The housing market in many countries today has a serious flaw. We saw that flaw backfire already with the big housing (and following financial) crisis. The flaw: houses serve two purposes, that are partly incompatible today. First, houses serve as a home for people to live in or offices and stores for people to do business in. Second, houses serve as a store for value and an investment. Today these two purposes work against each other, as higher revenues demand raising rents or letting houses stand empty. This problematic situation cries for a solution – and it will be resolved in the future, one way or the other.

So if you’re in the business of building, renting or simply trading with real estate and housing, this should be on top of your list of priorities for the future: how will this situation develop and how can my business profit from it?

The Usual Predictions

The rather short-sighted attempts to resolve the housing problem can be found in societies and politics all around the world. They range from tax breaks for home owners over public building of homes to limits for rents. Some of these measures can work in the short-term and thus will be applied in various countries. However, these solutions mainly cure symptoms instead of the root cause. They neglect the underlying problem of the shelter-function of housing being at odds with the investment-function of housing. But there are possible future, where both of these aspects of housing can be reconciled to actually complement each other.

Opportunities Few See Today

Let me take small detour first. Blockchain technology is a big buzzword nowadays. The blockchain is probably at the initial peak of the hype cycle right now. The technology will not apply to every industry as people make you believe today. But a few industries will actually be turned upside down by this technology: e.g. the financial industry and the music industry. But also the real estate and housing industry could be turned on its head by blockchain technology.

To understand how the blockchain can change the housing market, we need to be clear about the benefits that blockchains offer over traditional businesses. Here are the main general advantages:

  • Disintermediation. A blockchain removes the need for a trusted party in the middle of a trade.
  • Speed. Validating a transaction on the blockchain takes minutes at most, compared to days, weeks or months with a traditional intermediary.
  • Low transaction costs. Because no intermediary is needed, the transaction costs shrink dramatically.

What would this mean for the housing market? Well, if you’re a broker, you’re in danger of being “disintermediated away”. But also if you make money by investing in houses, the new liquidity of the market can drive prices down and leave your business with no margin at all. To understand all this, we need to look at how a blockchain could work in the housing market. Here is an excellent article on how it might work out:

Houses that own and rent themselves for cheap (part 2)

This article shows how the way we thing about housing could change dramatically. Once renting is actually cheaper than owning, only people interested in the investment function of housing will invest. The idea to cap housing to one place per person at a time further separates the shelter and investment functions. And the added flexibility will make owning a house seem as wasteful as owning your own power plant to mix your morning smoothie. With all that, investing will still be possible and houses will still make a profit. But since the house now owns itself, there is no danger of inflated speculation with housing anymore.

Although noone know, whether the blockchain will really disrupt the housing market in the described way, the potential shifts in the market are huge. If your company is in the housing or real estate business today, you should at the very least run a few scenario analyses with a couple of “what if” questions. Or else you might find your company disrupted by the market.