Real estate tech startups are making it easier for people to invest and manage property. But critics say these software companies and their business models are winning over the limited number of available homes in the process, driving up costs and driving out first-time buyers.
These investment services encourage users to invest in multiple properties, removing already scarce housing inventory, said Tram Tran-Larson, community engagement manager at the Housing Justice Project, a Seattle-based legal aid clinic that helps evictions of low-income tenants. offers them defense. He is part of the King County Bar Association. This increases the cost of affordable housing, he added.
But researchers say the lack of affordable housing has more to do with limited supply, not the proliferation of technology-enabled real estate investment platforms.
“Housing supply is a fundamental long-term issue,” said Sheharyar Bokhari, a senior economist at real estate giant Redfin. “If you had housing for everyone, maybe investors wouldn’t be in the market because they wouldn’t have to bank so many requests.”
Arrived Homes, a Seattle-based startup that offers fractional ownership of rental properties, has raised about $50 million in real estate financing. That’s about 150 properties in about 20 American cities, said CEO and co-founder Ryan Frazier.
“I certainly understand their criticism, especially as housing prices are rising,” he said of the backlash against real estate investment platforms. “We certainly don’t want to take inventory away from people who want to buy homes that they want to live in.”
Today, Arrived has around 100,000 people registered on its service, and around 10,000 users are actively investing. On average, there are about 200-300 investors per household.
Frazier added that there is “equal interest and demand for quality rental housing,” especially as the cost of borrowing is rising and more homebuyers are moving more frequently, he said.
Demand from investors interested in buying real estate as an alternative asset has always been strong, regardless of the presence of real estate investing apps, said James Young, director of the University of Washington Center for Real Estate Research.
He asked, “Should we blame the personal computer for high house prices?”
Factors such as stagnant incomes and a slowdown in home construction that have not kept pace with rising housing costs make it difficult for many Americans to afford housing. Real estate investments also boomed during the pandemic, as investors took advantage of low mortgage interest rates.
About 70% of Americans say they have a harder time buying a home than their parents, according to a Pew Research survey. The median home price in the first quarter of 2022 was $428,700, according to Federal Reserve data.
Investors accounted for a record 28% of US single-family home sales in the first quarter of 2022, up 19% from the same quarter last year, according to a recent report by Harvard’s Joint Center for Housing Studies. This is “well above” the average market share of 16% between 2017 and 2019, the report says.
Investor-owned housing market share continues to grow in Seattle and Portland, according to data provided by Redfin, which classifies those investors as individuals or businesses that own at least four properties.
In the first quarter of 2022, investors accounted for approximately 10% of Seattle’s total housing supply, up from 3% in the first quarter of 2000. Portland investors’ market share rose from 7% to 12%.
Market share growth in the Pacific Northwest is relatively subtle compared to investor activity in the Southeast, where investors accounted for more than 30% of home sales in Atlanta, Jacksonville and Charlotte in the first quarter of the year.
Bokhari, the Redfin economist, said investors are driving up costs in the Southeast, where private equity and Wall Street firms are buying large swathes of property. In contrast, he said, the impact of real estate investing startups on supply is relatively small.
He said he hears the most frustration with real estate investing startups at the micro scale. These investment platforms often bring cash to the table and are able to outbid first-time buyers, he added.
“This basically gives them an unfair advantage, because they are pooling a lot of money, and because they have the power to negotiate,” he said. “Given the state of the market, it creates frustration for the average American shopper.”
In King County, home buyers sometimes pay $100,000 to $200,000 above the asking price, Tram-Larson said.
Asked about competing with first-time home buyers, Frazier said Arrived often avoids bidding on properties that would otherwise be owner-occupied.
Young, the UW director, said investing in real estate is different from investing in other assets, such as stocks or bonds, because of the homogeneity among assets. Each property has its own set of problems, takes up physical space and has utility. This means real estate assets are not easily liquidated, he said.
“In real estate markets, you can get all the capital you want through an application,” he said. “But it still doesn’t mean you’re going to be able to close faster than anyone else.”
Shkelqim Kelmendi, executive director of Housing Connector, a nonprofit that provides housing assistance to the homeless, said he doesn’t see real estate investment as a threat to affordable housing.
“Innovation is not a bad thing,” said Kelmendi, who recently partnered with Zillow to launch a tool to help private property owners and landlords rent to the homeless.
He said that as real estate investing startups scale and have more bandwidth to commit to social impact causes, his company would be interested in exploring opportunities to work with them to address our country’s broad housing issues.
He asked, “Is there a way we can leverage or collaborate with some of these new companies and this new innovation to meet the demand we have on the street?”