The real estate industry is experiencing a sea change as technology redefines what real estate is and who can access it.

For a very long time, the American Dream meant owning property, specifically, owning a home to call your own. Since the 2008 financial crisis, the dream of homeownership has changed due to a combination of changing societal norms, market forces and new investing opportunities. Now, following the ongoing COVID-19 health pandemic, achieving this dream might feel even more uncertain for many Americans.

Real estate has shed many of its long-held notions. Many people live in places they cannot afford to own, many people “own” real estate without calling it their home and many people invest in real estate by buying pieces of it. These new alternative means of ownership would not have been possible without what truly has been a revolution in real estate financing. That revolution was brought on by technology that’s been applied to the industry in new and ingenious ways.

Setting the Stage for the Revolution
The story of the financing revolution begins with the convergence of many distinct, yet interconnected trends.

The availability of affordable housing has steadily decreased in America, brought on by protective local regulation and existing homeowners who aren’t keen on skyscrapers changing the skyline of their communities. Those regulations have played a role in creating a shortage of housing starts. That shortage results in enormous supply constraints in major urban areas where newcomers flock. What housing is available, then, can command high rents and home prices. When you couple this with the fact that the majority of the U.S. housing stock is between 20 to 70 years old and needing a refresh, you’re looking at an outsized imbalance of housing need and supply.

At the same time, millennials have adopted a lifestyle more centered on experiences than on ownership of material things such as homes. Reacting to the high prices and down payments required to own real estate in the cities they want to live in, many prefer to continue renting instead. It’s important to note that the largest wealth transfer in history—from boomers to millennials—is set to occur this decade when an estimated $68 trillion will change hands. Whether millennials and later generations use this newfound wealth to invest in real estate will be an interesting trend to follow.

Technology’s Role in Lending and Investing
Against this backdrop, the real estate industry itself was disrupted by technology in much the same way the financial industry was disrupted by fintech. These “proptech” (property technology) firms applied technology to different areas of real estate that sought to democratize access and level the playing field. With regard to real estate purchasing or investing, technology changed how different players in that ecosystem accessed financing, which in turn expanded their ability to participate in the space and reap returns from those investments.

Think about real estate entrepreneurs. Many of them are fix-and-flippers who see opportunities to renew and upcycle America’s housing stock by improving properties in their local communities. Previously, these entrepreneur-borrowers were limited to securing loans either from traditional lenders such as banks that had inflexible requirements or from hard money lenders who had limited access to capital.

Technology changed the narrative for these hard money lenders. They evolved to become an innovative group of private lenders empowered by technologies that streamlined their operational and analytical processes. Private lenders are now able to compete with traditional, institutional lenders and win, by offering their borrowers more efficient and flexible solutions. These advances in technology have allowed private lenders to finance real estate entrepreneurs and the craftsmen they employ in ways they could not before.

At the same time, technology also connected these lenders to new sources of capital. Whether through a two-sided marketplace model or through crowdfunding platforms, the lenders suddenly had access to a new universe of institutional and retail investors, allowing them to tap into liquid and motivated capital sources far beyond their immediate circles of historical investors. In this sense, these lenders are “diversifying” their capital sources while creating a much more stable financing funnel to their borrowers, the real estate entrepreneurs.

Finally, real estate investors—once upon a time, real estate home buyers—have also benefited enormously from technology.

The advent of fractional investing in real estate via proptech platforms allows investors to derive value from real estate without having to own property. Investors can now access both the debt and the equity side of real estate, put very little minimum investment down and gain exposure to the asset class without needing to even see the property. These investors are financing real estate while bypassing all the old rules and processes that made the hurdle to access the industry so high. It’s well-known that purchasing a home is the largest investment that most Americans ever make, yet too little attention is given to the concentration risk inherent in those investments. As the saying goes, fractional investing allows people to place their eggs in multiple baskets.

No matter which market participants you consider—lenders, borrowers, investors—the innovations in technology being applied to the real estate industry today have essentially “freed the money.” As we navigate this uncertain economic environment, this idea might be more important today than ever before. Financing a home or an investment property was once prohibitively expensive for many, but the industry has found a way to solve some of these problems by connecting the players in entirely new ways. We’re in the midst of a sea change in which previously held conceptions of real estate—what it means and who can access it—is being turned on its head.

It’s anyone’s guess what our industry will look like at the end of this new decade, but one thing is certain: Technology innovation will continue to play a major role in reshaping it.