For first home buyers, we have seen in the market mixed signs during the first few months of this year. After fast growth in every quarter from Q3 2020 until Q2 2022, growth numbers started slowing down from Q3 2022. The U.S. median home price median home price grew 7% in Q3 2022, 2% in Q4 2022 and just 1% in Q1 2023, which is the lowest year-over-year change since the first quarter of 2012. Another drop is predicted later this year.
Proptech has emerged as a disruptive force in the real estate industry, transforming various aspects of the housing market. One critical area where proptech has the potential to make a significant impact is housing affordability. With rising housing costs and the increasing challenges faced by individuals and families in finding affordable homes, Proptech offers innovative solutions that positively influence housing affordability. By leveraging technology, data analytics, and automation, proptech platforms and applications are reshaping traditional processes, streamlining operations, and creating opportunities for greater affordability in the housing market.
That being said, times have changed. For example, the average interest rate for 30-year fixed mortgage rate in the US went from under 3% to above 7% in a short period of time. And while the number now seems to stabilize, the sudden surge has had a painful impact on housing affordability.
In September, mortgage payment-to-income ratios reached a 35-year high at 35.5%. Additionally, rental prices are up very high as housing vacancies have hit the lowest level in nearly for decades. And it doesn’t look like this will shift soon as recent data is showing a dip in new building permits.
In the market we are seeing a number of promising Proptechs that aim to address the supply side through technology to make construction faster, cheaper, and better.
One way of doing this is: alternative materials.
However, there has been a bigger push towards carbon-reducing materials than towards cost-reducing materials. Ideally, there would be more available technologies that can combine both of these important factors. Bamboo-based lumber alternative providers are a great example and we have seen a few deals recently in this niche space.
Please take into account, but bamboo is the fastest growing plant on earth, making it a very interesting product to use. Demand for bamboo and other sustainable alternatives has grown exponentially and the global market for bamboo is expected to exceed $100 billion (!) by 2025. Using fast-growing bamboo in building products should theoretically also be cheaper, but more engineering is (obviously...) required to make this product viable as a structural component.
Another factor that is ramping up the costs of construction is (unionized) labor costs.
The declining population of skilled workers is making this trend even more problematic. Proptechs do make construction work more attractive to a wider array of workers. On one hand, VR and AR improve the image of construction work to attract new young workers. On the other hand, new technologies can make construction work lighter and more accessible to older workers. Technology can also be used to speed up the learning process and get apprentices field ready more quickly. VR start-ups create virtual training environments for topics that can be taught off site to reduce time and costs of the complete education.
Change in construction processes can’t be overlooked either.
Research indicates that construction productivity has stagnated, and there is potential for technology to improve productivity and reduce costs. Platforms for project collaboration, platforms for construction lending verification and draws, platforms that capture 3D sites, and automated progress tracking, will all contribute to that objective.
Theonsite-construction process has also room for technology empowered improvements.
We have seen software that can generate step-by-step instructions, technology that collects data like weather conditions and material locations to optimize task ordering and scheduling, and even software combined with AR and prefabrication: this technology can generate optimized framing designs from architectural drawings, prefabricates the components, and consequently guides the construction via a mixed reality headset.
How about the offsite construction process?
If most onsite construction labor can be shifted into factory settings, productivity will increase.
Today’s prefab startups are bringing technology into the process to guide everything from design to fabrication, which enables customization, but also multifamily housing development is being looked at.