There’s a reason “OK Boomer” began trending on social media. The phrase represents a growing resentment among young people for the economic, social and environmental challenges they are inheriting. The problems unique to emerging generations, like mounting student debt and soaring housing costs, are central contributors to the growing wealth gap and inequality that is causing social unrest. While policymakers have made little headway in addressing these issues, an exciting development is afoot in the private sector: A cluster of up-and-coming fintech companies, a group our firm is proudly a part of, are aiming to end the housing crisis by applying new products, services and business model innovations that help put housing within young people’s reach.
Technology-driven innovation has the potential to ignite the familiar type of momentous change in housing and wealth creation that we’ve seen occur in hospitality (Airbnb), transportation (Uber) and commerce (Amazon). Through various avenues, real estate entrepreneurs are creating ways to reimagine the path to financial security and home ownership.
The need for change is urgent. Millennial and Gen Z renters are expected to spend over $200,000 in lifetime rent — significantly more than previous generations — and it’s only becoming more costly. Rent prices have increased by almost 80% over the past few decades and home prices have doubled, but wages have remained essentially flat. When you consider the combination of rising housing costs, exploding student debt and the overwhelming cost of healthcare, it’s easy to understand why many Americans don’t have $400 in their savings account. Consequently, home ownership rates are declining, contributing to a growing generational wealth gap.
When saving for big milestones is all but unattainable, it’s a moot point to get on a soapbox and question the financial responsibility of buying avocado toast — that cringe-worthy stereotype of millennials — or indulging in other simple pleasures. While previous generations worked hard, saved for home ownership and earned a pension for retirement, America’s youth aren’t being afforded the same opportunities for success. Although renting to save money was long considered a path to home ownership and the upward mobility and financial security that accompany it, that’s no longer true in today’s world.
The nation’s median home price is projected to rise to $386,310 by 2031. That means today’s 18-year-olds will have to begin saving $304 per month to afford a typical 10% down payment plus closing costs by the time they turn 30. Amassing that level of savings is unrealistic for many, given the soaring costs of rent and healthcare, and the anchor of student debt that is running out of control. Home prices are so unattainable, in fact, that households with six-figure incomes are being increasingly priced out of major U.S. markets. According to the Wall Street Journal, 19% of households with six-figure incomes rent, up from only 12% in 2006. This implies there are 3.4 million American renters who likely would have been homeowners generations ago.
While policy changes are sorely needed, it’s hard to imagine government action will be sufficient. Through innovation, and specifically the application of technological, financial and business model innovation, we can make a meaningful difference.
We can already see an impact. Opendoor and Zillow Offers are removing friction from the home buying and selling process to reduce transaction costs. Fintech companies like Robinhood and Wealthfront are helping young people save and plan for retirement. Proptech companies like Common and WeLive are offering co-living solutions that provide cheaper options with unique amenities. Startups like Divvy and ZeroDown are developing lease-to-own solutions, and at Rhove, we’re helping turn rent into a vehicle for building savings and ownership. Consider the possibilities.
It’s clear that our industry is on the cusp of significant change that will be driven by technology, and that venture capital investment is ramping up to bring solutions to the masses. Armed with nearly $10 billion in proptech investment last year, some of the world’s brightest minds are working to upend the real estate market in ways that create new experiences and make ownership more accessible for digital native generations. Granted, it would be difficult for tech companies to provide solutions to all of the systemic political and economic challenges that exacerbate the housing crisis — such as rising construction costs, “NIMBYism,” short-sighted public policy and local laws that constrict housing supply.
However, there is a real opportunity for renters, property owners and policymakers to embrace promising innovations that could open the door to unforeseen benefits for society. Modern problems require modern solutions. Continuing with business as usual would be devastating.