Tech companies are already flipping houses, but can they build some too?

Ryan Johnson worked at a San Francisco tech company, Opendoor, which makes software for buying and selling homes. Four years ago, he decided he’d rather build them.

Johnson, who grew up in Phoenix, moved back to Arizona and joined the growing ranks of tech industry expats now trying to shake up the US housing market. The opportunity he thinks he has spotted: not enough housing in pedestrian zones.

“The majority of Americans want to live in a walkable neighborhood, but only 8% do,” he said. “And that’s because the United States largely stopped building walkable neighborhoods with the advent of the car.”

Johnson, the CEO of Culdesac, plans to open a 1,000-person car-free development in Tempe, near Phoenix, this year. The company sits on the border between the worlds of housing and technology, employing several software engineers and forming partnerships with technology companies, including scooter operator Bird. He considered places such as Denver, Dallas and the Raleigh-Durham area of ​​North Carolina for future sites.

The startup is part of a growing trend of tech entrepreneurs turning to housing construction, an industry with a steep learning curve for outsiders and one that for decades has resisted disruption.

The push is aimed at addressing an urgent need: the massive shortage in US housing inventory. Last year, estimated that the gap between housing demand and available supply was 5.24 million units, and rents rose more than 20% in some markets, with similar house price increases.

But this is far from the tech industry’s first foray into housing. Websites from Redfin to Bankrate have long helped people search for housing or finance, and more recently tech companies such as Zillow and Opendoor have embarked on a type of large-scale house flipping known as ‘iBuying, adding a new slot wildcard. Marlet.

About half of Americans, 49%, said in a Pew Research Center survey in October that the availability of affordable housing in their community was a “major problem.” This was higher than the percentage who said substance abuse, Covid-19 or crime were a major problem.

“We’re seeing a lot of innovators entering the housing space with creative ideas,” said Michelle Boyd, program director for the Housing Lab, a nonprofit advisor and investor in research-grown housing startups. on housing at the University of California, Berkeley. “It’s a very big need, and there’s a lot of room to make money, if you can break through with innovation.”

Startups look at just about every step of the housing development process. Technology-focused companies are creating software to help potential builders identify building land. Others are small, mass-produced homes that can fit into backyards, especially in California, where recently relaxed regulations allow “step-family units” and duplexes. Still others are working on labor logistics and trying to streamline factory systems for manufactured homes, including through 3D printing.

“I don’t think we’ll have robotic construction workers anytime soon, but there are parts of the process that could benefit from automation,” said Pete Flint, who co-founded online marketplace Trulia in 2005. and is now an investor in early-stage companies.

“You go to a construction site, and it’s devoid of technology. Whereas you go to any other big part of our economy, and there’s technology that drives a big part of it, whether it’s hospitals or factories,” Flint said, citing research on the building productivity. “It seems incredibly outdated.”

Venture capitalists, who typically invest in software ideas, are increasingly on the lookout. Culdesac recently announced that it has raised $30 million from investors including Silicon Valley heavyweights Khosla Ventures and Founders Fund.

Madelon Group is among the startups tackling the problem with software. It recently launched its core product: an app, REDtech, that lets people search for potential housing sites, automatically generate floor plans, and connect with financiers and suppliers.

“We need to massively increase housing supply,” said Dane Andrews, COO of Madelon. He said the infill development process is particularly archaic, and he imagines anyone from university officials to “mom and pop” promoters to ski resorts will eventually use the company’s app to build more multi-family housing.

The company is just getting started, but since its launch in early January, it says it has 45 active users who have subscribed to 901 properties in three markets: Denver, Los Angeles and New York. He is also working directly as a development partner on a 40,000 square foot project in Denver to build small studios.

Other tech-focused housing startups focus less on building software platforms and more on materials or even using factories to build modular homes, a practice more common in Europe than the United States. United States. One builder, Factory OS, has investments from Facebook and Google.

Icon, a Texas-based company, raised $207 million from investors last year to work on 3D-printed homes and partnered with a more established homebuilder. Another 3D printing home builder, Mighty Buildings, based in Oakland, Calif., has raised $100 million, TechCrunch reported.

But there have already been early warning signs of how tech industry thinking can go awry when applied to homebuilding.

Katerra, a Bay Area startup that billed itself as a kind of Tesla for housing, filed for bankruptcy last year after raising nearly $3 billion from investors. The Information, a technology news website, reported that the company had not met its sales targets and that employees had exaggerated financial reports.

Another Bay Area startup focused on modular construction, RAD Urban, went bankrupt last year despite a promising start.

And in December, Alphabet merged its “smart city” division known as Sidewalk Labs into Google. Toronto previously walked away from a high profile partnership with Sidewalk Labs.

“We’ve seen people jump into this as innovators without taking the time to fully understand the problem they’re trying to solve and why that problem was created,” Boyd said, without referring to companies. specific.

“At the end of the day, we live in a physical house. We don’t live in the metaverse, so there are limits to the amount of software that can help,” she said.

A main obstacle to construction remains local political opposition, as people who live near proposed developments often oppose them, citing increased traffic, noise or other objections. Zoning regulations in most cities often limit apartments, in particular.

It’s not something tech startups have been able to do much, said Kevin Erdmann, who writes on housing as a senior affiliate researcher at the Mercatus Center, a libertarian institute at George Mason University.

“I think it’s commendable what these companies are doing, and I think they’re doing some cool innovation,” Erdmann said. “But the innovation we really need to make housing affordable is political innovation.”

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