Crowdfunded Home Platform Seeks To Bring In Millennial Buyers

Crowdfunded Home Platform Seeks To Bring In Millennial Buyers
Grocery, Convenience & Supermarket

Fundrise is trying to help young adults save for a down payment while simultaneously crowdfunding the construction of homes in their neighborhoods

Ido Lechner, Home Editor
  • 1 august 2017

It’s no secret that the housing market is growing increasingly difficult to enter as a first-time home buyer. For millennials at an early stage in their careers, without much money even to afford their current living conditions, the dream of owning a home seems especially unattainable. With wages increasing at a much slower rate than home valuations, the disparity between income and purchasing power has forced more newcomers in the workforce to move back in with their families. In Los Angeles, approximately four out of every 10 millennials live with their parents.

Seeking to alleviate this problem, a fresh-faced startup called Fundrise has emerged in an endeavor to help young adults save for a down payment while simultaneously crowdfunding the construction of homes in their neighborhoods. Its platform operates as follows: public investors buy a minimum investment of 100 shares (currently set at $10 apiece) in what the company calls an ‘eFund,’ a.k.a. a new limited liability company that develops housing in the city. With up to $50 million in shares up for grabs, the purchases will fund the construction of new condos and detached houses in urban, transit-friendly neighborhoods. And according to CEO and co-founder Ben Miller, Fundrise will initially target small vacant lots, and other such areas that traditional developers might ignore.

“There’s a very deep, systemic problem around supply… [You have here] a generation of people that can’t afford the houses that they want, [because] the houses that they want aren’t being built,” Miller told Fast Company. “The traditionally-funded system is building the wrong houses, in the wrong place, and the young generation, people that are first-time homebuyers, aren’t buying those homes. They don’t want to live in the suburbs. They don’t want to spend an hour and a half each way in the car every day.”

Having launched in 2012 with an initial focus on commercial real estate, the company pioneered the idea of tapping into a networked public to help shell out the resources necessary to birth new restaurants, cafes and apartment buildings that otherwise wouldn’t see the light of day. In one instance, the company was able to bring a Whole Foods to one of Chicago’s most economically depressed neighborhoods, wherein the grocery giant successfully trialed a lower-cost version of its standard supermarkets. Fast-forward five years, and Fundrise has managed to adapt its commercial funding model to the housing sector, seizing a blatant gap in high-density, urban neighborhoods often overlooked by developers (who tend to live in suburbs themselves and subsequently lack the insight to build there).

Traditional builders often work at scale, producing large blocks of homes (sometimes in the hundreds) all at once, rather than filling the cavities in pre-existing blocks. As Chris Leinberger, a “walkable urban developer” and business professor at George Washington University put it, “The vast majority of homebuilders in this country know how to build subdivisions. Take a farmer’s field, put a bunch of cul-de-sacs, and put up a single family housing. That’s all they know to do. [But] building walkable urban developments is fundamentally different… The market is asking for this mixed-use [environment], and the homebuilders can’t deliver. They don’t know how.”

Beyond the mass confusion occurring within the industry, restrictions on density with respect to zoning further complicate the situation. Back in 1960, Los Angeles was zoned for 10 million residents, and it has since “reduced capacity” to just over four million by 2012. Fundrise hopes that by giving prospective investors a piece of the pie, they’ll be more likely to lobby against lowering the density (or maintain the status quo) within their respective districts, directly opposing a community that actively fights against this development style.

“[Right now] there’s this NIMBY (not in my backyard) kind of reactionary dynamic where people don’t want to create the housing supply in the major markets, but that’s where the customer wants to be, that’s where the jobs are, that’s where the growth is, that’s where the environmental benefits are,” Miller said. “There’s every reason to have housing supply in the urban core, not in the suburban or exurban hinterlands. But until you connect the investor and the homebuyer and the politics, it’s just intractable.”

Coupled with the average 27-year-old’s general disinterest in emailing their council member to support the development of housing they’ll show up to buy two years down the road, there’s an inevitable gridlock that largely favors the elderly population. Tackling this dilemma, Fundrise’s proposed solution of selling $50 million in shares projects anywhere from 250 to 750 new homes will emerge within the next five years as a direct result. When the homes are ready, the “homebuyer investors” will have the option of either buying said home themselves, or, if all goes as planned, merely profit from the investment once the home gets sold.

With homelessness in LA increasing a whopping 23% in the past year—despite the city’s success in pulling more individuals off the streets than ever before—there’s never been a better time to rethink the strategy of how and where our homes should get built. Though much of Fundrise’s work exists in a state of hunches and hypotheticals, it stands to make a serious dent in the outdated zoning laws present in many cities across the U.S., driving new methods of funding housing for lower income brackets all the same. What remains to be seen for the time being is whether young homebuyers will embrace the platform.

“There are things that I know will work,” said Miller. “We can build homes in L.A. But can you activate a whole generation? Can you get them to invest, can you get them involved in solving the problem of what homes get built and how they get zoned, rather than showing up five years from now and going, ‘Oh, I can’t afford a home?’”

Fundrise


Lead Image: Jan Henckens | Unsplash

It’s no secret that the housing market is growing increasingly difficult to enter as a first-time home buyer. For millennials at an early stage in their careers, without much money even to afford their current living conditions, the dream of owning a home seems especially unattainable. With wages increasing at a much slower rate than home valuations, the disparity between income and purchasing power has forced more newcomers in the workforce to move back in with their families. In Los Angeles, approximately four out of every 10 millennials live with their parents.

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+Fast Company
+home
+Housing
+investing
+Luxury
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+Sustainability
+urban development
+USA
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