Sharing Economy Meets Affordable Housing
The sharing economy (SE) continues to expand globally driven primarily by young people — especially millennials and Gen Z — who have embraced the concept of sharing rides, experiences and coworking spaces. According to MarketWatch, the global SE market size was valued at almost USD $150 billion in 2022 and is forecast to expand at a compounded annual growth rate of over 30%, reaching almost USD $800 billion by 2028 – this despite the SE disruption caused by the COVID-19 pandemic. Because SE expansion has touched so many industry sectors, the question remains — why not shared housing?
For housing, the SE trend is accelerated by a significant imbalance in supply and demand which drives up costs in urban areas. Not only are younger people more favorably disposed to shared living, the shortage of affordable housing in major U.S. markets makes sharing space an absolute necessity. According to the Forbes Advisor Housing Outlook for August 2023, “[l]ow housing inventory has been a challenge since the 2008 housing crash when the construction of new homes plummeted. … Housing supply remains at near historic lows – especially entry-level supply.”
And while single-family and multifamily builders are attempting to respond with new inventory, rising interest rates, higher materials costs, supply chain issues and labor shortages have all driven up the cost of construction. Higher construction costs force developers to build apartments that demand top-of-the-market rents. Otherwise, apartment projects do not work financially. Co-living can solve both sides of the problem by delivering higher rents per square foot to the developer, yet lower nominal rent for the renter.
The general concept of co-living – in which people have private bedrooms and bathrooms but share living and kitchen spaces – is not new. Many in the U.S. recognize an arrangement in which adults live in a communal setting with fully furnished bedrooms and shared amenities from their experience in college dorms. Modern co-living, however, provides housing as a service: higher-end units are fully furnished, utilities are included, and importantly – roommates are not your financial responsibility. You simply sign a lease and bring your toothbrush!
Co-living also responds to the changing composition of American households. Single-parent families, young single workers, and a growing number of seniors are adding to the classic household model of couples with children. According to the Census Bureau, households in the U.S. grew by 2 million from 2021 to 2022. While population growth drives some of that increase, a decrease in household size is also a significant contributing factor. For example, in 1960, there was an average of 3.33 people per household, but in 2020, this figure had decreased to 2.53 people per household. Additionally, two person households make up most American households, followed closely by single-person households.
As Ari Chazanas recently noted in the February 2023 issue of Forbes, “the co-living arrangement is here to stay in the era of rising rents and scarcity of available units. Less personal space in favor of more amenities and luxurious features situated in a thriving community is not just a trend—it’s the future of real estate, and entrepreneurs who are looking to get into this side of the industry have a lot to gain by acting sooner instead of later.”
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