Short Term Rental

How Modern Housing is Failing American Renters

• by Jon Friesch
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…And How Property Investors Can Pivot to Win By Jon Friesch Nearly 30% of households are adults living alone, but the market still focuses on nuclear families. The housing supply we need already exists; we just need to know how touse it better. Across the country, low-income workers are running into a housing wall. With a shortage of more than 7.5 million homes and limited affordable options available, our vital workforce is forced to commute long distances, couch surf with friends and family, or worse, live in their cars to reach their paying jobs. With the current trajectory, there’s no bright spot on the horizon. As urban centers become denser and costs continue to rise and outpace wage increases, the housing wall is only growing and furthering the housing equity divide. A housing crisis rising from an outmoded model The traditional rental model wasn’t designed to meet the low-income earner’s financial capacity. The housing market is limited to serving people who make $50k or more a year and who have a credit score of 550. In contrast, 64% of rental households make less than $40k a year and the average workforce credit score is 461. This mismatch has serious consequences, both for the individual’s and our nation’s economic livelihood. Affordable housing is essential to personal economic well-being and a thriving workforce is instrumental in supporting a robust U.S. economic recovery. A struggling workforce that can’t secure affordable housing, or takes huge financial hits to do so, is not sustainable. “The entire affordable housing real estate ecosystem — developers and builders, architects, property managers, and those in law and finance, — stands to benefit from creating and preserving this stable asset class,” shares Richard Burns, Forbes Councils Member and President and CEO of The NHP Foundation. For example, affordable modern housing produces a reliable source of income for property owners. Unlike luxury properties that are more susceptible to fluctuations in occupancy rates, affordable properties stay rented and are often backed by a waitlist of hopeful tenants. Within the community, the diversity and range of incomes that affordable housing brings allow urban business owners to staff and grow their businesses more easily while increasing the purchasing power of those who have reduced housing costs. Burns also clarifies an important point for property owners: a potential investor with a good understanding of the economic benefits of affordable housing will be in a prime position to invest and build profitably. And the market opportunity for affordable housing is massive and growing. Our housing needs are shifting — can the market? We have a glut of unused space in cities across the country. If we look at the average square feet of new single-family homes from the years 1980 to 2020, we see an increase of almost 1,000 square feet. Simultaneously, the average household size over the same period has reduced from almost 3 people per home to 2.5.  Only 20% of today’s U.S. households are nuclear families, yet the housing market is still geared toward producing inventory focused on their needs. To give further insight into this market misalignment, nearly 30% of households are adults living alone. While the real estate investor competition remains focused on the 9.5 million small renter households that earn more than $50k, the market for one- to two-person households earning less than $35k a year (and can’t qualify for anything) sits untapped at 14 million. This represents one-third of the U.S. rental population looking for a viable solution. Coliving: An old solution with a new application and profitability As urbanization leads to unaffordable housing, the use of coliving spaces is becoming a solution borne of necessity. Low-wage workers are seeking ways to share cost burdens, and with projections that 70% of people will live in cities by 2050, coliving is a sustainable housing option to make city living more affordable and bearable. Historically, housing has often been shaped according to shared needs and resource concentration. Now squeezed by population growth and increasing real estate prices in the modern world, new models and new ways of configuring space are needed. PadSplit founder and CEO, Atticus LeBlanc took the concept of shared space and saw how to convert this unfulfilled market need into opportunity. He and his team developed a platform and playbook to make it easy and scalable for real estate investors anywhere to connect with the marketplace. From 2008 to 2016, LeBlanc owned and operated 550 affordable rental homes and gained a deep understanding of the problems low-income renters were facing. As a business person, he also understood the motivations and incentives of the private market.  With PadSplit’s approach, investors take the unused spaces (like a formal dining room or an extra bedroom) in existing single-family homes that never generate income and convert them into extra bedrooms that are private and rentable. By doing this, property owners create additional revenue streams that bring $500 and more a month extra in net revenue. LeBlanc knew he could further improve the offering and profitability by incorporating some traditionally time-consuming property management tasks into the platform. To further set investors up for success, PadSplit takes on the work of marketing the property, screening members and handling payments and collections. PadSplit worked with policy consultants to ensure its standards were based on HUD standards and that the technology allows maintenance to be tracked in real-time. Since rolling out the platform, PadSplit has seen other benefits as well. Property owners are realizing an increase in NOI on single-family rentals by 2-3 times. Vacancy rates, another important metric for property owners, also decrease. Because the demand for affordable housing is unending, PadSplit can fill rooms quickly with an average of 2.2 days in Atlanta, for example. And while the ability to easily collect weekly, personalized rent payments is an obvious asset to both renter and owner, the added boon has been collection rates of 96%. By building these operations into the technology and leaning into efficiencies of scale, PadSplit is making good on LeBlanc’s