Properties Are Harder Than Ever to Buy with Equity being Trapped. Can Technology Find a Solution? For decades, house prices have been rising faster than wages, resulting in many taking on second jobs or visiting the bank of mom and dad. Maybe it is time for technology to step in.

It's no secret that becoming a homeowner – the dream of so many – is getting increasingly difficult. As millennials enter the housing market, many are finding it impossible to raise the equity needed for a downpayment. While older generations, who may already be homeowners, find themselves with a lot of trapped equity in their property.

Given that owning a house is both a great investment and one that provides a home, something needs to change to allow new buyers into the market. As things stand, ever more people are missing out.

Houses and down payments are more expensive than ever

The current situation is the result of a combination of factors. The first is that house prices haven't just been rising - the rate of increase is far outpacing average salaries. Over the last decade, for example, house prices in the US have doubled. In APAC, prices have risen by almost 7% on average per year in Australia, and by 53% overall in Japan. In Europe, the price rises vary for each country, but all have seen rises over the last ten years, with the UK seeing an increase of around 50%, while Hungary's property prices have shot up by almost 200%.

Interest rates and mortgages are also high, while housing stock remains low, exacerbating the issue. With such high valuations, many potential homeowners struggle to make the down payments necessary.

Despite interest rates dropping slowly, the hurdle of slower income rises versus faster property increases means more people are missing out on the incredible investment and satisfaction homeownership provides. Consequently, in 2023, the amount of homes sold in America was at its lowest in almost 30 years.

A recent analysis of housing affordability by Goldman Sachs compared the current situation to the housing crash of 2008 and found that things have worsened.

The affordability gap is widening, a pattern playing out worldwide. This includes multiple Asian cities, most English-speaking countries, and across Europe, where homeownership rates among 25 to 34-year-olds have decreased from 25% in 2005 to 11% in 2018.

People are still trying hard to get a foot on the property ladder

This isn't to say that younger generations are giving up on the dream of being homeowners. Many are saving up by taking second jobs or simply trying to save more. A study by Redfin found that over a third (36%) of Millennials and Gen Z planned on getting cash gifts from relatives, double the amount in 2019.

Of course, those without family help face an even greater struggle, with 43% saying they are unlikely to buy a home soon and 34% saying the down payment is the major barrier. This picture is repeated globally. For example, nearly half of young Canadians have given up on homeownership.

Some companies offer financing and assistance for new buyers, but they tend to be debt-based. With lingering higher-than-normal interest rates, that's not ideal.

However, some interesting approaches are starting to appear. A good example is Divisible, which has created a technological solution that allows for the fractionalization of homes and a platform for home buyers and real estate investors to interact.

Divisible was founded in 2020, at the start of the pandemic. Its four co-founders were looking for an alternative solution to the growing housing crisis and wanted something that would benefit both new and current homeowners.

Christopher Saunders, Divisible's CEO and Co-founder, explains, "The idea came about after a discussion where one of the other founders wondered why it was so hard to access equity in his property and that there was no easy way to divide the equity locked up in a house. I said there was a simple technical solution, so all we had to work out was the legal framework."

A technological solution might be the answer the housing sector needs

Divisible provides fractional equity shares in properties and works a bit like a stock exchange. "Real estate is fractionalized and placed on our platform so that stakes in a property can be sold to investors," Saunders says.

"This helps both new and existing homeowners. New buyers can use our equity partition framework to get downpayment assistance, while existing property owners can use it to extract equity from their homes without interest or monthly repayments. On the investor side, we're opening up a new asset class for investors without the burdensome overhead of having to purchase an entire property for access to real estate equity."

Saunders explains, "For example, if a homeowner wants to buy a $1M home but needs a $200K downpayment and only has $100K, they could use our platform to find an investor who will give them $100K in exchange for 10% of the home's appreciation. The homeowner still retains all rights to live in the home as they see fit, but when it comes time to sell, they must give back 10% of the final proceeds to the investor."

Using technology to solve problems makes a lot of sense, but it needed someone like Saunders, with his tech development experience and skills, to make it happen. He was a key part of the BlackBerry Messenger development team before iPhones even existed, creating components that would later be used by Facebook Messenger, WhatsApp, WeChat, and Telegram.

He attained four patents for unique software components as Blackberry Messenger grew from less than a million users to over 30 million. He then shifted to consulting work, leading large teams focused on technology evaluation, design and development in countries that included Australia, New Zealand, and Canada.

Divisible's approach allows new buyers to obtain the equity they need for a downpayment without having to worry about interest rate fluctuations or the hassle and expense of a loan. While still relatively new, its platform has attracted a lot of attention – it has already raised $1M CAD to launch a new legal framework for real estate transactions.

The fact that there is a housing crisis affecting property markets globally is not new. However, the number of people being excluded from homeownership is rising rapidly. Add to the mix people who have properties that want to release equity and investors who want to get involved in real estate, and it is surprising no one has attempted a different approach before now.

Companies like Divisible that are trying something new by leveraging technology may not solve the housing market crisis. But they provide alternative ways to at least get on the ladder. The current system isn't working, and new solutions are welcome.