Housing Affordability is an American Crisis- Rook Capital's Ed Messman
The US Housing Market has been “on fire” over the past two years. Several areas have seen increases of over 40% in this period and the aggregate value of US houses has risen a whopping $7 trillion. As of March 2022, US housing stock is valued at $44 trillion, a number that is more than twice the country’s GDP.
Aggregate data is always interesting but can be misleading since it doesn’t allow for nuance. While on the face of it, one might say, that a country with high home-ownership percentages would by and large welcome increases in home equity, the reality is somewhat different. Only 65% of Americans live in families that own their houses and in many disadvantaged groups, the number is far less. Furthermore, even with the rise in home equity, economic precarity is at a high in the United States. The median net-worth in an American family is just above $120,000 with the average African-American family net-worth only about $20,000. Even with a rise in home equity, with the median American home-owning family having 70% of its asset base in its house, liquidity is still a major issue. With rises in commodity prices, costs of education, transportation expenses, and stagnation of wages, Americans are caught in a conundrum. The millennial generation, comprised of 85 million people, is staring at a different world, one in which the “American Dream” of homeownership seems distant, removed, even impossible.
Data is useful here while platitudes are not. There is a housing crisis in the US, but not one that is insurmountable. When we look carefully at the numbers and put them in context, we see that innovative approaches can be used to mitigate the pain and ameliorate the situation for the tens of millions of Americans who are effectively locked out of homeownership and thus generational wealth accrual and transfer.
The signs for 2022 and 2023 suggest that this trend-line will continue, making it harder for a vast swath of folks to enter the housing market. For those who want to tap into their equity to diversify assets, pay for the kids’ education, manage debt, undertake home improvements, or even indulge in a vacation, the current processes are onerous and often bedeviled with red-tape. The data points are clear.
So how do we scale this mountain? How do we set the road straight again?
In a sweeping chat with Ed Messman, Co-Founder and CEO of Rook Capital, I found a great deal of hope, backed by a particularly innovative strategy he and his Co-Founder Kevin Cawley have been pursuing for the past year. It is one I believe will bear fruit.
It starts with the mission, which itself is borne of the data. Rook’s mission is to increase the avenues by which people can own homes or use their home equity to lead what Messman calls “bigger lives.” Unlike many Silicon Valley startups (or “upstarts”), Rook is looking to capitalize on the great institutions and products already in-market while innovating around the edges to make the “very hard” actually “easy” and possible. With Rook’s “Shared Value Mortgage” prospective homeowners can actually partner with investors to get into homes with no monthly payments, sharing the appreciation with their partners. Reciprocally, investors can reap the benefits of appreciation in a variety of markets and in increments that allow them to diversify their investments. For current homeowners who seek to use their accrued equity for other purposes, they too can partner with investors to get liquidity in exchange for partial appreciation in the value of their houses.
Added to this are on- and off-ramps for Crypto investors who want to use their accrued Crypto wealth for real estate.
Rook is a fascinating company not just for its innovative offerings but also because it crosses heretofore disparate audiences. Rook’s offerings appeal to the crypto-drenched millennials and to older Americans who prefer the comfort and familiarity of “mortgages.” Rook’s offerings appeal to both homeowners and investors who until recently were pitted against each other in the transactional world they occupy.
Real Estate technology companies (also known as PropTech companies) are everywhere now. Some are amazing and offer real solutions to real problems, while others appear to be unnecessary and disconnected from the audiences they attempt to serve.
Rook stands out in this category as a company with a real mission and a set of founders who romanced in the data and found a way to build a prosperous business while serving a profound societal purpose. For Rook, the data pointed to a clear mission.