A new report from Tech Equity Collaborative looks at the way that the growing property technology (“proptech”) industry is impacting tenants for the worse. Researchers found that the influence of venture capital in the industry led to worse outcomes for tenants and prospective homeowners.
The property technology sector—software that helps companies and landlords purchase real estate, collect rent, screen tenants and more-—has grown enormously in the last decade: according to the report, “Venture capital investment in the space has increased by 53X globally between 2010 and 2021, from $600M to $32B.” That includes $19 billion of investment in 2021 alone. And investments from private equity increased 35 percent the same year.
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Many of these companies profess to democratize housing ownership or renting but end up creating predatory forms of inclusion where efforts ostensibly meant to remove historical barriers actually increase inequality by charging fees or through deceptive practices. The report says these companies are accelerating the financialization of housing, or the conversion of property into a speculative asset to park cash. They’ve also enabled corporations to hide behind algorithms when screening out tenants, file eviction notices in bulk and coordinate rent hikes.
In some cases the federal government participated in this activity: in 2012, the Federal Housing Finance Agency created a Rent to Own program that allowed large investors to purchase foreclosed homes in bulk and turn them into rental properties.
Exploitative rent to own programs have a long history in the U.S. In the 1950s and 60s, countless Black renters were victimized by “contract to deed” programs where they would pay a higher rent with a promise to have the deed turned over to them, only to have the contract canceled for minor violations.
Modern Rent to Own schemes are similar in that renters build no equity and in the majority of cases don’t end up owning a home. They have been supercharged by private equity and the tech sector. The report breaks down the success of various rent to own startups along with their funding; the companies Home Partners of America and Divvy have success rates of 38 percent and 50 percent, respectively, and are backed by venture capital and private equity. A company called Trio has a 78 percent success rate and is backed by Federal Housing Administration mortgages. It was the only startup the researchers could find utilizing government-backing rather than venture capital.
Private equity has been encroaching in the single family home space since 2008 and purchases have surged since the pandemic. This is partially thanks to proptech; while large investors initially found mass homeownership logistically challenging, this was streamlined through the proptech sector and big data analytics, the report found.
“They invested heavily in new technological tools that suddenly made it profitable to manage large property portfolios,” according to Tech Equity. This allowed large venture and private equity backed companies to screen tenants, collect rent, field (or ignore) maintenance requests, or evict tenants remotely and in bulk. It allowed some companies like American Homes 4 Rent to increase rent by 150 percent and increase fees by up to 1000 percent.
The report also calls out tenant screening software; tools which have long been criticized for exhibiting bias and which are the subject of numerous lawsuits for discrimination as well as getting prospective tenants completely mixed up with other people. The report found these kinds of software are opaque and leave consumers at a disadvantage. According to the report, “Based on sample reports, even landlords are not privy to how the determinations are made.”
The lack of transparency also dilutes federal protections. The Fair Credit Reporting Act allows consumers to know what is in their credit report, what factors in the report went into a denial and to request a correction if anything is inaccurate. But it’s not clear if this covers predictive analytics, which are speculative. “What if that information is not accurate or inaccurate? What if it’s entirely hypothetical, as in the case of predictive scoring?” the report’s authors ask.
Tech Equity is asking for more transparency from the industry and released an “ethical practice guide” calling on companies to test products for unequal outcomes, minimize the data they collect and provide opportunities for consumers to appeal decisions.
