The purchasing power of banks and investment firms are making it more difficult for individuals to buy a home. But new technological solutions could offer some hope.
The views and opinions expressed in this article are those of the author.
“By 2030, we’ll own nothing, rent everything, and be happy about it,” predicts Klaus Schwab, founder and executive chairman of the World Economic Forum.
We have grown used to renting cars, chain saws, home appliances, and even clothing – but could the concept extend to signal the end of home ownership as a norm or mass desire across society?
Some experts believe we are on the way to individual ownership being dwarfed by corporate acquisitions of domestic properties – a process that’s underway and accelerating globally. There is a concern that such trends will largely impact those on lower and middle incomes, further worsening the wealth divide.
Corporate firms are buying up big
In America alone, over 200 US financial institutions have been buying low-end and entry-level properties, and even entire towns. Through steady expansion of its domestic property portfolio, investment firm Blackstone has become the largest landlord in America. In a recent $6 billion deal, it acquired Home Partners of America, adding 17,000 single occupancy rental properties to its burgeoning portfolio.
Some financial institutions are also raising funds to enter the 'buy to let' market in countries like the UK, which currently has a strong cultural focus on home ownership as a sign of financial stability and advancement.
In the UK, Lloyds Bank announced a goal of purchasing 50,000 homes over ten years. High street retailer John Lewis is also planning to build 10,000 rental properties. Many other firms on both continents and across the globe are expected to follow suit.
Investors seek alternative investments to cash
Several factors are driving this strategic investment focus on domestic property. Firstly, low interest rates allow investors to source funds cheaply, enabling them to pay a market premium in order to acquire multiple properties in the same geographic location, which also easies the ongoing property management challenge.
More broadly speaking, companies are looking to find the best home for balance sheet funds. With the value of cash holdings being eroded by very low interest rates and inflation, the search for higher yielding alternatives is underway.
While thousands of private businesses and well over 100 public companies - such as Tesla and Square - have reported ownership of crypto assets like Bitcoin and Ethereum, others currently see this as too risky a move.
Ownership of domestic property is considered safer, yielding regular rental income, and offering the potential for longer term capital appreciation. As a relatively liquid asset, property can be sold quickly to fund other business priorities.
Environment and economics influence home ownership
From the homeowners’ perspective, there are multiple motivations that could lead to a switch from ownership to rental or the abandonment of the house buying dream altogether.
Firstly, there is a growing underlying assumption that the financial situation for many may well worsen in the coming decade due to economic instability and job replacement through technology.
This is not a uniquely US concern and could turn rapidly into a global trend or even a megatrend. The investor thesis is that, in the face of potentially long-term unemployment and resulting economic hardship, many will have no option but to sell their properties and switch to renting.
Of course, in many countries, renting has been the only option as property prices have always been prohibitively high.
Another key driver in relinquishing home ownership is likely to be the cost of retrofitting homes to reduce their environmental footprint in the pursuit of net zero carbon emissions targets. For many, the upfront investment may be prohibitive given the likely timescales to achieve a payback through reduced household energy costs.
So, are we witnessing the beginning of the end for individual property ownership? It seems unlikely that the dream will be sacrificed without a fight. Governments are likely to face intense pressure to act in protection of individual home ownership.
Balancing power between corporates and individuals
Depending on the political persuasion of the ruling party, solutions might range from limits on the total value or volume of property owned by an entity, a stipulation that shared ownership be the norm in such deals, or a requirement that owners sell a proportion of their portfolio every year to enable individuals to access ownership.
One interesting option draws on the idea of fully automated decentralised finance markets that already operate in the crypto economy. This is the notion of fractionalising and tokenising domestic property assets.
For example, a €200,000 home could be sold through the issue of 20 million tokens valued at one cent each. The corporate buyer could be authorised to buy a maximum quantity of tokens through cash and debt financing. The rest could be made available for individuals to purchase.
Using fully automated platforms, individuals with even one euro could buy 100 tokens and then sell them in the marketplace whenever they want as the value of the house rises.
Entirely new secondary and derivatives markets could emerge around the tokenisation of housing. Governments might even mandate that a portion of every rental payment be converted in tokens in that property.
Participation in such tokenisation deals might allow individuals to benefit from house price appreciation without ever being an owner.
So, while the corporatisation of home ownership has moved from a weak signal to a clearly observable trend, ideas on how to regulate such developments and protect the home ownership dream are in their infancy.
As we edge down the road towards Schwab’s vision, big questions arise over how society might respond and adapt to the demise of ownership.
- Rohit Talwar is a futurist, author and the CEO of Fast Future.