Fraud and the housing affordability crisis: 5 factors multifamily operators need to keep in mind
Tyler Christiansen, CEO of Funnel, focuses on the need to increase housing affordability and accessibility by mitigating fraud’s impact.
Housing affordability is now a humanitarian crisis, renter application fraud is rising and both issues are complex. Here’s what multifamily operators need to keep in mind when thinking about fraud—and the best ways to combat its negative impacts.
Fraud can occur throughout the application process.
There’s the potential for fraud in many places throughout the application process. It can be early on—like using a fake name or stolen identity—or later in the identity verification process, like using a fake social security number. In the income and employment verification portion, fraud could be either false or inflated income or claiming employment when it’s not true.
Fraud isn’t binary.
If you’ve applied for a loan or apartment, you know, it’s vulnerable to have an outside authority determine if you qualify for that thing you need and want. Where you live has wide-ranging implications and impacts on everything from mental and physical health to professional opportunities, and factors such as crime, access to outdoor spaces and healthy food can all play a role in your well-being.
The mainstream multifamily narrative often lumps all “fraud” into the same category, but the motives driving behavior are vastly different and merit a nuanced discussion. I have tremendous empathy for the individuals or families looking to find a new home and the desperation they may feel. At the same time, there are also bad actors who knowingly commit application fraud for financial gain. As an industry, we must acknowledge and do a better job of talking about the many sides of fraud.
Fraud raises the cost for everyone.
There are hard-working, honest people who can’t afford an apartment where they want to live because, as an industry, we raised the barrier to entry in response to bad actors. This is understandable when you consider that fraudulent applications cost a 3,000-unit portfolio $2.8 million annually.
Looming costs also impact renters. As companies spend more time, money and resources to mitigate fraud risk, they pass those costs through to renters, which affects the cost of living.
Stopping fraud at the application screening stage can be good for all renters. It can limit fraud’s impact to increase pricing, and it ensures that bad actors aren’t limiting housing supply or availability from honest, would-be applicants through their occupancy of those units.
Fraud isn’t the only issue.
I empathize with property management companies, for whom mitigating fraud risk is one of their many projects, in addition to solving other rising issues. Attention and time are finite; when companies pay attention to fraud or another challenge, they can’t devote their attention to equally essential challenges to their business.
Advances in technology can help, but should be used wisely.
Historically, applications have been an overly manual or analog-made digital process. Recently, with the introduction of AI, these processes have become more automated with the promise of better accuracy and ease for renters and leasing teams.
AI and automation are powerful tools but need to be applied thoughtfully. I’m of the opinion that AI shouldn’t be screening people’s worthiness of an apartment, both for moral and obvious fair housing reasons. Unless AI was created with careful attention toward equity, AI solutions can perpetuate bias that’s present in the data models they’re built upon. However, I do think AI should be used to screen data and documents to see if they’re factual.
Application programming interfaces (APIs) between specific screening solutions and financial institutions can create an unfakeable application whereby screening is completed by syncing bank account information like you would with Venmo. APIs for income verification, when paired with document and identity verification, can go far deeper than any one leasing team member could via a PDF of a pay stub or W-2.
Smart income verification solutions should also look for and acknowledge non-traditional types of income. This is vital because, according to McKinsey & Co., roughly 58 million Americans, or 36% of the employed population, work in the gig economy as independent workers. This represents an increase from the estimated 27% in 2016. Compounding that, 44% of Americans have a side hustle, with many citing a need for money to pay their primary expenses or bills. An equitable application screening solution should recognize and accept all forms of income (not just biweekly payments from a 9–5 job) as valid.
These are best practices, and while they are imperfect, too, it’s important to constantly iterate and stay up-to-date with what works for your business. Each asset is unique, and bad actors evolve, so it will take focused effort and care to ensure the right renters find their right home with you.