Understanding Govtech for Housing Adoption
Homeownership is foundational to the American story. It holds deep significance in people’s lives and the housing sector itself plays an important role in the economy. Therefore a huge coalition of stakeholders—from individual homeowners to the national government—are incentivised to ensure its efficient operation. Yet, information asymmetry between, and sometimes within, these parties creates significant pain points, constraining the supply of housing and increasing its cost.
Housing is foundational to the growth and stability of the US economy. Source: (1)(2)
At Hometeam Ventures, we believe that solving the housing crisis requires solutions that tackle these pain points at all stages of home building for a diverse range of stakeholders.
Stakeholders involved in the housing construction process span across both the public and private sectors.
While solutions focusing on private sector stakeholders have increased in recent years, the public sector, an essential player, has been underserved. To understand more about this gap in the market, we undertook this analysis to explore where precisely the public sector fits into the construction timeline and what pain points exist in this process.
For this purpose, we spoke to housing stakeholders working in city governments, housing authorities, and private development firms to learn more about how the public sector interacts with various stakeholders. From their insights, we learned how the public sector engages with the construction timeline during Project Assessment, Financing, Entitlements, and Inspections stages.
Our intention for this report is not to pressure or criticise city governments but rather highlight instances where they need support. Governments are a key partner in the mission to solve the housing crisis—creating solutions that address their needs can help unlock double bottom impact accelerating the construction of housing and driving down its costs. This report lays out our key findings and presents an overview for investors and founders interested in supporting the intersection of housing construction and governance technologies.
Why pay attention to housing governance pain points?
Governance pain points have significant implications on housing availability and cost. As almost all of the private developers we spoke to underscored:
“Navigating regulatory requirements is extremely time-consuming and costly; as a result projects only start if developers believe that they can fulfil these requirements easily.”
These regulatory overheads and bureaucratic delays are a significant bottleneck to housing production. Official data from the Atlanta Fed shows that the average multi-family project spends more time in the planning and permitting phase, than construction itself (3). For smaller developers, the majority in the homebuilding industry (4), these delays can have significant consequences on the ability of their project to pencil. Not only do these high costs act as a barrier for entry preventing new housing constructions, but they also get passed down to the consumers making housing more expensive. Hence, creating solutions that address government inefficiencies can have a significant impact on the supply and cost of housing, helping increase housing affordability.
What are these pain points and when do they occur?
The public sector experiences pain points as it plays its two primary roles in the housing construction process— financing affordable housing and regulating new construction.
Financing for affordable housing is deployed at the federal, state, and municipal levels. However, the distribution to individual projects is managed by state and municipal agencies. The most significant of public financial support is the Low Income Housing Tax Credit (LIHTC), a tax incentive for low income housing developers, distributed by state level Housing Finance Agencies (6). State and municipalities also deploy HUD grants such as the HOME Investment Partnerships (7), and Community Development Block Grants (CDBG)(8).
Similarly, regulation is also done largely at the local level. Municipalities have the authority to shape zoning ordinances, oversee entitlements process, enforce building codes, and issue permits. While developers must comply with certain federal and state regulations — such as the National Fair Housing Act, or California’s Environmental Quality Act (CEQA) — most of the functional regulation — of density restrictions, urban growth boundaries, minimum lot sizes, and height restrictions — occur at the municipal scale (9).
Problems arise due to the heterogeneous nature of housing and financing regulations. No two cities share the exact same policy. Similarly, city departments themselves have different manpower and infrastructure capabilities causing delays in timelines. This causes issues during the process of regulatory oversight as well as limits the resources they can deploy to any given project. Compounding these structural issues is inefficiencies in data management—information is not being shared between parties who require it the most.
However, the most significant pain point we heard echoed across all interviews was the difficulty in communication. The housing process requires approvals from various stakeholders from zoning boards to homeowner associations and resident groups. However, the technical nature of housing development and a fragmented local market creates barriers in communicating intent. The project’s physical properties are communicated via design plans and rendering, something that a local homeowner may not be able to understand. Similarly, the disconnected approvals process requires developers to approach multiple city departments separately, creating inefficiencies in communication.
You can explore more about each of these pain points, as well as the various stages of housing governance by clicking through our interactive timeline. By breaking down the pain points further into their common issues, we can seeThe table below Breaking down pain points into common issues shows us how inefficiencies in housing governance can have spillover effects on other stakeholders as well.
Market Opportunities in Governance Technologies
The rapid development of technology has increased public expectation on efficiency and transparency, making it one of the fastest growing startup sectors in recent years. According to the World Economic Forum, the global market size for governance technologies is expected to double from $606 billion in 2024 to $1.42 trillion by 2034. Technological solutions that can help cities increase their efficiency are expected to reduce costs by 30% and realise 5.8 trillion in efficiency gains (12).
Aside from the market opportunity, working with governments can yield other benefits for startups. Startups working to service the government can experience more predictable revenue compared to the private sector as well as lower client churn once relationships are established. Government contracts also benefit startups by increasing their market credibility.
Startups working with the public sector to address pain points in housing governance.
While the field is still nascent, several startups that have grown to service this niche have been successful, underscoring the market demand for such solutions.
However, despite the growth of housing governance solutions in recent years, we find that Data Management remains an underserved sector. Moving forward, more attention is required for data analysis solutions that help governments make sense of the data they collect.
Additionally, while there are several startups looking to solve larger governance issues, there are very few that are optimized for housing construction governance. In particular, technologies that help standardize the review of building codes can help address Process Management and Resource Allocation issues in housing construction governance.
Finally, while there are several startups looking to improve community engagement, there still is a need for tools that improve housing-specific communication between public and private stakeholders. For instance, generative AI tools that allow homeowners to create project renderings personalized to their tastes can help alleviate their concerns about neighborhood changes.
We are currently looking for solutions that seek to solve housing governance pain points for governments. If you would like to present your work to us, please reach out to contact@hometeam.vc.