Thanks in part to low interest rates and globalisation, property markets in many urban centres across the world seem to be spiraling out of control. Sydney’s median house price has shot past the AU$1.12M mark, surpassing even that of New York, while across the Tasman New Zealand’s largest city, Auckland, has seen median dwelling prices drift close to NZ$1M.
The market dynamics are similar in the UK, with research from the Resolution Foundation indicating there is a significant ground shift occurring, from owning a home to renting one instead, amongst working-age households. In the year 2000 around 55 per cent of households lived in an owned, mortgaged property, a figure that has since dropped to 41 per cent in 2015. Over the same period, those in private rentals climbed from 11 per cent to 25 per cent. The social ramifications of this shift are profound.
Generation Rent, as they have come to be known, now find themselves stuck between a rock and a hard place, facing a potent mix of stagnant wage growth and skyrocketing house prices. Perversely those that have scraped together a deposit face the risk of long-term low inflation, potentially locking them into a possible debt trap for years to come.
Once, owning a home was considered a safe and sure bet for building long-term wealth for the middle class. However with this asset now out of reach for most, some fintech start-ups have spotted an opportunity to service the appetite for property via a range of more accessible and affordable vehicles.
BRICKX in Sydney is one such fintech (or proptech) startup. Via fractional property investment, the company allows investors to purchase units, or ‘Bricks’ of a home. The investment also entitles investors to a fixed share of any rental income generated. The upside of fractional investing is that investors can spread their risk across a basket of rental properties, plus cash in on capital gains at any time by selling their Bricks to another buyer.
For those lucky enough to have significant equity stashed away in a home today, fintech startups like Point in the US are providing an alternative to the traditional banks when it comes to accessing stored wealth, specifically for reinvestment back into the property market. Point, an Andreessen Horowitz backed startup, purchase’s a fraction of a homeowner’s dwelling, only collecting this back (plus capital gains) when the original property is sold. Homeowners also have the option to buy out Point at any time.
While Generation Rent might not be able to access services like Point directly, parents, who are increasingly financing children into their first home, could. Data from the Reserve Bank of Australia shows the proportion of first-home buyers borrowing from their parents to finance their first property purchase has more than doubled since the 1970s. With many in the Baby Boomer generation under financial pressure themselves through tech driven workplace disruption, any financial solution that doesn’t impact monthly cash flow is a bonus.
Building societies and small banks have a great opportunity to partner with fintech startups in the proptech sector to propel innovations like these forward, scale and bring them to the mass market. These types of partnerships can have real social impact if executed correctly – there is even scope for government involvement. One thing is for sure, we need to creatively rethink how home ownership works and take this opportunity to address the real long term problems uncertainty and insecurity around housing can cause.