When Sophia DeWitt, program director for Easy Bay Housing Organizations, learned about blockchain-based bidding sites for apartment rentals, she was immediately worried.
“I think that it’s unfortunate,” DeWitt said to The Mercury News, “because any site or option like this that is going to increase or strengthen the speculative market in housing is bad for rental prices. That will just increase the rental prices, and it’s bad for renters.”
DeWitt wasn’t alone in thinking this way. Several articles have recently decried the idea of rental bidding sites, where landlords can list properties and have prospective tenants offer competitive bids. Because renters can see other bids, there is some concern that prices will be driven up, as people outbid each other in the race to find the perfect space.
Are the concerns valid? Judging by similar disruptive technologies in other industries – CarFix, for example, runs on the Ethereum network saves Russian residents money on auto repairs, while Hong Kong’s Bitspark makes it more affordable for emigrants to send money back home to their families – this kind of technology seems to be a net-positive for the greater good.
While long term impacts are still unclear, these blockchain-based rental platforms are definitely providing some short-term positive effects for renters in high-priced cities.
Driving down rental costs rates
When it launched in early 2016, Rentberry’s CEO Alex Lubinsky knew there was a possibility that bidding could increase prices, particularly in hot markets. Yet he believes there’s a key ingredient to his platform that will prevent chaos.
“While some are screaming foul, and claiming that Rentberry may drive pricing off-the-charts in uber-competitive markets like San Francisco and New York, they fail to realize that its rental price negotiation concept actually levels the playing field,” Lubinksy explains.
The key is transparency, Lubinsky believes, which keeps rental prices in line with area markets and makes the process safer and fairer for tenants and landlords.
The idea resonates well with a generation of younger consumers, and demonstrates the growing desire to deal directly with the human on the other side of a business transaction, outside of the traditional broker relationship. Naturally some brokers are upset, and voicing their concerns. Yet since brokers typically work on commission, it’s definitely a financial boon to them drive prices up on any transactions. Rentberry charges one flat fee – regardless of the final amount agreed to – when a tenant and a landlord come to terms.
“It’s not about increasing prices,” Lubinsky said in an interview with The Mercury News. “It’s all about knowing and controlling the situation.”
A large part of that is knowing the competition, like how many others are bidding, and what the highest and the recommended offers are.
Their data bears this out the advantages for renters. According to Christopher Mims in The Wall Street Journal, tenants using Rentberry have actually saved 5.1% overall off landlord listed prices.
“These savings were possible because Rentberry allows tenants to make offers that are lower or higher than the posted rent,” Mims explains. He notes that Biddwell, another bidding site with different features, reports 64% of their closed bids came in below asking price.
For the moment at least, it appears that this kind of transparent bidding process can indeed save renter’s money. Yet there’s another significant challenge affordable housing for many people.
First, last and security – the down payment nightmare
First month, last month and one month security – for many renters, coming up with this down payment is the real deterrent to finding good housing. Now, blockchain technology is helping renters get around this hurdle.
“Lubinsky estimates there’s around $500 billion frozen around the world in these locked-up security deposits, and his team has come up with a way to unfreeze it, without putting the landlord at risk.
For young professionals, traditional costs can be a nightmare, as one recent transplant to NYC told me. She found her new place through a rental broker, and was pretty shocked at the fees involves.
“The fees for moving in were first month and last month rent, security deposit, pet deposit, and on top of that was an 18% realtor’s fee” explained Chelsea Trim, a marketing assistant at appellate printing company PHP in NYC. She was even advised to make her application more attractive by promising a year’s rent in advance.
“Who’s got that kind of money?” she asks.
To help get around this massive hurdle, Rentberry has created a crowd-sourced insurance network in which each member of the Rentberry community can contribute a small amount to the fund, and get interest rates and financial rewards in return. Tenants pay 10% down, the system assigned them a risk ranking based on their profile (including their credit score and other consumer data), and the crowd-funding guarantees the landlord’s interests by securing with the rest of the down payment within the blockchain.
Housing will always be a basic human need, and a major expense, especially in big cities. Prevailing rent should and will decided by market forces, especially when technology can leverage market intelligence to help landlords price their listings more accurately.
Given that there’s already a bidding war going on in many cities in the traditional rental market, it’s not likely that this type of technology will make it any worse. And seeing the ways it could increase transparency and make moving in more affordable, blockchain-based rental technology could be a good thing for many.
Written by Oren Rofman