Father Chip Larrimore had a housing dilemma.
For the past decade, the reverend at Sausalito's Christ Episcopal Church has lived with his husband in a home provided by his congregation. But in a market as competitive as the North Bay, the couple knew that they needed a retirement plan of their own.
It was late last year when Larrimore heard about a San Francisco startup, Aalto, that would let them test the Bay Area market with no up-front Realtor contracts or crowded open houses. Instead, the couple discreetly listed a small rental property they owned in Mill Valley on Aalto's website, set their own sale price, then chose when they wanted to close the deal, giving them time to buy another place to eventually retire.
It didn't take long for the messages to pour in from prequalified Bay Area buyers hoping to hack the cutthroat Covid housing market.
"It was sort of like dating on Match or something," Larrimore said. "It weeded out so much."
Aalto, which was launched by a Bay Area native last year after his own high-pressure home search, is part of a wave of tech companies that have sprung from the housing crisis in California and other competitive markets. Venture capitalists call them residential "PropTech" companies — yes, a combination of "property" and "technology" — which is already a nearly US$21bil (RM93.52bil) industry, according to a 2021 report by analysts at Prime Indexes.
They range from home sales startups like Aalto to online mortgage and appraisal platforms, rent-to-own or "fractional" ownership companies, plus "iBuyers" that purchase and flip homes. Then there are Airbnb-inspired companies promising to help homeowners pay high mortgages or maintenance costs by renting out parts of their properties: pools, backyards, garages, even laundry machines or cars in the driveway.
The companies' founders say they are democratising access to homeownership or modernising the long, paperwork-intensive process of buying a home. Some test how far people who have managed to buy a home in an increasingly cost-prohibitive era are willing to go for extra income — be it letting strangers' dogs poop on your expensive land, inviting people you've never met to sleep outside your house or permitting fellow app users to keep their junk in your attic.
The housing tech gold rush also raises bigger questions about who wins and who loses as homes get further out of reach for more people. Amid a reckoning over mass homelessness, the legacy of housing discrimination and fallout from the foreclosure crisis, equity advocates fear that some loosely regulated technologies could compound a shift toward treating homes as a financial asset rather than a human necessity, widening inequality.
"All of these companies, what they're capitalizing on is some level of desperation," said Catherine Bracy, executive director of Oakland's TechEquity Collaborative. "Some of them are more problematic than others."
A recent report by TechEquity Collaborative, called Sold to the Highest Bidder: How Tech is Cashing In on the American Dream, traces the housing tech boom back to the foreclosure crisis. Large investors seized on turmoil — especially in historically marginalized nonwhite neighborhoods like East Oakland — to buy up thousands of homes, then rented "them out to the very people whom they have priced out of the market," the report found.
Some private-equity firms then bought or developed algorithms to surface new investment homes, or software to manage growing numbers of rentals. In the years since, venture capital-backed "iBuyers," an industry term for instant buyers like Redfin and Opendoor, have entered the fray, making cash offers to buy and flip homes. Fractional ownership companies that allow customers to buy one share of a home owned by multiple people, including US$1bil (RM4.45bil) San Francisco startup Pacaso, have also gained a foothold in areas including Wine Country.
Like corporate investors, iBuyers and fractional ownership have grown quickly but still make up a relatively small share of overall Bay Area homeowners. Bracy said such offerings, along with rent-to-own housing startups that target lower-cost markets, require more vetting to ensure that they don't evolve to perpetuate forms of familiar predatory lending or de facto segregation.
"If we don't get ahead of what's happening in the tech sector," Bracy said, "we're likely to see the same negative outcomes that we saw in the housing booms and busts of the past."
Chief among those outcomes: a racial housing gap that is more extreme in California today than it was when housing discrimination was legal. Across California, about 37% of Black families own their homes — a decline from 42% in 1960, according to the Public Policy Institute of California and the California Housing Finance Agency. California's share of Latino homeowners, who average 40 times the wealth of Latino renters, has also dropped. Many first-time buyers of all races found themselves shut out of Bay Area Covid bidding wars.
Institutions including UC Berkeley have also attempted to measure whether long-standing housing inequities extend to new tech platforms. One 2019 report found mortgage and refinancing tech companies consistently charged "otherwise-equivalent" Latino and Black loan applicants higher interest rates due to "creditworthiness" exempted from fair lending laws, totalling US$765mil (RM3.4bil) in extra costs per year.
Now, as Bay Area home prices start to drop, TechEquity is in the process of recommending ethical guidelines for housing tech companies, along with public policy proposals and suggestions for how housing might be explicitly factored into debate about reparations. In the meantime, companies are largely left to their own devices to avoid potential fair housing pitfalls.
For Aalto CEO Nick Narodny, step one was to "just think about it, and to acknowledge" deep disparities in the American housing market. Then he made "fairness" a product objective. As the startup raised more than US$17mil (RM75.71mil) from investors, Narodny aimed to mitigate "unconscious bias" by anonymizing potential buyers, showing initials instead of full names. The site also matches buyers and sellers by financial qualifications and purchase timelines only, he said.
Still, it was personal frustration that first sparked the idea for the startup. In 2018, Narodny was looking for what he thought would be a straightforward three-bedroom, two-bathroom Bay Area house. After finding "like three options" in his budget, he heard about a "pocket," or off-market, listing from his mom, a longtime Realtor. He saw an opportunity in the awkward, almost "clandestine" experience of touring a house not listed on the public market.
"I was like, 'Does the homeowner even know we're here?'" Narodny recalled.
Off-market listings inherently limit how many people know a home is available, but Narodny said his goal is to double or triple the number of homes for sale in an area by making it faster and easier to list homes. Aalto, which started in San Francisco and Marin and now operates in several surrounding Bay Area counties, also provides a financial incentive: it undercuts traditional 3% Realtor fees by charging a 1% commission.
"There's so much opportunity," Narodny said. "We want to unlock a ton of new inventory."
'It went too far'
Fellow startup founder David Adams has also grappled with tech's role in the housing crisis. He came up with the idea for a more niche PropTech company called Sniffspot while living in San Francisco with his dog, Soba.
The startup operates in the corner of the gig economy targeting homeowners — in Sniffspot's case, those willing to turn their backyards into rent-by-the-hour private dog parks. As the company scaled up to work with homeowners in 2,000 cities, Adams watched closely while real estate tech luminary Airbnb evolved into a publicly traded global company that sparked backlash over concerns about speculation and displacing long-term tenants.
"It went too far, and it created issues. Companies learned from that," Adams said, adding that, "Nobody's not living in their property because they're renting it out for dogs."
At her 13-acre ranch in Briones, Kelley O'Sullivan has always been a dog lover. The animals took on a new significance after her daughter, Tara, an officer with the Sacramento Police Department, was killed in the line of duty in 2019 and O'Sullivan took in her pitbull mix, Nero.
She Googled around for ways to connect with other dog owners and found Sniffspot. O'Sullivan and her husband, Denis, now earn US$450 (RM2,004) to US$1,300 (RM5,789) a month by renting out 1 acre of their property to yardless tenants and road-trippers looking for a dog park that they can book via app.
While O'Sullivan works as a personal trainer and said the extra income isn't absolutely necessary to pay the mortgage, she sees how others make it a more lucrative gig.
"Oh my god, they add agility (courses), they add signs, dog treats — they personalise it to the people coming," O'Sullivan said. "If we really, really put effort into it and made it super bougie, we could make more money."
Adams stressed that Sniffspot is primarily in the business of addressing the ills of "the modern dog world:" obesity, boredom, apartment-dwelling owners stressed about finding safe outdoor space. But in the process, the company has become one of many opening up new income streams for homeowners in widely varied economic situations.
Swimply, for example, specialises in by-the-hour home pool rentals. There's also Neighbor for selling storage space, Hipcamp for private camping land and SudShare for doing other people's laundry.
"We have hosts making over US$3,000 (RM13,360). It's real money," Adams said of Sniffspot. "Certainly anecdotally, we see folks that are aging in place because they have this income stream. People are covering their property tax."
When it came to actually buying and selling homes for the North Bay's Rev. Larrimore last year, he said listing on Aalto led to two offers. Once he and his husband settled on a buyer, they started shopping for their own retirement home on both Aalto and public listing sites.
They were beat out on four homes in their US$1.3mil (RM5.8mil) to US$1.7mil (RM7.6mil) budget in Sausalito, he said, before closing on a two-bedroom condo in Tiburon this month.
Whenever retirement day comes, it will be difficult to leave the town where they've become part of the community. But in the fog of bidding wars and endless online scrolling, Larrimore stuck to a mantra that chalked it all up to a higher power.
"Well," he recited, "that one wasn't meant to be." – San Francisco Chronicle/Tribune News Service