Zillow, the nation’s biggest digital real estate company, announced recently that it would shut down Zillow Offers, its iBuying plan. The company attributed this decision to challenging labor market and supply chain conditions during the coronavirus pandemic. The iBuying, or instant buying model, is predicated on buying and selling homes through a digital platform: Buyers use algorithms to price properties and acquire them directly from homeowners looking to make a quick, unencumbered sale. They then refurbish the properties and flip them to a new buyer. Zillow rapidly expanded its iBuying business in 2021, but the pandemic introduced some wrinkles to its ambitions, namely the unexpected shortage of labor to carry out renovation work and delays on materials for those properties. Add in a tight housing supply and a fast-moving real estate market, and Zillow found it couldn’t make money with the new model.
That Zillow — a behemoth when it comes to big data about real estate — could fail with its iBuying arm might look like a sign of the limits of the technology and the enduring role of local knowledge in housing markets. But my research shows the reality is quite different: Players with access to big capital and precision technologies possess a structural advantage that enables them to use Zillow’s $500 million loss to further build up their own portfolios and profits for wealthy global investors.
Wall Street and Silicon Valley have already transformed U.S. housing markets since the 2008 financial crisis, which had its roots in real estate. And a narrow focus on the implications of Zillow’s iBuying missteps obscures that bigger picture. The nexus of finance and technology has brought about two major changes: The millions of foreclosures in the housing collapse created new opportunities for global investment firms to buy homes at scale, becoming corporate landlords controlling tens of thousands of homes. And a wave of digital advances sped up and reduced friction in home-trading operations and property management. The biggest beneficiaries of Silicon Valley innovations have been Wall Street interests, not individual homeowners — and certainly not renters.