House Sharing is the New Normal: Addressing the Skyrocketing Cost of Renting in American Cities
In 2006, I moved to a property with two large houses, built in the 1930s and last renovated in the 70s, at the bottom of a hillside in East Los Angeles. It had three kitchens, two living rooms, and thirteen artists across eight bedrooms. For a few hundred dollars a month, my 28-year-old landlord, a filmmaker himself, created his own social housing roommate community and called it The Compound; today, startups are calling this “co-living.”
Whatever it’s called, I got sick of dishes piled to the ceiling and loud parties, and eventually moved to a one-bedroom duplex, where I was spending 60% of my income on rent by 2016, which was equally untenable. So untenable, that I left the country: now, I live in Berlin, where only 20% of my income is devoted to housing.
You don’t have to live in Los Angeles to tell this story: according to 2011 census data, there are more than 25 million roommate households in the United States. Flat sharing has always been a part of the city experience, but now instead of a youthful choice, it’s a downright necessity. Precipitous economic paradoxes are squelching economic diversity in urban neighborhoods. Statistics from co-living business Common find that rent has increased by 12% since 2000 while take-home pay declined 7% in that same period. For some cities, height restrictions, property costs, and a glut of slow-moving entitlements make new construction expensive, orienting developers only toward luxury housing. In other cities, gentrification has displaced long-standing affordable rental communities.
With all of these market forces at work, rental prices in many cities have become impossibly high for many backbone economy workers. But will co-living startups really save the city from becoming the domain of only the super-rich, or are they just a way to insert an opportunistic capitalist middle-man into the roommate economy by letting an algorithm pick your housemates and future friends?
Of Small Spaces and Minimalism
Various models of contemporary co-living exist in cities across the United States. Common is the biggest player in the space, with 18 properties already open across four cities: New York, Chicago, San Francisco, and Washington, D.C. The company’s business is mostly on the property management side, partnering with real estate developers to design buildings ideal for sharing. “At the end of the day it’s about kitchens,” says Common founder Brad Hargreaves. By designing buildings with fewer kitchens, which are the most expensive rooms to build, developers save on construction costs, which affects the overall affordability of each unit.
With Common, the average New York City tenant pays between $1,340 in Crown Heights all the way to $2,050 per month in Williamsburg, which includes utilities, wifi, cable, cleaning, basic supplies like toilet paper, furnishings, and a washer/dryer. The costs are roughly equivalent to those of a Craigslist room (when adding utilities in), and significantly less than Brooklyn’s average $2,200 for a 450-square-foot studio. For this price, a tenant will have an approximately 150-square-foot private room, and another shared 250 to 400 square feet of kitchen and living space shared with three to six other tenants.
While Common mainly attracts city-hopping digital nomads and millennials, there is another middle class group in need of sustainable, long-term affordable housing. They’re the people who keep big cities humming: teachers, retail and food service workers, construction workers, journalists, nurses.
On the other side of the country, San Francisco, the tiniest of islands with an already dense population, gentrification displacement has been severe. For developers, property values are so high that the only way to make a profit is by creating luxury housing.
“If the heart of cities is being carved out [by luxury real estate], that’s a bad thing,” says Jon Dishotsky, founder of Bay Area startup Starcity. Since real estate is a big part of the problem, he looked there first for the solution. While working his day job in 2015, searching for office space for his corporate clients on the peninsula, Dishotsky realized that there were actually many vacant commercial spaces. “There is a whole subset of underutilized assets — orphan buildings,” Dishotsky explains, that companies are unwilling to renovate. Considering a spate of favorable adaptive reuse and zoning laws, he saw an opportunity to add housing stock without displacing existing residents by acquiring and renovating these orphan buildings for less than the cost of an average apartment building.
Adaptive reuse, as a harbinger of gentrification in many cities, has been the subject of major controversy over the past decade. It has wiped out existing housing and businesses by driving a new, higher-priced clientele into traditionally working-class neighborhoods in urban centers. But Dishotsky intends to be more intentional with Starcity’s redesigns, stating the company’s mission as “making great cities available to everyone.”
The company’s design principles are organized around four spheres of community: total privacy in singular (130- to 250-square-foot) bed- and bathrooms; a kitchen and living space shared by an eight- to twelve-person extended family; intentional spaces throughout the building to foster interaction across family clusters; and some ground-floor retail that “preserves and expands the existing culture of a neighborhood,” and can also be used for community meetings and political events. “It’s about adding resources to the existing community, not just about getting the highest paying retailer.” With such high density, lower kitchen count, and the addition of retail, “it gives us a higher yield while delivering a price point that’s affordable to middle income,” Dishotsky says.
“Affordable,” of course, is a relative term. Including the utilities, cleaning, and wifi costs, the price of Starcity’s first prototype properties are between $1,500 and $2,200 a month, which is out of reach for the teachers and chefs that I know. Dishotsky’s goal, after a few more trials, is to bring construction and design costs down so that the rental price is only about 30% of earnings for their desired middle-income demographic. While Starcity’s socially-minded optimism is admirable, the question remains as to whether these aims are achievable.
Although Common and Starcity prove a bit cheaper than a typical one-bedroom, paying nearly $2000 a month for the privilege of sharing a kitchen and having an app to pay the bills isn’t so much a solution to the cost of housing as it is to the need for strengthened community. Perhaps smaller cities are a place where the financial piece fits in.
Of Mansions and Compounds
Although facilitating community in large apartment buildings might be a strategy for the biggest of cities, property management-focused co-living providers in smaller cities tend to choose three- or four-unit buildings or large single-family homes for renovation to curate a more intimate experienced that is purposely not streamlined across properties.
In Cincinnati, the average rent for a one-bedroom apartment is $799, which isn’t astronomical, but that doesn’t mean co-living isn’t catching on. For many tenants, the attraction is more about connectivity and community than economics. At least, that’s John Blatchford’s take on it. “People are living in buildings and moving to cities because they want to have that human interaction,” he says, yet many times they don’t know their neighbors. That is why Blatchford and his real estate partners, who started their business to take advantage of an historic renovation tax credit in Ohio and rehab vacant properties built in the late-1800s, eventually switched their focus to managing those spaces. Now, they work with real estate owners restoring three-to five-unit tenement buildings into single shared houses through their business, Kunsthous.
Maintaining creative architectural details is part of how Kunsthous curates its tenant community of people interested in the arts. (Yes, “Kunsthaus” should mean “arthouse,” but the annoying habit of startups intentionally misspelling words has apparently leaked over into German here.) One of their homes contains three musicians who have formed a band since meeting at the house. But Blatchford knows creating the space, and the right price, for community to arise is only part of the story. “There is a balance between what we provide for the house and what we are trying to have the house members create,” he says. Utilities, a monthly cleaning of common spaces, and one programmed event per month are included in the very affordable $560 monthly price; meanwhile, the layout of unavoidable common living spaces, kitchens, and bathrooms leave most interactions up to the tenants.
Also taking curated community quite seriously is Open Door. Based in Oakland and expanding to Portland in the first quarter of 2018, the company has so far focused on acquiring large homes, mansions, and small compounds (yes, it all comes back to the Compound) with a distinct atmosphere fostered by “founder members” as its centerpiece. Open Door’s cofounder Ben Provan explains the premise: “Housing as it currently exists is expensive and isolating. Our generation desires being more connected in shared spaces and shared experiences.” To that end, each property, populated with what Provan calls “the creative class,” has its own atmosphere. One property, The Farmhouse, is a Victorian mansion with a tenant-managed vegetable garden; another, The Canopy, facilitates coworking space for residents with social justice-aimed startups or careers.
Of course, the price point soon became a factor in the company’s expansion, too. As they looked at convertable properties in Oakland and other cities, they found that renovating existing spaces to minimize bedroom size and maximize common space created a better price point for tenants while keeping price per square foot at market rate. Open Door’s aim is to price rooms at 80% of a neighborhood’s studio pricing, which means that tenants in Oakland pay between $1000 and $1500 per month, compared to the average price of a studio, $1670 per month. As with Starcity, it seems moving prices from “astronomical” to “less insane” is a more reasonable goal than objective affordability. However, in Portland, Open Door’s residents will pay $700 — $900, numbers approaching rational, and in-line with that goal of 80% of a studio in Portland, which averages almost $1200 per month.
Like Kunsthous, Open Door quickly pivoted from real estate acquisition to property management, while working closely with outside real estate developers to design homes. The ideal Open Door property has between eight and 16 bedrooms of around 150 square feet, creating a community size of 16–20 tenants. Bathrooms are shared between two or three rooms, although the company plans more private bathrooms in future properties. Although wifi, water, electricity, and monthly cleanings are included on the same bill, they are not bundled with the base monthly membership fee, which Provan says gives tenants an incentive to be mindful of their resource usage. Open Door also has an optional food sharing program, whereby wholesale distributors and local organic farms make deliveries for all tenants who have opted in. “We feel it’s another benefit that adds to the lifestyle and cost of living significantly beyond just the rent,” Provan adds.
Of Alternatives to Capitalism
Elsewhere in the nation’s smaller cities, Kalamazoo Collective Housing has adapted the generations-old co-op model for their city of 75,000 near Grand Rapids, Michigan. “Think of us as a property management company that happens to be owned and run by the people who live on the property,” says member Andrew Alm. “This means that we are effectively our own landlords, and we use the traditional rent model to pay our expenses.”
Although a co-op is not a new solution, it was new to the millennial founders of the the KCH, which included Chris Moore, now the coop’s only staff member, and some of his college friends. They were dissatisfied with affordable housing options in Kalamazoo, which were usually limited to cheap but poorly maintained properties owned by absentee landlords. So Moore and his own housemates spent years squirreling extra rent money away to eventually buy their first home. The social housing non-profit has since purchased additional properties, both homes and small apartment buildings, with community foundation grants. They explored co-op models in other cities to learn about management structures, and decided on a group equity model, in which renters pay no down payment and achieve no long-term equity; once they are accepted to the co-op, they participate as equal members, with an equal vote in all management decisions.
This model was meant to attract residents on United Way’s ALICE scale: “Asset Limited, Income Constrained, Employed,” Alm clarifies. “This is a redefinition of the poverty line. It describes people who are actually employed, but still don’t make enough money to meet their own basic needs.” To this end, membership dues (rent) in the KCH cover housing, utility, and food costs for community members, all at around $550 per month. Kalamazoo’s average for a one-bedroom apartment is $665 per month, with studios going for above $700.
Although the KCH is just below market rate, the beauty of a non-profit coop is that it doesn’t care about the market rate at all. “Part of the design is that our rent prices increase at a lower rate than the surrounding properties. As time goes on, we become more affordable, even if the neighborhood changes, because our expenses aren’t changing,” says Alm. This leads to a dramatic boon to the city’s low-income residents, and a sustainable housing future. Meanwhile, the membership and board encourages pedagogy and learned financial responsibility among renters who have the incentive and stakes of owners. While KCH doesn’t plan to expand beyond Kalamazoo, Moore and Alm stress that their links with co-ops in many other midwestern cities prove that co-ops are — and have been — a viable grassroots model for rent stabilization anywhere and everywhere.
Is the answer to prohibitively expensive cities adaptive reuse ingenuity, community-specific design, or non-profit self-management? Perhap all of these new co-living models have their place in the cities of the future, as long as residents are willing to exchange a few square feet of private space for access to jobs, transportation, culture, and community. For now, I prefer to keep my eye on it from Berlin.