In 1960, real estate investment trusts were created in the U.S. with the goal of democratizing real estate ownership. Here’s how Yale professor Robert Schiller described it:

“REITs were created by law in 1960 to democratize the real estate market and make it possible for a broad base of investors to participate in this huge asset class. That was absolutely the right thing to do, because portfolio theory tells us people should diversify across major asset classes, and real estate is one of them.”

But a lot of things have changed since 1960. We now have the internet. 

And one of the things that the internet is very good at is creating peer-to-peer networks that connect supply and demand without the same kind of intermediaries. This could be people who have MP3s with people who want MP3s or it could be people who have real estate with people who are looking to invest in real estate.

So with the advent of crowdfunding in both the U.S. and Canada, I think we are at the dawn of another era of real estate democratization. Already we have seen the first crowdfunded real estate development project and it happened at a much smaller and local scale than is usually the case with REITs.

Similarly, we are also seeing companies emerge – such as HomeUnion in the U.S. – that allow people to build their own rental portfolios by directly investing, either fully or partially, in real estate. Again, there are differences here compared to how REITs typically operate.

When I was in grad school at Penn and Sam Zell used to come in and talk to the students, he used always mention how when he started out in real estate (1960s) the industry was disproportionately controlled by a small number of players. That’s been changing ever since and it looks like that trend will only continue.