It seems like almost every day I see a story about increasing real estate prices in the major metropolitan areas of the US. Prices in cities like San Francisco, New York, Seattle, Washington DC have made homeownership unobtainable for many people. Some even call the current state of the market a housing crisis as housing prices outpace growth in wages. However, there are some companies that have made inroads into helping people buy homes with creative new products. I recently spoke to two companies who are taking a different approach to expanding home ownership and affordability.
SoFi comes to mind with their jumbo mortgage which allows borrowers to put just 10% down and offers loans up to $3 million. The product doesn’t require PMI like other mortgages would. For people who work in high salaried positions like tech, it is easier to make these types of loans because the borrowers have an income to support it. SoFi has certainly had success with this product, but some still argue that lowering down payments allows borrowers to stretch themselves too thin which could result in problems down the road.
Landed is taking a different approach. I spoke with Alex Lofton who is Head of Growth and Co-founder at the company. They first came on my radar this summer when TechCrunch profiled them. They are similar to companies like Unison (who recently was on the Lend Academy podcast) and Point with a slight twist. Currently, the company focuses on teachers to help purchase a home, providing up to 50% of the down payment. Like other similar products, Landed participates in either the upside or downside when the home is sold.
It’s interesting problem that many areas face. While essential professionals once sought out areas with higher wages, there is now little incentive beyond location to live in a high cost of living city. This is unlikely a problem that will go away by itself so it’s important for companies like Landed to exist. The Chan Zuckerberg Initiative (created by Mark Zuckerberg and his wife Priscilla Chan) committed $5 million to Landed which will help about 60 educators at three schools near Facebook’s headquarters purchase homes.
Fundrise is taking a completely different angle with their relatively new offering called eFunds. They aim to expand the amount of housing available in cities and they are taking a unique approach to getting it done. The investment functions similar to their eREITs where investors can purchase shares in a fund, but the investment goes towards developing new housing in urban areas. Investors are purchasing equity in residential real estate. Beyond personally purchasing a home, this asset is something new available to the retail investor market. Historically, debt investments have been the focus of most investment opportunities.
Their thesis is that millennial home buyers aren’t interested in buying homes in the suburbs and that their needs are not being met. Traditional developers focus on larger scale buildings whereas Fundrise is creating homes on smaller lots that developers may not be interested in.
Fundrise is also encouraging investors to become active in lobbying cities to change zoning laws, something which is a big problem in Los Angeles where Fundrise has focused one eFund. Besides being able to further Fundrise’s efforts in expanding housing, an investor can complete the circle so to speak. Investors will have an option to buy a property that they have invested in, saving on costs associated with the transaction. While expanding access to housing is a good thing there is still the question of affordability. If you’re interested in learning more about what Fundrise is doing I recommend listening to our podcast with Co-Founder and CEO Ben Miller. He is truly passionate about this space.
Conclusion
As a millennial and an owner of several residential properties it is always fascinating to follow the trends in the major US markets and reports on millennial home buying. Clearly there is somewhat of a crisis going on in these cities as real estate prices have continued to climb faster than wages. Both Landed and Fundrise are taking action to do something about what’s happening and it’s going to be interesting to see how it shakes out.
