Adding to an ongoing series that examines digitalization in housing from a variety of perspectives, last week, Harvard published a handful more papers exploring the swift, often chaotic changes created by new technologies in real estate, parsing out both opportunities and threats as more and more big players get involved in housing.
Authored by both academics and those with more hands-on experience, the series is all about providing a balanced perspective that drives to the core of real estate—how people view and access housing, and what policies or innovations are creating all these changes.
“Big data and the growing use of data analytics are transforming how residential real estate is bought, sold and managed,” wrote David Luberoff, deputy director of the Harvard Joint Center for Housing Studies (JCHS). “The impacts of the changes—particularly whether they are expanding opportunities for renters and homebuyers or are crowding out first-time buyers and increasing rents—are the focus .”
The impetus of the research comes broadly from a tremendous influx of capital and attention from Wall Street and Silicon Valley, with investments measured in the tens of billions of dollars as hedge funds, startups and entrepreneurs try to carve out pieces of the $40 trillion housing pie.
Roberto Charvel is one of these venture capitalists. Currently a managing partner for MatterScale Ventures with decades of experience in the private equity and real estate investing sectors, his paper (which Duberoff dubbed a “commentary,” distinguishing it from more academic-focused working papers in the series) defended the role of entrepreneurs in single-family housing.
“Of course, digitalization can make things worse, but I argue it has a net positive impact in the housing market,” he wrote. “Consider Rocket Mortgage, the largest mortgage provider in the U.S. Rocket Mortgage has an online platform that helps people acquire or refinance their homes…his process shortens decision times, makes it easier for customers to get a mortgage, and perhaps combats discrimination as it helps avoid an interaction with a potentially prejudiced bank officer who may decide not to provide a mortgage to a qualified applicant.”
These automated processes have had mixed success in eliminating racial bias from mortgage lending. But these platforms and technology have tremendous room to improve, Charvel continued.
“Over their history, online mortgage platforms have saved billions of dollars for their customers, created jobs and made the U.S. financial system more competitive,” he said.
From his experience in proptech, Charvel focused on collaboration between academics, traditional real estate and the fast-paced world of investors and entrepreneurs. He also decried a misunderstanding and vilification of the investors and financiers.
“ used the term ‘Wall Street’ as a way of describing the greed of the financial world when referring to entrepreneurs. Financiers and entrepreneurs are very different, just as Wall Street is very different from Silicon Valley,” he said. “The academic world needs to get closer to proptech, not just criticize it from the sidelines.”
Entrepreneurs, he argues, are not bad actors, but simply try to create value—for themselves and consumers. At the same time, interacting with other perspectives helped him see some of the negative impacts of widespread digitalization, Charvel said, though he argued tech and finance should not be “the scapegoat” for affordability and equity problems, instead blaming “income inequality; NIMBYism; regulation that opposes density; and the belief that homeownership, not rentership, is a higher social good.”
“In other words, human interactions and the narratives that we adopt, not technology, are the root causes of housing problems,” he stated.
Resistant to change
Robert Goodspeed, a professor of Urban and Regional Planning at the University of Michigan, brought a different perspective in his commentary paper. While cautiously optimistic that digitalization will produce “mixtures of benefits and problems,” Goodspeed argues that far from upending it, new tech has not disrupted real estate as much as it has in many other industries.
“The housing community is only just beginning to grapple with these changes and leverage the potential for digitalization to produce more sustainable and equitable cities,” he wrote.
Historically, Goodspeed said planners are usually “regulating, cajoling and collaborating with the real estate industry” rather than working in tandem, as businesspeople often do. But he added that it should be obvious why new tech and new players have been slow to make a mark on real estate.
“Another reason disruption has proven elusive relates to the unique qualities of housing as a commodity,” he wrote. “Each housing unit has a unique history and location…units that are identical at the time of construction diverge based on the decisions of their owners and occupants. As a result, even superficially similar older homes may have different values.
“I suspect that the forces of differentiation are at work there, posing challenges to anyone relying on data alone to analyze, value and sell homes,” he added.
Again, from his perspective as planner, Goodspeed said he expects there is a lot more disruption to come (potentially), which means more potential pitfalls. His focus remained on sustainability, equity and affordability, he said, questioning whether disruptors will alleviate or exacerbate existing problems in these areas.
Goodspeed briefly referenced an Australian not-for-profit housing organization called Nightingale that focuses on sustainable, “collaborative” housing (originally crowdfunded as well). He urged disruptors to look into these types of models that do not just displace current industry powers, but instead work to rethink longstanding problems in real estate.
Here and now
Mike DelPrete, an academic working at the University of Colorado (who also has close ties to the real estate industry), focused more on where digitalization is colliding with the current landscape of residential real estate—iBuyers, Wall Street-backed brokerages like Compass and portals like Zillow and Redfin.
“ is meant to be representative, not comprehensive; it examines how the new models have evolved over time and which are more likely to achieve long-term profitability,” DelPrete wrote.
Going back to the early 2000s, digitalization and the power of venture capital allowed Compass to grow and made consumer-facing businesses like Zillow household names. But DelPrete cautions that many of these emerging business models—particularly iBuying—are not particularly stable.
“Many of the new, disruptive models are massively unprofitable. These companies are willing to lose billions to grow,” DelPrete wrote. “For many new players in the market, it’s not about the house; it’s about the transaction. Many new models are attempting to reach profitability through a wider ecosystem play, generating revenue from adjacent transaction services. But it is still a difficult path forward, with low attach rates.”
Opendoor lost $1.6 billion between 2017 and 2021, while Zillow lost around $1 billion in its short time in the iBuying sector. Compass has started cost-cutting in an attempt to achieve profitability after losing well over $1.5 billion since 2016.
DelPrete also points out that most of these companies continue to rely on revenue from traditional real estate sources—commission, leads, service fees, etc. iBuyers who relied on home price appreciation using algorithmic home-flipping got burned, for the most part.
And like Goodspeed, DelPrete argues there are inherent aspects of home buying and selling that makes real estate resistant to the kind of quantum changes that digitalization affected on other industries.
“Many real estate tech disruptors are focusing on instantaneous transactions: enabling consumers to buy, sell and finance a house with the click of a button. But it is not clear that consumers really want an instant home transaction,” DelPrete claims.
He cites a 2011 paper by Harvard Business School researchers Ryan W. Buell and Michael I. Norton that argued consumers actually perceive value in having to wait for a service, using online dating and airline flight searches in an experiment. Applied to real estate, DelPrete said it is likely homebuyers and sellers actually believe they are getting more value out of a transaction that takes some time.
“Thus, an instantaneous real estate transaction may be a solution in search of a problem. For consumers, it is more important for an expert advisor to guide consumers through the process, however long it may take,” he wrote.
Change to housing will come as “evolution, not revolution.” And DelPrete adds that so far, agents and brokers have remained central to most disruptors.
“In the end, the most successful models feature an intelligent combination of people and technology making the transaction faster and easier, and improving the overall experience of buying or selling a home,” he concludes.
Jesse Williams is a senior editor for RISMedia.