Renting rooms in single-family homes has great potential for low-income tenants if regulatory obstacles are removed.
Atticus LeBlanc spent twelve years building housing in Atlanta. Upwards of 90,000 people a year were moving into his once-sleepy city, now the capital of the New South. He could see the city’s seams stretch as traffic curled along the Georgia 400 and rents grew by more than 70 percent. Atlanta pledged new roads and rails and affordable housing, but it never seemed like enough. So Atticus had an idea: Why not divide Atlanta’s existing single-family homes and turn them into affordable apartments? The result was PadSplit, a co-living startup formed in 2017 out of a home Atticus owned, which may offer lessons in privately developed, “naturally affordable” housing solutions.
The company takes, say, a five-bedroom home and subdivides the bedrooms into separate living units with a shared kitchen and common areas. Utilities and rent are combined into one fixed weekly payment, averaging around $587 a month. There’s no long-term lease, just a weekly or monthly “membership.” PadSplit is like Airbnb for affordable housing.
PadSplit in turn helps landlords retrofit, market, and manage their “co-living” homes. This means landlords get north of $3,000 a month in rental income from a house that may have previously gone for half that rate to a single renter. And the renters? The typical PadSplit member is making just $21,000 a year, like roughly a quarter of Americans. Residents making less than 50 percent of an area’s median income can now find a place to rent.
There’s a growing shortage of affordable housing in America. The National Low Income Housing Coalition (NLIHC) declared a need for 7.2 million more affordable housing units for the poorest Americans, built in varying degrees with public dollars. The city government of Atlanta, where PadSplit still primarily operates, pledged the creation or preservation of 20,000 affordable homes by 2026 at a cost of $1 billion.
America’s lack of affordable housing has two solutions: building more units or subdividing existing units. At present, our nation’s affordable-housing–industrial complex is bent on building. Projects costing anywhere from $74,000 (in Texas) to $739,000 (in California) per unit are in turn underwritten by an annual flow of $9 billion in low-income-housing tax credits (LIHTC). These dollars result in roughly 110,000 new affordable housing units every year, which is not nearly enough to keep up with demand.
Here’s the reality: There will never be enough publicly provided affordable housing in America. It’s already taken more than three decades to build or rehab roughly 3 million affordable housing units with federal aid, and that’s less than half of what’s needed to keep up with demand. At the current median cost for building and rehabbing affordable units, it would take nearly $1.5 trillion to get there. And without public dollars, simply building 76 affordable homes in California will cost Airbnb all of the $25 million it has pledged towards easing that state’s housing shortage. “Affordable” housing is simply not affordable to build. And where there is private will and public dollars, the only sure things are LIHTC graft now and NYCHA-style neglect later.
Figuring out how to use America’s existing housing stock more efficiently seems like the next logical step. There are 33.6 million more bedrooms in America than there are people—and since some share a room, there are surely more such “spare” bedrooms. By PadSplit’s accounting, some 54 million bedrooms go unused every night in the United States. Converting a quarter of these rooms into rentals would alone house the 14 million people in America making less than $35,000 a year who are singles or couples that rent. Turning 10 percent of Atlanta’s current stock of five-bedroom homes into multi-family dwellings could yield nearly 9,000 new affordable units over the next decade.
There’s also more space in these rooms — newly built homes in America offer 971 square feet of living space per person, up 90 percent from the 1970s. Even accounting for older homes and apartments, Atlanta still has 590 square feet per person. And while home sizes in America are growing, household size is decreasing. As a report by the Urban Land Institute found, “A 4.1 person household in 1930 would consist of slightly more than 1,000 square feet, while the same home in 2017, consisting of a 2.5 person household, is built to over 2,500 square feet.” All that space in all these spaces.
While PadSplit focuses on renting out entire homes, the potential of simply renting out rooms to grown children, relatives, or even strangers is surely an even larger market for affordable housing. Airbnb’s $35 billion valuation showed this potential for short-term, hotel-like stays. And in the suburban stretches of Los Angeles, the 30-fold increase overnight in permit applications to build accessory dwelling units (also known as “granny flats”) following statewide regulatory reform also shows the potential for housing space in underutilized garages and backyards. Simply looking at empty-nester Boomer households headed by those over the age of 64, Trulia found 3.6 million vacant bedrooms in the 100 largest metro areas, with New York (177,734) and Atlanta (141,462) leading the way.
Rooming with strangers is not a new concept; it simply went out of fashion — except, that is, for the Millennial urbanite, whose roommates were merely an extension of the campus to the city. For the rest of Americans short on cash and space, welfare reformers and zoning commissions long ago did away with the boarding houses, short-term-occupancy housing, and tenements once familiar as the first rung on a housing ladder to socioeconomic mobility. What’s bad for typhoid is good for the tenant, right? But somewhere along the way we began caring too much, banning everything but a middle-class existence while making it harder to actually be middle class.
Regulations are vague for startups such as PadSplit. They exist in a nebulous policy space between the legal regime governing landlords and tenants, on the one hand, and the laws for hotels on the other. The five people in a co-living house may look like tenants, but the law tends to recognize only the signer of a lease agreement and his family. Yet PadSplit’s residents are more stable than someone staying at a hotel. In fact, in states such as Florida and California, someone living in a single place longer than 30 days becomes a tenant, which is why people in those states tend to move from one extended-stay hotel to another every 29 days.
At present, PadSplit’s homes in Georgia operate in a legal loophole by treating its residents as “members” paying dues to a limited-liability company that runs each house. In the longer term, there may be demand for a third legal category of housing between tenant law and hospitality law that would more easily allow the shared living and short-term-occupancy housing that is more naturally affordable. There needs to be greater regularity, too, on what constitutes “family,” as drastically varying restrictions on the number of unrelated persons living together limit co-living models such as PadSplit. For instance, while Tom County in Georgia allows only two unrelated persons to live together under one roof, Atlanta allows six unrelated people, four boarders, and their own domestic servants. In fact, in many places across America, “The Golden Girls” would be a zoning violation.
If we’re serious about solving America’s housing affordability problem, it’s up to private developers and investors who have the capital — and the will — to generate more affordable units for more people. If we can make affordable housing profitable without subsidy — or even more profitable than market-rate alternatives, as in PadSplit’s case — the chances of fixing this problem soar.
This piece originally appeared at National Review Online
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