By Natalia Karayaneva, CEO of Propy
Following the 2008 housing crisis, interest in real estate has been on a steady decline. Price inflation has led to the dissolution of affordable housing, and prospective homeowners are beginning to turn down real estate investment opportunities and permanent dwellings in favor of temporary rental options.
It’s a reality that’s perhaps no more apparent than with Millennials — the tech savvy, well-educated, 22 to 36-year-olds who are the least likely to throw money into bricks and mortar. There are many reasons for this newfound reticence: the cost of purchase is too high amidst a rising cost of living, median home prices in urban centers (where educated students are most likely to find higher-paying work) are surging dramatically, student loan debts are mounting, and postponing marriage and children is causing delays in the desire to buy a home.
So what are they doing with their salaries? According to a Charles Schwab report, they are spending it on rent, student loans, traveling, gym memberships, and comforts and conveniences (like taxis, coffees, and dining out). And what are they doing with their investment dollars? At the moment, according to BankRate, they’re mostly investing in stocks, bonds, or holding cash.
Having been raised in the recession, Millennials are more skittish about buying homes. To most, the state of the real estate industry today is drastically different from the one inherited by the Gen X or Baby Boomer generations. The simplest explanation is that housing is becoming more expensive, and investing in these traditional assets is less accessible to the regular Millennial.
In 1970, the median housing price in the United States was only $65,300 USD, but has since increased to $119,600 in 2000 and $255,000 in 2018. Even for those with high-paying salaries, affording high premiums on mortgage payments, especially with mounting student loans, is simply too much of a burden given today’s uncertain and tumultuous economic climate.
Additionally, Millennials (40%) are more likely than Gen Xers (32%) and Baby Boomers (26%) to graduate college, meaning that many are forced to work in urban areas where real estate is rent-focused, and purchasable housing is out of budget. Further, asset managers with stacked real estate portfolios typically only offer investment slices to private buyers, mostly high net worth, more experienced investors.
Millennials are calling for a change. Just weeks ago, we witnessed the birth of security tokens, or digital coins representing real world assets, and saw how they can enable partial ownership in trophy hotels. It’s now entirely feasible that this new asset class can get Millennials investing in real estate again.
They have lived their lives in the throes of innovation, and can acclimate quickly to new and evolving technologies. Roughly 97% of Millennials (compared to 83% of Baby Boomers) actively use the internet, while 90% own a smartphone (compared to 67% of Baby Boomers).
It’s through this openness to technological advancement that makes cryptocurrency an attractive option, and more specifically, a vehicle to buy partial ownership in trophy assets (for example the five-unit building block in Bushwick and the St. Regis Aspen Resort), opening up a new decentralized frontier for investing.
Using what’s known as security tokens, which are regulated, digital representations of equities, debts, bonds, funds, and/or REITs, individuals can purchase parts of traditional assets and real estate. But why bother? Firstly, it allows for partial ownership. Think of security tokens as the digitization of paper shares or stocks, where individuals can invest in a small portion of a promising real estate opportunity with a group of other investors.
To Millennials, this is a far more accessible financial prospect for those who don't want to burden themselves with an expensive, multi-decade loan at the peak of their careers. While it won’t necessarily lead to a new home for these individuals, it can lead to a higher return on their investment, which will ultimately increase the likelihood that they will want to purchase real estate in the future.
Owning cryptocurrency tied to a real-world asset that’s increasing in value over time will likely result in significant financial windfalls based on property projections and rising market demand, meaning they can subsidize their cost of living and alleviate mounting student loans, building a foundation for future investment opportunities.
In addition, security tokens alleviate liquidity challenges in buying and selling traditional assets. When an owner tries to sell a home, or an asset manager tries to sell a multi-story building, only a select few buyers are interested or even allowed to participate in the bidding process, and when the buyer wants to sell their stake at a later date, it can be extremely time consuming.
Having digital shares of a hotel means owners can sell their shares on secondary security token exchanges (through regulated Alternative Trading Systems like Templum, tZERO, and Open Financial Network), anywhere in the world, at any hour of the day. And if they want to hold their tokens, they can make money on the fluctuating value of the property over time.
Finally, today’s housing market is overrun by banks, brokers, payment processors, and middle-men who make money by handling our transactions, leading to heightened costs and excessive processing fees. Security tokens, by the very nature of the underlying technology — blockchain — are removed of any intermediaries which significantly reduces overhead. Millennials who trial this unique form of investing may still not want to buy homes and investment properties immediately, but a positive experience with security tokens can boost their interest in a market they’re turning their heads from.
Indiegogo recently partnered with the St. Regis Aspen Resort in Colorado to provide their users access to buy partial stake in the property using bitcoin and ether. Aspen Digital offered tokens to prospective buyers for partial ownership in the resort at a $1 USD price point.
By allowing for micropayments, the venture engaged a previously untapped pool of younger participants that were interested in real estate, but didn’t know how to get involved. Given the existing securities regulations, the offering was open to accredited investors, meaning people who have a net worth of over $1 million USD, or make over $200,000 USD a year.
While most Millennials don’t make this type of money, it’s a step in the right direction for a market begging for new capital. On Tuesday, October 9, the $18 million dollar maximum allocated toward security token investment in the hotel successfully sold out.
Even before security tokens existed, 30% of Millennials would rather invest in cryptocurrency than stocks and bonds and are five times more likely to say that bitcoin is the best way to save for the future. In preparation for the road ahead, real estate companies and asset managers would be wise to consider new ways to integrate blockchain into their business practices in an effort to market themselves to younger audiences.
There are even some platforms that allow the purchasing of luxury goods and assets, as well as homes, exclusively with cryptocurrency. Cryptocurrency is going to be the future of asset-sharing around the world; a future that promises to build a stronger housing market with tangible long-term potential, and more accessibility money conscious Millennials.
With these younger, tech-savvy individuals paving the way, and with cryptocurrency tying itself beautifully to physical assets, real estate can establish a position it hasn’t held for a very long time.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
