VC Investment in PropTech: Profits & Positive Impact

In 2020, approximately $24 billion in venture capital was directed toward companies developing novel technology products and innovative business strategies for the real estate sector.

Although advancements such as smart home applications and digital mortgage services enhance convenience for higher-income renters and homeowners, these technologies do little to alleviate the daily challenges faced by the majority of families with limited financial resources.

Many of these developing technologies possess the potential to be adapted into “housing tech” solutions—centered on strengthening financial stability, improving access to nutritious food, facilitating healthcare access, and promoting workforce development—with the capacity to significantly improve the lives of those most vulnerable.

It is important to note that nearly eight million Americans have fallen into poverty since May, as indicated by a Columbia University study. Prior to the onset of the COVID-19 pandemic, roughly half of all American households experienced difficulty affording rent, a situation that is worsening with ongoing job losses.

Around 23.5 million individuals—half of whom have low incomes—reside in areas lacking access to affordable, healthy food options, commonly known as food deserts. Furthermore, obtaining adequate healthcare is often unattainable, both in terms of access and affordability, for those living in poverty.

As the ongoing global crisis highlights the profound inequalities within our society, it is evident that we require new approaches to address these deeply rooted systemic problems. Investment in technological innovation within the affordable housing sector could contribute to resolving these issues.

Local governments and nonprofit organizations are actively pursuing solutions. In 2015, New York City initiated Urbantech NYC to identify new technological solutions to urbanization challenges faced by government, businesses, and residents, addressing concerns related to food, water, medicine, waste management, and other areas.

In 2019, Enterprise Community Partners, a national nonprofit, collaborated with MetaProp, a prominent proptech venture capital firm, to invest in housing tech companies focused on developing technological innovations to assist families in finding affordable housing.

While these initiatives are valuable, they are insufficient. The housing tech movement requires increased support and advocacy.

Initially, a more patient source of venture capital is needed, one with a deeper understanding of underserved communities. Most venture capital firms concentrate on areas with which they are familiar, and unfortunately, few possess a comprehensive understanding of the affordable housing landscape, which is predominantly comprised of minority groups and female-headed households. However, it is worth noting that significant opportunities for return on investment exist within this sector.

Property managers specializing in affordable housing typically allocate a greater proportion of their resources to social services for their residents compared to managers of market-rate properties when considering the implementation of new technologies. It is possible to generate profits while simultaneously serving the public interest.

Secondly, the housing tech sector would greatly benefit from the establishment of an accelerator program. While the technology exists, many entrepreneurs lack the expertise to effectively “market” their solutions to this specific customer base, a crucial step in attracting venture capital and building sustainable businesses. Numerous existing technologies are poised for advancement through an accelerator program. Several examples include:

• Financial Resilience. Residents of affordable housing often face high-cost payday loans and check-cashing services. Many lack traditional banking relationships and pay rent in cash. The Lifesaver app assists households, particularly those without banking access, in navigating financial services and building financial stability. Earnin enables individuals to access earned wages without fees, bypassing the traditional payday cycle. Studies indicate that utilizing non-predatory short-term loans can lead to improved financial stability in subsequent months.
• Fresh Food Access. Cheetah, a wholesale grocery delivery service, has implemented community fridges as accessible fresh-food pantries. Via, a transit-on-demand provider, partnered with LA Metro and First 5 LA to subsidize food delivery during the pandemic, particularly to women-led households with young children.
• Healthcare Access. Roundtrip facilitates affordable transportation to non-emergency medical appointments, including wheelchair-accessible vans and specialized transport. Healthify provides a curated database of community resources and information regarding the social determinants of health. The development of telemedicine applications also holds promise for expanding access to essential healthcare services.
• Workforce Development. Skilling America, a new workforce platform from Goodwill, enhances placement, retention, and promotion rates, with the majority of users accessing the platform via their smartphones.

An accelerator could also connect housing tech developers with affordable housing owners and property managers seeking to maximize the impact of on-site social services. The top 50 owners of affordable housing developments have the potential to connect developers with nearly a million households.

These owners and property managers could serve as leading advocates for collaborative efforts involving tech developers, venture capital investors, and potential users of housing tech.

We collaborate daily with dedicated stakeholders in the affordable housing community, as well as local governments and tech entrepreneurs striving to bridge this digital gap. This is not a distant aspiration; the future is unfolding, and immediate action is required.