How Fintech is Driving American Real Estate
It used to be so easy
Knowing what drove the real estate market in different states in the USA used to be relatively straightforward. Broadly speaking, Florida was all about sunshine and wealthy retirement homes; Silicon Valley drew in the tech entrepreneurs, and heavy industry drove property prices in Michigan. Likewise, when you think about Texas, you might think about oil and ranching. However, information technology is now an area that the economy is heavily reliant on. As a result, information technology and its heir apparent, fintech, are affecting American real estate prices far and wide.
Heading south
According to CNBC, six of the fifteen cities where house prices grew the most, were in Florida. All but two are in the Southern States. This trend is around affordability, increased remote working, and older Americans retiring. The most significant drops in 2022 were in San Francisco and San Jose, California. Median house prices in California fell by around six per cent.
Tech industries are lighter on their feet
Unlike traditional industries, IT and fintech do not require massive plant and machinery to create their wealth. As service sector industries, they are nimbler and more flexible than their predecessors. In the early days, tech entrepreneurs flocked to Silicon Valley as real estate was reasonable, there was plenty of space, and they needed other like-minded people to develop ideas with. However, as industries in this sector have grown exponentially, they have taken real-estate prices in Silicon Valley with them.
Heavy industry is more static
If you were a motor manufacturer, for example, once you had set up a manufacturing plant, you were pretty much stuck in the original location. Not only was the plant and machinery incredibly expensive to relocate, but the skilled workforce was also in place, and, usually, the entire supply chain network was close at hand. While this is still true of large tech and fintech operations, relocating servers and office workers is considerably more manageable. In addition, many fintech employees work remotely so they can live where real estate prices are more manageable.
On the move
A recent report shows that companies are moving out of Silicon Valley. Some are going lock stock and barrel, while others are just shifting certain functions to different locations. For example, if you look at a company like PayPal, they still have their HQ in San José, but they also have operations throughout the country, including New York, Texas, and other states.
Online gambling is a beneficiary of fintech advances
One industry that has been a massive beneficiary of the advances in tech, fintech, and enhanced online security is the gambling industry. Before the internet, the only real options for gambling companies were to have expensive casino buildings in Las Vegas or Atlantic City. The security surrounding these sites had to be top-notch as they processed billions of dollars of bets. You only have to think of the planned heist in Ocean's Eleven to get an idea of the size of their vaults. Online gaming means that casinos no longer need vast physical real estate, and the security and gameplay are driven by tech, superfast connectivity, and impenetrable security.
Licensing laws often require companies to be located in the state where they are operating. Their highly skilled staff also want decent places to live and work. In the states where online casino gambling is legal, like Pennsylvania, New Jersey, and Michigan, employers and employees can get the best of both worlds—high-tech jobs in less expensive locations.
An example of this could be the PayPal casinos Time2play has chosen to review. Fintech payments have been a massive revenue driver in the states where online casinos are legal and regulated. This has led to an expansion of opportunities available in those areas.
This development opposes many real estate changes occurring in places prioritizing brick-and-mortar casinos. As we have seen, the jobs in those areas are intrinsically tied to a physical location, driving up real estate prices due to the cost of hotels and accommodation in the surrounding areas for customers visiting the casinos.
iGaming is now one of the industries allowing for the most flexibility regarding where employees can work, which may help them to avoid high-value real estate areas altogether.
Texas cluster
Fintech is making all sorts of things possible, and Texas has a cluster of such organizations. The arrival of these organizations and their aspirational workers inevitably drive up the price of real estate. This is ironic when you think that what attracted the companies to come in the first place was lower property prices. There is now a veritable hub of fintech business in Texas, and names include:
iownit – a digital private securities market
Jetpay – providing payment technology solutions for e-commerce.
Trustfund Inc – a platform aiming to disrupt predatory lending.
Michigan is on the up
While southern states are reported as experiencing the highest growth rates, some of the states in the north are also seeing tech and fintech affect property values.
For example, if you look at Michigan, the university has a program to drive fintech education, innovation, and career development. In addition, the state has put considerable finance into supporting tech-based industries, including driverless cars and semiconductors. So the state has been attractive for many reasons, but reasonably priced real-estate and outstanding work-life balance are among the lures.
Inevitably, Michigan then becomes a victim of its own success. In 2022 the average sales price increased by almost twelve percent from the previous year. As a result, the average home price went up from $244,663 to $273,661.
New York cooling
We cannot write about fintech and real estate and not mention New York. After San Francisco, New York is considered the world's second most important fintech hub. The city has over nine thousand startups, twenty-two unicorns, and over one hundred incubators, boot camps, and coworking spaces. In addition, the city is a world leader in AI and machine learning. All eyes are on the New York real estate market at the moment, with median prices and the number of sales in decline. However, mortgage rates rather than fintech are the key driver here.
