Before the pandemic, co-living was already there as a housing solution gaining popularity Urbanization led to an increase in rents in major cities. Now, the concept of residential living with communal spaces is coming back after the pandemic is gone rental affordability crisis And the loneliness epidemic In view of this.
Earlier this year, Common, the largest co-living operator in North America, announced the merger With Habit, the largest co-living operator for Europe and Asia. The result is a global leader in co-living that will operate 30,000 units worldwide, many of them co-living spaces. guess were Total 74,000 co-living bedrooms in 2022 either for rent or for development in the US. At the end of 2019, real estate investment firm CBRE found that there were approximately 5,000 beds In only about 150 co-living communities nationwide. This is a fast growing trend, and research shows It may have staying power.
What is co-living?
Co-living has always been a way to save money on rent – groups of friends, especially young single people, often rent shared space to save money on their monthly housing costs. But modern co-living spaces are different. Buildings built or renovated with the intention of unrelated individuals sharing the same living space often come with over-the-top amenities. Think high-end decor and furnishings, fitness and yoga studios, spacious co-working areas, and perks like cleaning services and high-speed WiFi. People typically live in separate, furnished bedrooms but share common areas such as kitchens, bathrooms, laundry facilities and living areas.
There are variations in how these places are operated. some companies, such as out site, Use a subscription model, where digital nomads can book space for a minimum of three nights. others, such as Bungalow, operate as a technology platform that connects roommates looking for accommodation across major cities and rents out homes to them. companies like General Offers a combination of private units with co-working spaces and shared units with private bedrooms.
The growing popularity of co-living spaces has also created a market for co-owned units. For example, the Co-Own Company Allows homebuyers in Denver to purchase part of a unit with a private bedroom and bathroom. It’s a way for individuals to start building equity for a fraction of the typical cost of buying a home in the city. Some developers are also implementing the co-living concept for single-family homeownership by building community With a common home and other amenities and to provide programming designed to foster community.
solving two different problems
skyrocketing rent
The rent-to-income ratio in the US is now 30%, an increase of 27.2% over 2019. In some cities, the problem is far worse—in New York, the ratio is 68.5%, and in Miami, it is 41.6%. High rents are making it difficult for residents to afford increased gas and grocery prices and to accumulate enough savings to anticipate home ownership.
The jump in rental prices, which hit 17.1% YoY Growth To peak in February of 2022, mostly due to limited inventory and high demand for more space during the pandemic. In some pandemic boomtowns, such as Austin, Texas, rents more than double within a year.
According to Zillow, the rental market is starting to cool off – with the national average asking rents declining. Multifamily inventory is estimated increase in 2023 Too. But rents are up 8.4% more than in the same period last year, and apartment homes are still out of reach for many residents of urban areas. were in 2022 16% more chronically homeless Compared to 2020. Since limited space relative to the number of apartment-seeking residents is a significant part of the problem, co-living is a natural solution.
Even before the pandemic, local governments were examining the possibility of shared living space as a possible solution to unaffordable rents. By sharedNYCIn 2010, the New York City Department of Housing Preservation and Development selected three proposals for a shared housing development with different models designed to provide housing to low-income residents. and in San Jose, California, MP accommodated local zoning codes Allowing a new development with 800 units to begin construction, to include co-living.
Boarding Houses in America for Decades prevented from homelessness For low-income urban workers. In the 1960s, it was estimated that there were approximately 2 million “single room occupancy” units, similar in concept to modern co-living units. The National Alliance to End Homelessness sees a return to shared housing as a solution that will end homelessness for most people. Most modern co-living spaces rent for slightly below market rates, but there is an opportunity for multi-family developments that use the co-living model to bring even more affordable units to the market.
Epidemic of Loneliness
Renters who choose co-living may get more bang for their buck—luxury apartment amenities at below-market rental prices—but that’s not the primary reason most people rent a modern co-living unit. , according to a survey Co-organized by IKEA’s Research and Design Laboratory. Respondents said the best benefit of co-living was the opportunity for social interaction.
Co-living spaces provide many opportunities for community building through both casual interactions and intentional programming. It can take some time for digital nomads to socialize at the “water cooler,” such as office workers. The family can get support in the upbringing of the child. Single seniors can gather for a meal. And everyone has someone to call if they’re injured or need help. There are additional benefits to transplants that may need to move quickly without support – not only does co-living provide easy access to furnished spaces, but it also provides an instant social circle. Some co-living companies also employ roommates with similar interests.
It’s a breath of fresh air for the surprising percentage of Americans who experience “severe loneliness.” A reports The figure from the Harvard Graduate School of Education is 36% of all Americans, including 51% of mothers with young children and 61% of young adults. can lead to social isolation increase your risk of many serious health problems And it’s a risk factor that rivals smoking in terms of premature death. Loneliness is related to higher rates of anxiety, depression, and even suicide.
Co-living model issues
Some of the co-living companies are yet to resolve operational issues. For example, residents of Common’s co-living space Complained Unsanitary conditions, poor security, hostility between roommates, and poor communication from the support team. Residents of bungalow properties in New York informed of Finding strangers in their bedrooms, which were kept open because of local law. He also complained of poor communication and the abrupt termination of the lease, calling the operation a “scam”.
The complaints are attracting the attention of local lawmakers, who may respond by cracking down on this form of rental housing rather than relaxing the rules to make it more viable. For example, in New York, putting locks on individually rented bedrooms could solve the problem, but if tenant complaints point to other unfair practices, the co-living model could be banned outright in the city. can be done.
But some cities like Philadelphia and Minneapolis have lawmakers hug The idea of ”single room occupancy” rentals, introducing legislation to allow units in multifamily and commercial areas.
A new asset class for investors
Co-living is not the solution to loneliness and unaffordable rent. It is also an emerging asset class for real estate investors. Despite some problems with the co-living business model, co-living companies typically report higher rental income per square foot than traditional rental models. For example, in New York, reported earnings for co-living units are 40% to 50% more Compared to traditional apartment rent.
A reports The MIT students also find that co-living buildings should be more resilient than traditional multifamily housing during economic downturns. In fact, during the COVID-19 pandemic, co-living spaces continued to command a 23.2% premium in rent per square foot to traditional studio apartments in comparable markets. research From real estate services firm Cushman & Wakefield.
The MIT report also suggests that co-living is on the verge of becoming more widely accepted, both among lawmakers and the general public. Early indications suggest that co-living will become the “fundamental asset class within residential real estate”, the report said. While the model is still in its infancy and comes with some potential headaches, it could become a welcome alternative to traditional long-term multifamily rentals for some investors, especially in urban areas where housing prices generate positive cash flow. making it more difficult to do.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
