.

How Can Decentralized Investments Work to Remedy the Affordable Housing Crisis?


In the traditional real estate development market, there is little incentive for developers to pour resources into housing projects which address the needs of lower or middle-income households, referred to here as “affordable housing.” In fact, the biggest obstacle in traditional real estate investment is simply the cost of investing in an entire, non-fractionalized, property that is essentially a frozen asset. With such a high cost of investment, real estate developers often prefer to build luxury housing developments as they ensure a relatively immediate high rate of return on investment than other housing projects. Unfortunately, this trend does not lead to the creation of diversified or affordable housing.


Utilizing crowdfunding, tokenization enables local community members to invest in affordable developments. Providing ordinary people, meaning non-accredited investors, with a platform to invest in their own property, tokenization can foster community cohesiveness and successful local projects.


The Token as a Key to A Safer Future.


It is indisputable that one of the great lessons of COVID-19 is that we are in the midst of a global housing crisis. As the pandemic rages on, we are increasingly more aware that millions of people across the globe lack access to safe, maintained, and affordable housing. Simultaneously, we see rates of homelessness skyrocketing as we are mandated to “shelter-in-place.” We need to use our advances in technology and openings in securities regulations to combat unnecessary suffering and scarcity and create homes that truly shelter.

As we move forward, we need more than just band-aid solutions for our global housing crisis. We need to restructure the way we think about real estate development and affordable housing.


With decentralized investing, developments that are not traditionally immediately lucrative can be awarded more funding and seen in a new light, including affordable housing. Through tokenization, the power of the purse can be placed back into the hands of the people, and even more significantly, back into their homes.


Natalie Birnbaum is the in-house legal counsel at SolidBlock, Inc. If you would like to learn more about FinTech4Good's efforts in applying digital technology to affordable and sustainable housing or would like to join us in our efforts please sign up here Digital Innovations For Affordable and Sustainable Housing Interest Group.


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