- Millennials entering the housing market as first-time homebuyers are finding home prices far out of their price reach.
- The new eFunds from Fundrise are developing homes in high-growth urban areas at reduced costs to meet the demand for more affordable housing in major cities.
- Through the Homebuyer Investor Program, eFund investors can receive exclusive purchasing access to more affordable homes before they’re offered to the public.
Millennials entered the workforce during one of the worst economic crises in history. Now, as they enter the home buying market, they face a different crisis of housing unaffordability due to supply barriers and reduced inflation-adjusted incomes compared with previous generations. To help address the Millennial housing crisis, Fundrise has created the eFund investment model to develop homes in high-growth urban areas at reduced costs. This model is intended to create new housing supply in price ranges more affordable for first-time homebuyers entering an overheated market.
Los Angeles, A Housing Crisis Case Study
The Los Angeles eFund was one of the first eFunds created, and for good reason. A combination of population growth, curtailed home building, and lower incomes has created a housing market with a low supply of for-sale housing and an even lower supply of homes priced within reach of prospective homebuyers in Los Angeles.
Population growth of Los Angeles is outpacing the city’s housing supply. In 2015, Los Angeles experienced the greatest percentage of population growth of any California city, but the city’s housing stock has failed to keep pace. From 2010 to 2015, only one new home was added for every six residents. While the population is booming, the homebuilding industry is not.
Worsening housing supply is the difficulty that developers face in building new homes in Los Angeles. Los Angeles is the second most difficult city in the US for developers to build. Roughly 90% of all residential land in Los Angeles is already fully built with single-family homes. This leaves only 10% of residential areas open for building higher-density multi-family homes in the second-most populated city in the US. Due to these issues, home values in Los Angeles have risen an average of 5.77% annually since 2000.
Source: Building Zoom
Compounding the problem is the fact that Millennials are earning 20% less than Baby Boomers did at the same age and are encumbered with more debt. The Millennial generation carries $1.1 trillion of the country’s $3.6 trillion of personal debt. As the now-largest generation struggles to pay debt alone, big purchases, such as homes, are out of reach.
As a result, over 40% of Millennials in Los Angeles are living with their parents as of 2017. The majority of millennials not living with parents are spending over half of their income on housing. But, their desire for homeownership remains. A recent survey from Apartment List revealed that 77% of renters in Los Angeles planned to settle down in a different city, and roughly half attributed this decision to housing unaffordability.
As the Millennial generation shifts from renting to buying, their housing demand is spurring the building need for housing in walkable, urban communities that are in close proximity to employment opportunities. The eFund is working to develop homes to improve the undersupply and out-of-reach pricing that first-time homebuyers currently face in high demand markets, including Los Angeles.
The eFund Solution
The eFunds leverage a new innovative model that harnesses the investment power of individuals to build new homes in major metropolitan markets. By unlocking the investment, social, and home-buying power of local investors, the eFunds create a whole new investment system for everyone involved: driving better potential returns, bringing more balance to housing markets, and building homes for the next generation.
By connecting people and capital directly through technology, Fundrise removes a multitude of middlemen. This lowers costs, drives better potential returns, and opens up benefits never before possible (such as a new home). Fundrise manages the entire process of loan origination, home procurement, development, and disposition, eliminating intermediary costs such as brokers’ fees that traditionally have come with real estate development.
Furthermore, by following the value investing strategy, whereby assets are purchased below their estimated replacement cost, Fundrise is able to buy, renovate and sell homes at lower prices than other developers. This translates not only into more-affordably-priced homes for homebuyers, but also potentially strong returns for eFund investors.
The Homebuyer Investor Program
All eFund investors have the chance to benefit from the investment model both as investors and potential homebuyers through the Homebuyer Investor Program. Once for sale, eFund investors are expected to receive exclusive “first look” purchasing access to eFund-developed homes before they are offered to the general public. This exclusivity removes brokerage and marketing costs of the selling phase, potentially producing better returns for investors and two-sided savings for the investor turned new homebuyer investor.
Offering homes through the Homebuyer Investor Program is expected to reduce home prices by up to $30,000. This reduction in price saves the homebuyer money by potentially lowering both the down-payment and monthly mortgage payments. We believe these steps are critical to improving home affordability for first-time homebuyers in competitive urban markets such as Los Angeles.
How to Get Started
The Fundrise eFunds give everyday investors access to a diversified portfolio of for-sale housing in high-growth neighborhoods of major US cities for as little as $1,000. The Fundrise direct-to-investor, technology-driven model can lower costs in comparison with traditional home development, producing lower home prices for homebuyers and better returns for investors.
Recently, we shared news that we had acquired and begun renovations on our first direct investment home, the La Vista property, through the Los Angeles eFund.
Learn more about becoming an investor and a possible future eFund homebuyer here.