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The role technology might have in housing prices

The evolution of technology is truly marvelous to watch, and it impacts many fields. Real estate and housing, for example, will be impacted by blockchain.

Having a roof on top of our head is one of the most essential human needs. Everyone has a fundamental right to housing, which ensures access to a safe, secure, habitable, and affordable home. However, due to skyrocketing housing pricing in most of the cities in the US and Europe fewer and fewer people can afford to own a piece of property which would secure their right to housing. Anyone looking at this problem can think that housing prices rise due to inflation and high market demand and, as such, there is nothing that can be done.

However, by looking a little bit deeper into this problem, we can start breaking down the main 4 factors contributing to the cost of housing: land price, labor, materials, and government fees. And the only one cost that can fluctuate due to supply / demand is the cost of land, because all other costs can be reduced and optimized in order to make housing more affordable.

Where all the technological progress we are seeing in our lives, it could be assumed that these costs should go down – however, thanks to the archaic systems and supply chains we, in fact, see the cost increasing year on year. Due to inefficient and outdated bureaucratic systems and regulations impact on housing, additional costs can reach up to 55.9% of the land price (source) and, on average, 16.4% to 26.2% of the final price of the home sold to the end buyer.

These slow processes cause extended delays, translating into higher costs, because of the added financing necessary to keep a project afloat with pending final approval. The added costs caused by delay get passed on to the end builder and buyer, in a form of the higher land cost for each lot and the final price point – representing an average between 5.9% and 11% of the total cost (source). With regard to the labor and material costs, those are extremely inflated and need to be drastically optimized. Today the vast majority of this construction and procurement activity happens in the traditional, prone paper based submission process.

All of the above, including the increasing price of the completed housing, create enormous risks for fraud and theft. On average, 5% of housing construction projects encounter fraud or legal issues and the related costs are in the end borne by the property buyer. However, change is possible and is on the way.

The use of technology based on Blockchain technology and Smart Contracts offer new tools that bring significant value and efficiency to the entire process of construction, causing for the inherent risks of bureaucracy delays, errors, omissions and fraud to be significantly reduced or even eliminated, in some cases.

Smart-contracts also allow the prevention of misuse of investors’ funds, as they nullify any construction risks by programming the construction processes and writing of funds to contractors, decentralizing the processes and creating construction solutions under control of the interested buyer community.

Blockchain, being a global decentralized registry, provides transparency of project information, decisions, permits, agreements with contractors, schedules, orders and accounts. With this in mind, it is expected that the use of blockchain will significantly reduce the construction cost and in turn housing cost.

Together, these tools provide a system of checks and counterweights that exclude collusion between the participants in the construction process. Efficient solutions can be brought in the form of complex platforms, which will connect all construction participants in one blockchain-based ecosystem.

One of the most comprehensive solutions to date is Squarex, a platform that applies blockchain technology and smart contracts to the whole process of development and construction, from project documentation to construction control and real estate purchasing. Kirill Kotilevsky, CEO of this company, explains this further:

“We see great opportunities of blockchain to make one of the most conservative sphere more technologically advanced, transparent and efficient. We expect huge and positive economical effect of blockchain integration into real estate. At least 3,4% of all fraud cases are in construction industry sector and causes millions of dollars in losses. Squarex is created to solve complex web of problems  and provide people with realty as a safe, more affordable and liquid asset.”

Nowadays, multiple governments and regulators are starting to approach and explore the Blockchain technology and the ways it can solve some of the biggest issues of our time, including access to housing. It is only a matter of time until this “new way” of doing things in the real estate world becomes a standard, and Squarex is surely one of the players in the front of this wave.

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