The Economic Motivations Behind Co-Living in America

Housing has always been the largest-ticket item in most American budgets, but, in recent years, it has begun to swallow an ever-growing chunk of take-home income in the United States.

Nearly a decade ago, the Great Recession was ignited by a bloated housing sector that pushed the global financial sector to the brink. That recession forever changed the landscape of housing in America and continues to shape and mold the conditions we’re seeing today.

In recent years, housing made a dramatic comeback and is once again reaching stratospheric price levels and breaking all-time records in most metro areas. These sky-high valuations and runaway inflation in some rental markets are pricing millions of people out of neighborhoods in America’s flagship cities. Straining under the weight of unsustainable rent increases, policymakers and renters alike see the co-living movement as a straightforward solution to assuage the economic forces that are driving people away from the places they would like to call home.

To better understand the economic motivations behind the widespread embrace of co-living in America, it’s necessary to comprehend the trends that have laid the groundwork for a national affordability crisis in housing.

The Two Americas: An Wildly Uneven Recovery

The Great Recession was a once-in-a-lifetime economic bust that devastated the American economy. The recovery has been notoriously slow and amounted to a decade-long slog of tepid growth. Today, while the economy is humming along at a healthier pace, national statistics mask an alarming trend of geographical inequality.

A shocking study by the Economic Innovation Group revealed that half of net new business establishments in a post-recession period occurred in 20 large, urban counties nationwide. If you look at the cities below where business growth and accompanying job creation have occurred, it might as well be as who’s who of cities with significant housing-affordability issues.

In sum, the economic recovery has been hyper-concentrated in less than 1 percent of U.S. counties where our biggest cities are located. This has caused a great deal of pressure on these housing markets as migration to these job hotspots is a matter of necessity to survive in the new economy. Today, there are two Americas: An urban society with plenty of well-paying jobs and an extremely tight housing market, and another with very affordable housing and few jobs.

Source: Economic Innovation Group

The Stagnation of American Incomes

As Americans have seen their housing costs balloon, their incomes generally have not kept up with our go-go real estate market. Incomes in the United States have been painfully stagnant in recent decades, mirroring the same developments across industrialized economies. Education and health care costs have also increased dramatically, crushing millions of consumers, especially young people, in the process and inhibiting their ability to thrive economically.

Historically, a typical household was expected to spend about a quarter of their take-home pay on rent. This amount has crept up over the years, and in more recent times, has trended upward toward one-third of take home pay and much more. In cities such as New York and San Francisco, where a modest one-bedroom apartment can cost more than $3,000 dollars a month, it’s nearly impossible for the average young person (25-to 34-year-old) who earns a little less than $3,000 month to afford to live in their own. This paints a clear picture of the quandary many Americans face: the math doesn’t work for millions of people, especially young people who need to live in places where they can advance their career.

Draconian Zoning Laws

In a free market system such as America’s, you would expect the housing pressures present in most major cities to spur a building boom to accommodate the growing demand. Unfortunately, many cities in the United States have oppressive zoning laws that stymie the creation of new housing and densification. In the end, many of America’s most critical housing markets are mired in red tape because of local politics.

These policies breed increasingly unaffordable housing, perpetuate segregation and cost the American economy more than $1.6 trillion in lost wages and productivity. Our cities are becoming hotbeds of social discontent as millions of people find themselves struggling to afford even the most basic of accomodations close to their job.

The new economy requires a healthy mix of housing and densification to accommodate population growth in cities that are job-creating hubs. Outdated zoning laws are a stumbling block to progress, and it will take federal action to quell the pernicious effects of these public-policy fumbles.

Co-living Is Part of the Solution

The current landscape of the housing market in the United States means that co-living has becoming a matter of economic necessity in countless locales. The daunting housing challenges in America means that policymakers, developers and regular people alike are coming to view co-living as a natural solution.

Smart cities that thrive in the economy of tomorrow will look to have as variegated of a housing stock as possible, and co-living provides an alternative model that behooves a wide variety of stakeholders in urban environments.

America is by no means the only country facing these issues. In fact, the global housing market faces many of these strong headwinds. Needless to say, affordability will continue to be a major issue for the foreseeable future, and co-living is a part of the solution to help everyday people live close their places of employment.

While many people choose to embrace co-living for reasons far beyond economic considerations, the co-living lifestyle inherently provides a great deal of economic utility for consumers and tends to be easier on their wallets.