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Why we still build and deliver housing the way our grandparents did




Housing is Unaffordable


That the United States has a shortage of affordable housing is not in question. Data shows American families are facing a growing rent burden, not just in higher priced urban centers on the coasts, but in cities throughout the country and even in rural areas. While housing has long been unaffordable to American’s with the lowest incomes without subsidy, over the last several decades the number of Americans who are rent burdened and cannot afford to buy homes has steadily increased to cover a significant portion of the middle class.


The more interesting question is why housing prices have climbed relative to income and, therefore, what can be done to bring down those costs so that developers, operators and finance providers can meet the housing needs of lower and middle-class Americans.


The Unmet Market Need for Affordable Housing is an Opportunity


This is not an idle question. The current size of the US housing market is valued at an estimated $33.6 trillion. If, as the research suggests, we should be producing 5.4% more housing than we do today there is a $1.8 trillion untapped market demand in the US in just year one that is not being fulfilled and the US is not alone. The price of housing relative to income worldwide is out of reach for the middle income population.


The Cost of Housing and Other Goods With High Government Involvement Relative to Income


The Bureau of Labor Statistics provides the following chart showing the price of various consumer goods and services in the US over the last 20 years.




The items showing the goods with the most price appreciation over the period have two things in common:

  1. They can be classified as human rights, rather than desires, and as a result

  2. They are subject to strong Government intervention.

This chart can be a Rorschach Test describing a person’s worldview of the role of Government in providing public services and the effectiveness of that intervention. Let’s put aside that debate and instead acknowledge that in the housing, and other sectors at the top of the chart, Government intervention is a reality that must be accounted for in any solution to the challenge. Similarly, it is clear that Government policy alone has been ineffective in solving the challenge.


The Digital Opportunity in Housing


According to New York Times and Wall Street Journal Best Seller by Steve Case, we are at the cusp of an investment in the Third Wave of the Internet when entrepreneurs will transform real world sectors like housing, but success in these ventures will require these entrepreneurs to rethink their relationships with competitors and Governments.


Innovations have driven down real costs for most consumer goods while simultaneously improving the value of these goods in terms of features and safety. Unfortunately for housing, as well as most of the sectors on the top of the chart, those products and services are still developed, financed, and operated in much the same way they have been for the last 100 years. In housing, digitization has largely happened around the edges to facilitate interaction or to replicate paper processes, rather than to fundamentally shift the paradigm. Significant innovation and redesign can be applied to the housing sector, but the ecosystem surrounding the entrepreneurs will need to be different than the internet entrepreneurs who came before them. They will need regulators, government and nongovernment entities, nonprofits and the community with them from inception through to delivery. The housing value chain is too intertwined for transformational change to be driven by a sole entrepreneur with a good idea. But this is a two-way street - regulators, government and nongovernment entities, nonprofits and most of all communities desperately need innovators as well – we can’t solve the affordable housing challenge doing what we have always done and hoping for a better outcome.


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.


Article by Ann Epstein

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