New home builders are facing a lot of changes and demands at the moment. The demand is needing an additional 100 billion square feet of living space in the next 11 years. The changes stem from a tech revolution that has finally reached the real estate industry with full force.
Up until now, home building has shied away from the tech revolution, remaining largely unchanged for the past few decades in terms of how houses are sold and built. But those past practices are no longer sufficient because of another demand —consumer interest in alternatives that give them more control and a more streamlined process.
This trend actually isn’t new. It’s been building since about 2005 when real estate tech began making information more readily available to consumers. The year 2015 marked the first time the majority of buyers initiated the homebuying process online. However, that’s largely where the innovation ended—until now.
Not surprisingly, an increase in real estate technology, also known as PropTech, has coincided with the increase in Millennials entering the housing market. This generational shift has been swift and undeniable. At the end of the day, if builders can’t live up to consumer expectations and offer them the PropTech tools they want, they’ll take their business elsewhere.
As Trulia founder turned PropTech investor Pete Flint points out, technology has transformed many aspects of life. But technology changes in real estate have the potential to be much greater than anything else we’ve experienced.
Billions of Investor Dollars Are Propping Up PropTech
The clearest sign for builders that the industry is undergoing a revolution is in investor activity. Over the last few years, investors have turned their attention to real estate technology. Investment in PropTech startups went from $2.4 in 2008 to nearly $38 billion in 2017.
There are now more billion-dollar tech companies founded in real estate in the last 15 years than any other industry except e-commerce. Investors recognize that consumer behavior and attitudes are changing. They also understand that the U.S. residential real estate market is worth $31.8 trillion. This paves the way for a massive amount of opportunity in the real estate tech sector.
One of the biggest areas of opportunity according to Pete Flint is tech-enabled construction. It’s a belief that’s shared with many other real estate tech insiders.
Investors and real estate tech innovators have a truly symbiotic relationship. Without the investor funding, the rise in real estate technology wouldn’t be possible. Now that investors are funneling billions into PropTech startups, changes within the real estate industry are going to become more rapid and more impactful.
Real Estate Technology is the Key to Future Relevancy for Home Builders
As builders find themselves immersed in the Fourth Industrial Revolution, they must ask themselves about the path ahead and answer the question, “how do I stay relevant in an industry that is now changing rapidly and is prime for disruption?”
Just as important, is how builders can overcome negative sentiment about the industry. Many people see home builders as largely to blame for the current housing crisis. Shortcomings in construction research and development are being singled out as a primary cause for rising home prices and shortages in the housing supply. Research from McKinsey found that the construction industry only invests 0.5% of its value in R&D.
Builders must first understand how technology both offsite and onsite will transform workflows, business models, production, price points, growth and the entire selling process. Not only will changes in construction technology impact builders, alternative transaction models will also have an affect.
The effects are already beginning to be seen with the use of virtual reality (VR). Home buyers are no longer won over by simple blueprints that do little to help them visualize what a house will look like. Even model homes aren’t ideal because they aren’t personalized to the home buyer’s exact specifications.
With VR technology builders are starting to overcome this hurdle. The technology has evolved to the point that 3D models can be made and a simple VR headset allows the buyer to virtually walk through the model to get a better feel for their dream home. Unlike a model home, VR models can easily be changed if the buyer wants to see different materials, layouts or upgrades. And if a builder does have a model home the interior decor and furnishing can be changed with a smartphone and augmented reality apps.
Homebuilders that are ahead of the curve are the ones who will attract younger buyers and older buyers that put a premium on personalization. In an industry where consumers crave smart features, the latest materials and cutting-edge construction techniques, builders that position themselves as a part of the technology revolution will be seen as the most relevant.
Embracing “Disruption” in Exchange for Acceleration
In the age of disruption, fast-paced technological advancements and a customer first consumer environment, how can new home builders accelerate their position?
It’s a question that a lot of builders are asking themselves. These builders understand that the industry is already in the midst of change and the time has come to not just embrace it but to leverage this change.
Leadership must first prepare their firm for the changes ahead. Current acquisition models will need to be reevaluated. Options for every aspect of business, including building processes, will have to be explored. The use of data will need to be expanded to gain more insights for product development. Investments in real estate technology will need to be made.
Firms must shake off the business as usual mindset. They have to look at it from the home buyers vantage point and better understand how consumers are responding to the real estate tech revolution.
Consumers want more control, access to information and transparency. They’re also frustrated with the slow pace of home transactions. myHouseby is a real estate technology platform that’s aimed at helping builders meet these consumer demands. By bringing the initial phases of floor plan selection and personalization online for home buyers to manage themselves, part of the process is expedited. Communication channels for a direct buyer-to-builder transaction are then established to fast-track the steps that come before the building.
Already hundreds of real estate tech startups have emerged with a wide array of tools and services that can be utilized. Virtual reality is just one category. Smart homes are another huge frontier. E-commerce giant Amazon recently began partnering with builders to make new smart homes that are integrated with Alexa and appeal to tech-savvy buyers. And artificial intelligence (AI) promises to save builders time and money at every phase of construction.
As more outside startups continue to revolutionize the home building industry, builders are given the opportunity to create relationships that accelerate their business. Builders that embrace real estate technology and recognize the value that such partnerships bring will be rewarded rather than disrupted.