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Housing affordability is dire. The USA's population will be 340.627 million by the end of 2024, but the homeownership rate stands only at 65.6%. Major cities are becoming enclaves for the extremely rich, pushing the majority to the brink.
New York Times research indicates a sad truth we all know — home prices surge while wages stagnate. This makes Americans' dreams of affordable housing hard to reach. Over the past few years, prices have increased by about 60%, with a quarter of renters now spending more than half of their income on rent — far above the norm of one-third.
To cover necessities alone, a single New Yorker needs an estimated $70,000 annually. The same is true for LA and San Francisco residents; in Chicago, it's about $50,000 annually. The highest rent rates are in New York City and San Francisco, with one-bedrooms priced at approximately $4,280. This apartment type is more affordable in LA and Chicago at about $2,500 per month. With average salaries ranging from $5,000 to $7,500, many Americans are spending over half their income on rent.
Related: Kevin O'Leary Says Housing Prices Aren't Dropping Anytime Soon
Authorities are acknowledging the problem
The White House Economic Report (ERP-2024) confirms a supply-demand discrepancy and a shortage of 3.8 million homes.
Factors contributing to this imbalance include restrictive land-use laws, rising construction costs and limited land availability. Despite long-standing recommendations to ease zoning restrictions and support affordable housing development, these measures have seen little success. Additionally, short-term rentals are facing a crackdown in New York. The city recently began enforcing a 2022 law that bans fewer than 30 days unless the host stays in the home with the guests. This means income losses for many landlords.
As policymakers remain inert, failing to tackle the roots of the crisis, the market is responding with new approaches.
Related: Hope for U.S. housing market as fixed-rate mortgage falls
Coliving as a multi-vector solution
As discussed earlier, achieving a balance is difficult because resolving the housing crisis requires regulatory and financial measures, new housing models, and targeted support for those involved.
In response to the housing crisis, an option emerged that offered benefits to many, which was co-living.
Unlike traditional setups, co-living spaces offer a blend of comfort, a community experience and lower prices that attract and retain tenants. Individual rooms coexist with shared common areas like kitchens, bathrooms, and lounges.
This model is most suitable for millennials searching for affordable housing for the mid-term – from a couple of weeks to a year. They don't need to worry about household chores (repairs, cleaning, garbage removal, or utility payments) as the co-living operator handles these. There's always fresh remodeling, high-end furniture, and modern appliances. Everything works, and nothing falls off. This allows tenants to focus on what is important to them – jobs or studies.
For landlords, this model requires a different approach to property management. Homeowners can achieve higher profits per square foot due to the increased density of occupants. For instance, in Williamsburg, the average rent per square foot for a 4BR apartment is $5-7, while co-living rent can be as high as $9.50-10 due to the increased density.
Co-living can also ensure a lower vacancy rate and a steady income stream. Although the higher pressure on standard utilities necessitates additional expenses for maintenance and repairs, proper management makes this type of housing highly profitable for landlords. The co-living operator, who takes care of property and tenant services, can provide a paradise for tenants (for a relatively small fee) and a golden goose of steady income for landlords. Homeowners are free from the headaches caused by tenant complaints and demands from authorities.
Take, for example, a co-living community in the heart of Williamsburg, New York. Residents here enjoy amenities such as digital access keys for the main door and each apartment, top-notch security systems, renovated interiors, high-quality furnishings, game rooms, a co-working space, laundry facilities, and a cozy cafe area. Residents can host events with DJs or watch the July 4th fireworks from the roof.
As traditional housing models fail to address the rising costs and regulatory hurdles, innovative solutions like co-living present a ray of hope. Co-living offers a practical and affordable alternative for tenants and a profitable avenue for landlords willing to adapt.
Tenants are seeking more affordable, flexible, and community-oriented living arrangements. According to the data, 18–22% of tenants are looking for stays longer than 30 days, with 500 million requests for such extended periods.
The real estate market is responding with increased supply. Recently, there has been a notable increase in new housing construction. According to Cushman & Wakefield, the market does not stand aside as the number of available or in-development bedrooms nationwide increased by 20% from 2020 to 2022.
This uptick in construction and rising tenant demand show that the co-living model has arrived at just the right moment. Co-living presents a promising and viable option for property owners exploring new opportunities. It's a model worth considering for those looking to adapt and thrive in today's real estate market.
