This guest post was written by Gopi Mattel, founder and General Partner of Lifeboat Ventures, Director of the Chennai Founder Institute & a Mentor for the Silicon Valley Founder Institute. He is the Founder & CEO of MaxBlox, an application development platform, as well as Cellarstone, an Enterprise Incentives Management company. Mattel is an Advisor at the Pepperdine Graziado Business School, and a contributor to the TheStreet.com
In 2008, we had a global disaster triggered by the banking crisis. In 2020, we had another global crisis, triggered by the Coronavirus. Both had very large effects on the USA particularly, among the many countries affected worldwide.
One of the effects of these crises was the loss of jobs and the shut-down of many small businesses. For most Americans, rental or mortgage expense tends to be 35% of their gross income, and closer to 50% of their take-home income. Almost 40% of Americans do not have the ability to raise $400 for an emergency. As can be expected, with the loss of job income many people found that they could not pay their rent. These renters by and large faced eviction from their homes.
In the economic crisis many renters were evicted. But in the COVID-19 crisis, most renters were protected by a moratorium on evictions passed by various governments. Renters are not the only ones affected this way. A large number of homeowners have also lost their jobs and consequently have been unable to pay their mortgages. Governments have passed emergency laws to protect them by requiring creditors to provide payment relief for a few months.
These moratoriums are expiring at this time and it is not clear that all the temporary relief laws are going to be extended. Urban areas are bearing the brunt of these effects. Many areas have already been struggling with high rents. Renters and homeowners have been forced to relocated due to these reasons. Losing your home on top of losing your source of income has been doubly damaging to Americans.
Service workers such as teachers and police have been unable to live near their places of work. Elderly homeowners on fixed incomes have been unable to age-in-place around family, friends and health services.
What can we do to help people through these disasters? I am here in Half Moon Bay, California, writing this article, because a young, widowed woman in 1950s India used her meager income to build a house that could support 10 rentals. The building that she built slowly moved her daughter and her grandchildren into the middle-class and a college education. I am one of her grand-children and see the impact of an alternate income stream based on residential property, can do for a family.
Today approximately 10 Million Americans manage one-to-two unit properties and make an income. We should expand that. We need to also expand the housing availability so that rental units are cheaper in urban areas.
Many states have passed what are called ADU (Accessory Dwelling Units) laws to make it easy for single family homes to add an extra unit to their houses. This avoids land costs in housing which is the single-largest expense. Still, most of these units are fairly expensive ($150k to $250k in the San Francisco bay area), require good credit and onerous to get built.
What if there was a startup that creates a scalable model of providing ADU units, financing, and property management to homeowners at zero cost. While asking to rent the houses to young, old, single parent families and local service workers, at below market rates? There is a lot of private and public money ready to fund affordable housing initiatives.
Other ideas that could help in this area include:
- A Private Renters Insurance company similar to Private Mortgage Insurance (PMI) to protect renters and landlords against short-term inability to pay.
- Technology and management to build and support multi-unit buildings in common by the tenants.
Lifeboat Ventures is thinking about these and more ideas to fund in its quest to mitigate disaster impact on society.
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