Using blockchain to solve the housing crisis: an initial proposal
0x1e0a
August 25th, 2022

In response to the question: “What major problem could potentially be resolved with a network city and how?”

Problem

Mortgages are hard to get, inefficient, and require creating debt with an intermediary (banks). When combined with house prices increasing more than inflation, it makes buying a home practically impossible for many people.

Solution

In this article, I will propose how a mortgage system could be replaced entirely by a trustless, fractionalised ownership model within a network city.

Goal

  • To give everyone the opportunity to easily and affordably purchase their first house without taking debt.
  • To take advantage of network city infrastructure to create a trustless process that overcomes current legal obstacles and administrative work.

Structure

The equity of houses is fractionally tokenised so that a buyer can purchase as little as 10% of their property while the remaining equity is split between a diverse pool of investors. The buyer then has the opportunity to buy the house shares from the pool over any period of time. Meanwhile, the buyer pays a monthly rent on the part of the equity owned by the pool of investors.

The rent could be priced lower than the standard market rate as it would be lower-risk, easier and cheaper for investors in comparison to traditional letting since they would own fractional equity and revenue in multiple properties instead of full ownership of one or few with all administrative work automated. Additionally, the majority token holder (the buyer), not the investors, would be responsible for the upkeep and maintenance of the property similar to a normal mortgaged house. By reducing the rent cost, the buyer can purchase more of their home faster. The more of the property the buyer owns, the less rent that needs paying.

An example of a trustless, fractional property ownership model.
An example of a trustless, fractional property ownership model.

If the buyer does not pay the rent on time, an equivalent value of their property tokens is sold to the pool to cover it. If the buyer at any point fails to meet the average minimum equity needed to cover the selling of the house (let’s say 8%) then the house is automatically auctioned, their stake sold and any remaining money sent back to the buyer. All of this is executed on a smart contract between the buyer and the pool of investors through the infrastructure of a network city.

The network city/nation allows this process to be possible by recognising smart contracts as legitimate transferrals of property ownership. This would revolutionise purchasing or selling houses, making the process much easier for citizens and providing the network city with a far superior housing system while also making the property market more fluid.

Benefits for buyers

  • Gives the opportunity for people who would never qualify for mortgages to own a home in a fair, unbiased, non-exploitative manner.
  • Quick, simple and admin-free purchase process.
  • Can ‘pay-off’ their home on their own timeframe; there are no time parameters for buying more equity, only monthly rent.

Benefits for investors

  • Can invest as little as $1 to get exposure to the network city’s housing market while returning a monthly yield.
  • Risk-averse, passive property investment strategy that eradicates the role of a landlord, property manager and mortgage provider, but gives investors equivalent financial reward.
  • Helps other citizens join the property ladder instead of keeping them out.
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