Where Proptech Meets Affordable Housing

How technology is making a difference—and where its potential lies.

Initially geared primarily toward luxury homes, proptech now is breaking into multifamily across the board. Technological solutions are expanding into each phase of a building’s life cycle, from planning to management of the completed community. The impact of proptech can be vast, whether it be ease of living or sustainability.

One area where proptech will likely yield immense change is in the affordable sector. Today’s solutions can decrease costs significantly for residents and owners. Proptech is already making a contribution by decreasing costs for residents and owners, yet much potential remains untapped.

Addressing affordability

Proptech startups addressing construction, ESG and operational needs are popping up across the multifamily industry. Proptech can improve housing affordability in multiple ways, during planning and construction and during operations.

“Equipping these buildings with connectivity backbones will enable proptech solutions. The ones I think are very interesting are focused (on) energy efficiency and reducing a carbon footprint,” Aki Karja, director of proptech at Fairstead, told Multi-Housing News.

At a Midtown residence, Fairstead has deployed proptech solutions including real-time water monitoring and leak detection, smart radiator covers, and remote boiler controls. Image courtesy of Fairstead

Fairstead has made proptech investments focused on sustainability. One, Enviro Power, is a boiler technology that can aid large communities in heating water efficiently and generating electricity. By implementing such systems, affordable community owners can reduce expenditures and in turn bring down rent prices.

One proptech designed to reduce costs for residents and property owners is Matterport, a spatial data software. The solution drives down the costs of virtual space components by digitizing buildings through 3D cameras and virtual tour software. Matterport decreases construction time and project costs by about 30 percent by enabling the team to access the site from anywhere. The software can also reduce travel time and costs for potential residents by eliminating the need for on-site visits. This in turn also reduces carbon emissions.

Another impactful site-capture solution is OpenSpace, which allows for off-site monitoring, progress reports, issue identification and other tasks. The software is sophisticated enough already to allow for rapid adoption across projects, a progression of proptech that will likely make an impact shortly.

A platform offered by Mosaic, a general contractor, coordinates between project owners and trades, vendors and subcontractors to drive efficiency in schedule and production. The faster the build completes, the more money is saved, optimizing the developer’s ROI on exit.

“We are coordinating hundreds of units in production at any one time across multiple trades and stacking things up tighter and tighter in order to reduce costs for everyone,” reported Ron Gonski, vice president of business development and growth at Mosaic. “At the end of the day, time is very much money.”

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Still other technology addresses the needs of individual renters, rather than the affordability of the community as a whole. Gravy helps residents save for a down payment on a home and earn rewards on the rent they’re paying.

While most of these software proptech solutions are not specifically geared to affordable housing, each of them has the potential to push the market toward affordability. In the intersection of proptech and affordable housing, the market needs solutions that directly address costs.

“It is understanding where your people are spending time, in terms of costs, and figuring out how to use technology to augment what they are doing and replace their most tedious tasks,” observed Jenny Song, principal at Navitas Capital.

Once a project is complete, most operating costs go toward people. Technology can reduce operating costs by automating some tasks. MeetElise, to name one, is a virtual leasing assistant that can conduct virtual conversations with residents and prospects.

Proptech that augments preexisting roles saves owners on cost of operations and staffing. It also increases the opportunities for staff to grow professionally without getting bogged down unnecessarily with routine tasks. To make housing affordable, proptech needs to continue to address the areas where property owners and managers are expending the most costs.

Structural change

Image by Kudryavtsev Pavel/iStockphoto.com

Proptech solutions already on the market are addressing problem areas that can drive up prices in rent, yet many are still relatively on the margin in terms of their impact on costs.

“If we are really thinking about structurally impacting the affordability of housing, we have to look at construction,” said Song.

One way technology could contribute to cost reduction is by making construction permitting more effective and efficient. While this area of proptech is still largely experimental, it has tremendous potential. The overlap of proptech and government technology could also help streamline processes that slow down construction.

According to the Construction Labor Market Analyzer, labor accounts for 20 percent to 40 percent of construction costs. The intersection of proptech and education technology can bring these costs down. With a more skilled workforce, labor costs decrease, yet the market faces the challenges of both a labor shortage and an aging workforce. Construction needs skilled workers to meet demand and proptech can help bridge the gap.

Another potential area for proptech to make affordable housing more accessible is in the manufacturing process. Manufactured housing and 3D printed homes could make a significant difference in the U.S. housing shortage; however, these large-scale systems take time, effort and research to build. With a larger pipeline of prefabricated home manufacturers and distributors, as well as more efficient off-site building techniques, the cost of building multifamily communities would decrease significantly.

“You have things like transportation costs that are not, at the moment, tenable to get to a lower cost than onsite constructed buildings,” said Song. “That said, I think there is still tremendous potential there eventually. We are seeing more software-driven companies that are not necessarily taking ownership of the entire process but saying they will help facilitate some steps.”

Creating more affordable building strategies and platforms is difficult to achieve alongside meeting investors’ and owners’ targets for returns. Proptech solutions, however, offer potential to achieve both goals. “Where I think the most potential to drive costs down is in some of these different business models, like ours for example, but also in the manufactured housing side or materials advances,” said Gonski.

Implementation hurdles

Proptech, relative to other technologies, is lagging the rest of the business world by a decade or so. This is not due to a lack of know-how but because proptech can be difficult to deploy in real estate.

“One of the challenges in construction is the adage that it is an (industry) in which it is difficult to drive the adoption of new technologies,” Gonski noted.

Often owners make little or no investment in communities before selling, focusing instead on operational changes to reposition the asset. When proptech is not implemented during these rehabilitations, finding the right technology for retrofits down the line can be costly and difficult.

“I think a lot of access control is already happening in the high end,” observed Fairstead’s Karja. “There is a lot of decarbonization and electrification also happening at the high end. You have these market-rate buildings that have sophisticated building management systems that are a lot easier to deploy.” Deploying proptech is especially difficult in affordable housing because so many legacy systems are present.

Margins for rehabilitations to include proptech can be particularly tight in affordable housing. The government subsidizes many affordable housing reconstructions through tax credits, so as soon as the property is stabilized, there is even less room to fund retrofits.

“At PEF Advisors, we have not pursued proptech, because it is not yet cost effective for our affordable housing strategy,” reported Richard Bennion, SVP of Capital Markets at Preservation Equity Fund Advisors.

Despite many affordable housing property owners not yet having the bandwidth to include proptech solutions within their communities, with more solutions on the rise and ideas being circulated, we are certain to see staunch future changes to the industry.

“I think technology is the only real hope we have to truly move the needle on affordability. That is a long-term solution,” said Gonski. “I am really excited about the attention on the space now. I think it is long overdue, and I think it is still young and we are only just scratching the surface of what is possible.” 

Read the November 2022 issue of MHN.

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