Often seen as existential threats to the industry—or even to the whole current model of home buying and selling—Big Tech and Wall Street are now involved more than ever in residential real estate, from algorithmic-based iBuyers to venture capital-backed brokerage firms. Even as the influx of money and huge leaps forward in technology have created efficiencies and new opportunities, the dissociative, far-reaching power of these tools also have frightening implications.
At a three-day Harvard symposium titled “Bringing Digitalization Home” that explored the intersection of tech and housing, a panel of experts from a variety of disciplines warned broadly that the rapidly accelerating investment of deep-pocketed outsiders could have dire consequences for anyone dependent on housing and real estate.
“It is a host of new players beyond owner-occupiers who are involved in grabbing value,” said Desieree Fields, a researcher at the University of California, Berkeley. “Market opportunities are now gauged in relation to these institutional players.”
Featuring industry representatives as well as planners, academics and tech investors, the panel sought to contextualize the inroads these big companies have made across various facets of real estate, from big rental companies to loan start-ups. The picture they painted was starkly concerning, identifying numerous areas where these changes could decrease homeownership, reinforce racial inequities or upend the market.
Maybe the most illustrative data point highlighted by the panel is the sheer amount of money pouring into real estate tech—going from a total of $11.6 billion in venture capital between 2016 and 2018 to $35.3 billion between 2019 and 2021, according to Mike DelPrete, a real estate tech entrepreneur and strategist.
“The power feels like it’s moving away from me as a consumer, and it’s moving towards a company—a for-profit company funded by Wall Street, losing lots of money,” DelPrete said. “What do we know about Wall Street companies that are losing lots of money? They need to figure out how to make money.”
It is happening rapidly and it is happening everywhere, DelPrete explained, powered by algorithms, AI and the raw power of venture capitalists. In his presentation, he highlighted over 200 companies in real estate backed by significant venture capital, ranging from ubiquitous household names like Zillow and Compass to dozens of up-and-coming start-ups that are fighting over a piece of the financing, home search, loan management, application, title or transaction markets.
Many have rightly pointed out that the number of homes that are being bought or processed by these companies remains small. But Fields cautioned that the power of Wall Street capital exceeds this superficial view.
“My core argument is that the intersection of big market and big tech has created a class of real estate market players who carry outsized power in the housing market—a shift that began in the aftermath of the 2008 crisis and has been considerably strengthened in the pandemic,” she said.
Fields had planned an in-depth academic project examining monopoly power in real estate, specifically focusing on Zillow and iBuying, she said. When Zillow’s iBuying business flatlined, that project was put on hold.
“The demise of Zillow’s iBuying arm could be interpreted as a sign of the limits of technology and the enduring role of local knowledge in housing markets,” she admits. “But I think this perspective misses the bigger picture of how Wall Street and Silicon Valley have transformed housing markets.”
The fact that Zillow was able—and chose—to unload a huge number of the homes it had bought to controversial corporate landlords like Pretium Partners is evidence of the interconnected, multilayered power of these new big-money players, Fields argued, calling it a part of the “Silicon Valley to Wall Street pipeline.”
Specifically looking at the largest corporate landlords like Pretium, Fields showed that much of the 150,000 single-family homes owned by big investors are concentrated in certain regions, at certain price points and in certain neighborhoods—targeted in a way that is “fundamentally racialized.” Using big data and taking advantage of the economic downturn and wild market of the last couple years, these big companies are benefiting often at the expense of consumers and homeowners.
“Targeting a particular slice of the housing stock that essentially corresponds to what otherwise would be starter homes, corporate landlords are also crowding out would-be owner-occupiers and at the same time evading local taxes and regulations fighting tenant protections,” Fields explained. “And so in this way, we can see that corporate landlords shape market conditions far beyond the conditions of the tenants renting from them.”
Threats and Opportunities
The issues of institutional investors and big money are not academic, even though the hard data showing the effects of Wall Street’s influence on real estate may have not been parsed out yet.
“Absolutely we need empirical evidence on the effects of these trends,” said Robert Goodspeed, a professor of urban planning at the University of Michigan and another panelist. “I never assume we’re going to move in the right direction…firms need internal and social ethical frameworks in that regulatory innovation.”
Lennox Scott, owner of John L. Scott Real Estate told RISMedia late last year that iBuyers and investors are adding important innovations in real estate—specifically around the speed and automation of the real estate process—but he does not necessarily see them as an immediate threat to consumers or real estate brokers.
“We’re using technology just as much as the iBuyers talk about it,” he said. “There’s been a lot of investment, but also as an industry, we’ve been moving toward these concepts.”
At the Harvard panel, Roberto Charvel spoke about his experiences as an investor himself in proptech, working with MatterScale Ventures and Vander Capital Partners.
“I’m representing the bad guys,” he joked. “I hope I don’t get kicked out into the rain today.”
Charvel said he approached real estate from a perspective of innovation, observing how many outsiders were able to find new ways to approach the industry.
“Maybe the real estate companies are not doing [something], but now venture capitalists are coming along,” he said. “More and more we’re starting to see how these things are starting to change the relationship with brokers and do[ing] things in a different way.”
Rather than seeing Wall Street and Silicon Valley as enemies, Charvel wondered if it was not more accurate to see their incursions as a mixed bag that offered both dangers and new ideas for the housing industry. He cited the Obama administration’s response in the wake of the foreclosure crisis a decade ago, saying hedge funds swooped in to save homes and provide rentals when the government acted too slowly.
“I would like to not only hear the negative things about these but also there’s some positive things,” he said.
While acknowledging that adding rentals in this way can help on a small scale, providing housing where lots or foreclosed homes might have sat empty, Fields argued that in the long term, Wall Street’s play was going to be bad for real estate and consumers.
“I think we need to keep in mind—what scale of benefit are we talking about here, and for whom?” she asked. “And so I think focusing on the benefits to individual tenants can sometimes take our focus away from the kind of system-level impacts that I think we are looking at here, things like crowding out homeowners…I think those kind of systemic impacts, in my view, wash out the convenience factor that these corporate landlords are offering folks.”
Apart from buying and purchasing homes, Wall Street has taken an interest in the agents and brokers who help people buy and sell them—maybe most notably through its backing of mega-brokerage Compass. According to DelPrete, Compass has raised—and lost—about $1.5 billion in venture capital.
“Compass is effectively turning money into market share, and turning market share into market power,” said DelPrete.
Using these huge reserves of capital, Compass can remain unprofitable almost indefinitely, according to DelPrete, and continue to buy top producing agents with big bonuses or simply acquire brokerages in whatever region they want.
At one point Compass reached 35% market share in San Francisco, California, he added, and has used that kind of power to try to bring more clients in with things like private, exclusive listings, potentially fragmenting and monopolizing the traditionally more open real estate market.
“We’re moving from this open ecosystem to a series of walled gardens,” DelPrete added. “Everybody in this space has an ecosystem play…I think what we’re finding out is, what’s good for the company isn’t always aligned with what’s good for the consumer.”
As far as what the future of all this might hold, panelists admitted that the long-term outcomes and danger are unclear, with limited data and evidence at this relatively early stage of big money in real estate. Charvel said that Compass has realized recently, based on a less than stellar earnings report, that “we’re not a cool tech company anymore” and that the company needs to evolve its business model sooner rather than later.
“You’re an adult, and you need to show profitability,” he claimed.
Many of these Wall Street-backed or start-up companies have also run into real limits on the power of technology in the real estate sector, according to the panelists. Goodspeed said he had just bought a home, and noted he still went through with all the inspections, walk-throughs and other on-the-ground processes because there is no way (yet) to automate or digitalize those things.
Companies like Zillow want to become “the app store for real estate,” he further claimed, which is proving to be difficult as homes are nothing like apps, or the kind of products companies like Amazon have been able to control on their huge platforms.
“I think maybe they’re struggling to get there,” Goodspeed guessed.
Fields argued that housing should be viewed as more foundational and fundamental to society, and regulatory protections needed to be implemented in order for the industry to become transparent, open and equitable. Limiting the market share of institutional investors in a given metro might prove necessary, she said, and reported that some executives for big corporate landlords have explicitly said they see housing as a data and logistics game instead of a human experience.
“We know, of course, that housing can’t be a friction-free experience, and I think the question is should it be?” she asked. “I would argue that there are necessary frictions in the system. We look to housing to kind of play a huge role in our economy, and I think we haven’t really thought through the long-range consequences of opening it up to this very rapid turnover and ‘frictionless-ness.’”
Jesse Williams is RISMedia’s associate online editor. Email him your real estate news ideas, jwilliams@rismedia.com.
