The Promise and Perils of Residential Proptech

tags: Landlord Tech

Notes

Key Takeaways

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Introduction

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questions about how our existing regulations and protections apply—if they do at all.

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incentive structure

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increasingly desperate customer base

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little transparency

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Landlord Tech Enables the Financialization of the Housing Market

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In the wake of the devastation from the Great Recession, Wall Street saw an opportunity in the single-family housing market.

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Digital Tools Allow Owners to Manage Vast Portfolios of Single-Family Properties, Unlocking Housing as a Lucrative Asset Class for Investors

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Up to this point, Wall Street mostly stayed out of the single-family housing market. It was seen as too logistically challenging

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automate the application screening, payments, eviction notices, maintenance needs, and other responsibilities

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investor owners use algorithms to optimize for profit—at the tenants’ expense.

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American Homes 4 Rent (one of the largest corporate landlords in the country) increased rents by 11%, 5% higher than the average rent increase in the top 30 rental markets in the same period. The company owned 70% more units in 2018 than in 2014, yet collected 150% more in rent.

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increased its fee revenue from tenants by more than 1,000%, despite increasing its portfolio by just 70%

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single-family operators increased fees per year by approximately 40%,

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Opaque, Predictive Algorithms Determine Who Gets What Housing

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predictive models make guesses about whether an applicant will be a responsible tenant based not on the history of that specific applicant, but on (as far as we can tell) behavior trends of applicants who have similar characteristics.

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In 2022, fourteen renters competed for every available rental unit on the market.

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Algorithms Leave Tenants in a Gray Area When Enforcing Housing and Consumer Protections

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Blanket denials are a violation of the Fair Housing Act.

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common practices in financial services credit risk operations, such as documented model validation and risk management, do not appear to be prevalent in tenant risk modeling.”

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Are the landlords that use these services receiving the information they need to fulfill their obligations under the Fair Housing Act?

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Fair Credit Reporting Act (FCRA) allows consumers to correct inaccurate or incomplete information on their consumer reports.18 But what if that information is not accurate or inaccurate? What if it’s entirely hypothetical, as in the case of predictive scoring? Moreover, what if that information is not about you, but about aggregate renter outcomes?

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The Proptech Sector Expands Beyond Rental Property Management

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Alternative Homeownership Financing Echoes Pitfalls of the Past

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contract sellers extracted between $3.2 and $4 billion (in April 2019 dollars) from Black Chicagoans in the 1950s and 1960s alone.

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RTO bears striking similarities to a Jim Crow housing practice known as Contract-for-Deed (CFD)

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In 2021, 1 in 15 homeowners—seven million Americans—were using some form of alternative financing on their homes.

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Modern RTOs Offer Buyers Greater Flexibility, But Also Complexity

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with no standards on disclosures or contract terms, and with no public data on conversion rates, it is unclear whether these models live up to their promise

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RTO companies may increase profit by not converting customers into homeowners. As with the CFD model, owners could do better by cycling new renters through the property while retaining ownership.

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Venture Capital Fuels Rapid Expansion with Unclear Housing Outcomes

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Since 2013, VC has invested $51.6 billion into Proptech,

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Andreessen Horowitz, one of Silicon Valley’s premier venture capital firms, committed $350 million to a startup called Flow which was founded by Adam Neumann of WeWork infamy.

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what happens to tenants and homebuyers when companies suddenly lose funding?

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Expanded Rights, Protections, and Transparency Offer a Way Forward

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Update Existing Protections and Regulations for Modern Tech-Backed Models

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While mortgages from the primary mortgage market are not risk-free, they are regulated in ways that alternative financing is not, affording a basic degree of transparency and recourse for discrimination.

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Alternative financing companies, however, are not traditional financial institutions and thus not subject to the HMDA transparency

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big picture, really need more thoughtful regs around “financial institutions” - we're all financial institutions now, baby. focus on particular “finance-like” activities, associated harms

settlement required that the Big Three use stricter matching criteria to ensure accurate reports, and largely stop reporting medical debt and civil judgments.53 Since 2017, a spate of smaller, private screening companies emerged who are not subject to the accuracy limitations of the settlement,

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obviously! what else!

Create More Transparency at All Points in the Housing System

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though the LLC is required to register annually with the Secretary of State, as well as list a registered agent to be contacted with legal notices, failure to do so does not result in property forfeiture, and the registered agents’ responsibilities expire along with the company’s registration.”

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Landlords and tenants alike are in the dark about how algorithms make decisions about who to rent to.

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Enact a Housing Justice Agenda

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