Why Technology Hasn’t Fixed the Housing Crisis

A lot of start-ups have promising ideas, but the fundamental problem of affordability seems beyond their reach

Billions have been flowing into a corner of the tech industry focused on the housing market. And now there are start-ups to help landlords manage properties, or homeowners manage sales, or tenants manage their packages.

But hardly any of it touches the central problem of housing: For many people, it costs too much.

“None of that investment, nor the solutions that those companies are offering, will fundamentally change the dynamic of the housing market in a way that increases housing affordability,” said Matt Hoffman, the vice president for innovation at the national housing nonprofit Enterprise Community Partners, surveying what venture capitalists have come to call “proptech.”

Policymakers warn that the housing crisis isn’t a problem technology can solve. Yet it’s intriguing to think what might happen if investors threw money more directly at this goal.

Mr. Hoffman believes that the right ideas could help change the market. And so Enterprise recently began to invest in early-stage tech start-ups itself.

Clara Brenner, a managing partner at a venture capital firm, the Urban Innovation Fund, hears weekly from people hoping she will do the same: When are you going to invest in a company, they ask her, that will solve the housing crisis or the homeless problem?

“This looking for a tech solution — I understand why people want it,” Ms. Brenner said. But she doesn’t believe it exists. The housing crisis is a policy problem, she says, one that Nimbyism, zoning laws, land use restrictions and tax policies have made worse. She fears that the dream of a tech fix will distract voters and politicians from those culprits.

“They’re waiting for some tech company to come in and sweep up this mess,” she said, “when in fact this is all of our messes, and we’re going to have to deal with it.”

The existing start-ups that have attracted the most attention for their potential to improve affordability are the ones trying to revive the decades-old dream of prefab construction. The California company Katerra has been valued at more than $4 billion by investors, who see potential in wringing efficiencies from a construction industry that has had few productivity gains in decades.

The Seattle-based Blokable began delivering its first stackable units last year. And Factory OS, founded by a developer of affordable housing, is now producing housing in a factory in Vallejo, Calif.

“I definitely think innovation in how we build has a significant role to getting to affordability,” said Carol Galante, the faculty director of the Terner Center for Housing Innovation at the University of California, Berkeley. “I can see it coming. I see it happening.”

It now costs as much as $500,000 per unit to build low-income housing in the most expensive markets. Savings in the cost of construction could help developers of such housing stretch subsidies further. Cheaper construction could also change the math in markets where developers say it’s also not profitable to build middle-class housing.

But Mr. Hoffman is skeptical that construction tech can fundamentally change affordability; market-rate developers have no incentive to pass those savings on to renters or home buyers, he said. And he shrugs at 3D-printed houses. “Where am I going to put those houses?” he said, nodding to the policy problems. “How long is it going to take me to find the land, get through the local zoning, the neighborhood planning process?”

Enterprise is looking instead for companies that could affect how we consume, finance and regulate housing. Perhaps they could enable models between renting and ownership, or squeeze new supply out of the housing that already exists. This month, Enterprise teamed up with a New York-based venture capital firm, MetaProp, to pick and co-invest in companies (MetaProp’s tagline: Location. Location. Innovation.).

Together they’re looking not for feel-good stories, but for viable businesses that could grow at Silicon Valley speed. Those companies may not even have creating affordability as their goal. But if that winds up being a result, Enterprise will be content.

“We believe that for-profit, fast-growing businesses — and we could be wrong about this — are going to have the biggest impact on this huge problem the fastest,” said Leila Collins, a senior associate at MetaProp. “I don’t have a lot of faith that there will be some huge policy change in the next three years that will make housing affordable in cities.”

Point Digital Finance, one company Enterprise has already invested in, helps homeowners tap the equity in their homes in exchange for a share of the property’s future appreciation. That service could help homeowners pay for constructing an accessory dwelling unit, like a backyard in-law cottage. Housing experts say such small-scale units could add to the lower-cost rental stock, but traditional lenders often won’t finance them.

Housing is an exceptionally knotty problem, even if any one strand of it — making construction more efficient, or equity more accessible, or markets more transparent — sounds straightforward.

That has become clear with a Portland start-up originally called NoAppFee. Tyrone Poole started the company after his own eviction and stint of homelessness, caused by medical debt. Though an aid group gave him a year’s worth of rental assistance, his eviction record meant he had trouble finding a landlord to accept it. And he kept spending money on application fees each time a landlord rejected him.

Mr. Poole’s first idea was to conduct background checks for renters, and filter results to show them only the units that would accept them in view of credit, income, eviction or criminal histories. He hoped this would help reduce homelessness, and built the tool into a for-profit business providing the same service to wealthier tenants and more upscale landlords.

But he discovered that people kept applying for units they weren’t qualified for anyway. The right matches on the platform were in the wrong neighborhood, or the wrong size. Most often, people kept applying to homes where their incomes were too low to qualify.

Now the company, renamed OneApp Oregon, is preparing more ambitious tools aimed at a different problem: Incomes are too low. Soon it will offer a co-signing service for tenants whose incomes don’t qualify, and a service matching tenants so that together their incomes would be enough.

“We’re using software instead of development to create housing,” Mr. Poole said. Not actual new housing, but housing that’s newly accessible to people.

Even in that, software can’t solve the fundamental problem created in the gap between stagnating incomes and rising housing costs. Mr. Poole will be able to help a renter spending half his income on housing secure that housing. But he can’t change the reality that housing costs that much.

These larger forces shaping the market are beyond even what a $4 billion construction start-up can disrupt, or what a national nonprofit like Enterprise can bend. Pull a thread in the housing market, and it leads to the decline of good working-class jobs, or the federal government’s long-term retreat from housing, or the fundamental tension that Americans want housing to be both affordable and a good investment.

It’s notable this month that as both Microsoft and the Chan Zuckerberg Initiative pledged major new housing investments, neither proposed spending its money on tech fixes. Both announced investment funds to help affordable housing developers. And both plan to push for local policies that would make it easier to expand housing.

That may be the most realistic route for tech start-ups to reshape the market.

“I don’t blame them for not being able to solve the root cause,” said Molly Turner, who lectures on urban innovation at Berkeley’s Haas School of Business. “If anything, I hope they make a ton of money and get a lot of clout, and then help advocate for the policy changes that we need.”

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Emily Badger writes about cities and urban policy for The Upshot from the Washington bureau. She’s particularly interested in housing, transportation and inequality — and how they’re all connected. She joined The Times in 2016 from The Washington Post.