$3.9 trillion.
That is the amount of money—equal to almost a fifth of the country’s gross domestic product—that Americans spent on housing in 2021. That enormous figure is first, and most importantly, a powerful way to understand just how fundamental housing is to the country.
But another dollar figure is drawing even more attention, illustrating how technology is about to upend the traditionally discrete, local real estate industry, as more outsiders are noticing this enormous potential value inherent in housing.
Between 2019 and 2022, venture capital firms dumped over $100 billion into real estate tech ventures—significantly more than the previous five years combined. As many interconnected players try to grab their piece of this fast-growing pie, the side effects and seismic shifts caused by this huge influx of technology and data remain unclear—and potentially frightening.
The Harvard Joint Center for Housing Studies (JCHS), using a symposium held earlier this year as a jumping off point, is planning a series of 11 academic papers exploring the dangers, opportunities and implications of lightspeed digitalization and cascading Wall Street capital on real estate, starting with what JCHS Deputy Director David Luberoff described as a “framing paper,” published earlier this week.
“Dramatic changes have already come ,” Luberoff wrote. “A growing number of investors are using digital technologies to find, buy, rent and manage single-family homes, a shift that has dramatically affected many real estate markets. Platforms like Zillow and Opendoor have not only changed how people search for homes, but are also trying to change how those homes are sold and financed.”
Many observers—especially those practicing in traditional real estate spheres—see these changes as negative or uncomfortable. Many even perceive them as a threat to their livelihoods. And those worries aren’t necessarily unfounded, according to Luberoff and JCHS Managing Director Christopher E. Herbert, who co-authored the framing paper.
“While digitalization has advanced (or could well advance) efforts to address some pressing issues, it may also be exacerbating some of those challenges, such as the ways that the recent entry of institutional investors may have contributed to growing affordability problems or continued problems with bias in the ways that people find and finance housing,” they write.
With subsequent papers aimed to delve deeper into a variety of housing challenges and issues—iBuyers, mortgage underwriting, regulation, offsite home construction and data analytics championed by behemoths like Zillow—the initial paper paints a broad picture of the biggest opportunities and most pressing concerns arising from this rapid and inexorable tech incursion into real estate.
At the top of the list of concerns: who benefits from cost savings created by tech efficiencies and innovations?
“There is no guarantee that the cost savings created by digitalization will be passed onto consumers. Moreover, in some cases, digitalization may not reduce costs,” Luberoff and Herbert write. “Instead, it may mainly reallocate benefits, such as when investors buy existing multifamily properties with moderately priced units, upgrade those units, and charge significantly higher rents.”
Comprehensive, aggregated real estate data, which has become a holy grail for any tech firm or government entity seeking to make money in proptech, will not, by default, benefit all parties as it becomes easier to gather and collect. Instead, the paper argues that without intervention, this kind of big data will tend to create monopolies and stagnation, with “the marketplace…dominated by a relatively small number of firms.”
The usage, sharing and monetization of real estate data has recently become an urgent conversation across the industry. Hubert and Luberoff claim that this revolution started with the digitalization of MLSs, which the paper calls “the technological equivalent of the Gutenberg Press.” But in the end, it might be so-called “data monopolists” that most benefit from the efficiency and convenience of digital databases, rather than consumers or real estate professionals (although some big names in the industry are trying to change that).
Herbert and Luberoff cited another recent academic work, “Reinventing Capitalism in the Age of Big Data.” The authors of that book, Viktor Mayer-Schonberger and Thomas Ramge, illustrate a problem that promises to remain a huge issue for real estate—platforms whose value is derived primarily from the number of users on them.
“The most popular products and services improve the most because they are fed the most data. In such a context, innovation is no longer about breakthrough ideas, but rather, about collecting the greatest amount of feedback data,” wrote Mayer-Schonberger and Ramge.
Without naming names, big real estate portals are clearly entities most likely to succumb to this kind of stagnation. While the JCHS paper is also quick to acknowledge all the positive effects of a digital and data-driven real estate environment, the potential for upheaval or negative changes extends to every aspect of the industry as well.
Another notable concern is the possibility of reinforcing racial segregation through algorithms (something Redfin was accused of earlier this year, with the company paying $4 million in a settlement with fair housing organizations).
“Algorithms used to target potential buyers and renters could continue historic patterns of residential discrimination; algorithms used to assess mortgage applications could perpetuate historic patterns of discrimination in lending,” Luberoff and Herbert write.
At the same time, machine learning and automation could eliminate much of the implicit bias and discrimination in the lending industry by taking subjective judgement out of the equation, they note. And digitalization also has the potential to solve myriad technical and equity problems in the areas of city planning, underwriting, construction, aging in place, regulation and climate resilience.
Future papers, released in the coming months, will delve into specifics on all these issues. But Luberoff and Herbert note that the path forward is going to depend heavily on choices made by governments—from county and municipal policymakers all the way up to the Supreme Court—as real estate comes under increased regulatory scrutiny.
“It is important for all actors to recognize that as with other significant technological transformations, there are—and will be—lags between when digitalization takes hold in key areas (including housing), when it will have fully transformed socioeconomic structures,” they write. “Assessments will help policymakers choose and design appropriate and effective strategies.”
