Plan B For Millennials' High City Rents: Adult Dorms?

Spending 30% of your income on rent is considered affordable - and sustainable. By which measure no one can afford to live in New York, San Francisco and other cities - at least without help from their parents or proverbial sugar daddies...JL

Eliot Brown and Laura Kusisto report in the Wall Street Journal:

The typical renter between 22 and 34 years old living alone would have to spend 53% of his or her income to pay the median apartment rent in the U.S. Spending 30% of one’s income on rent is considered financially sustainable. Widening income gaps and the resurgence of the city create the market conditions for the rebirth of rooming houses. The way people have (traditionally) afforded to live in central cities is to have less space.
Venture capitalists think they have an answer to the growing housing crunch in San Francisco and other big cities across the U.S.: adult dorms.
Shared office space giant WeWork Cos., recently valued at $16 billion, and a handful of smaller startups are experimenting with “coliving,” a concept that involves tiny apartments, shared kitchens and lounges, and a communal atmosphere.
Unlike traditional investments in the real-estate sector, which tends to be a slow-growth market with moderate returns, financial backers including Fidelity Investments and consumer-focused venture-capital fund Maveron are betting on hyper-fast expansion and startup-like profit.

 The wager is that 20-something residents moving to new cities will pay a premium to live in clusters of small apartments packed with peers in similar places in their lives. Apartment rents in big cities are high, furnishing an apartment is expensive and finding housing on Craigslist can be daunting, the thinking goes.
“You have this incredibly large category, which there’s not that much venture activity in, that needs to be reimagined,” said Jason Stoffer, a partner at Maveron, which is backing New York-based coliving startup Common. There is, he said, “insanely high consumer demand for reimagining how millennials live in urban environments.”
The risk is that young workers will balk at paying the high prices the startups are counting on—upward of $1,800 a bed a month in some cases—to live in what is essentially an upscale college dorm or a retirement home for the young.
The market is centered on the biggest U.S. cities experiencing the most-acute problems with housing affordability.
New York-based WeWork, backed by more than $1.4 billion from venture capital and money managers, inaugurated its “WeLive” co-living product earlier this year in lower Manhattan and the Washington suburbs, where tiny apartments are clustered around large dining and lounge spaces.
WeWork, which declined to comment, has previously forecast having about 70 WeLive locations with more than 30,000 residents by 2018, and its backers predict coliving will account for about 20% of its revenue.
Smaller companies are rolling out more-modest offerings with ambitions to rapidly grow larger, such as New York-based Stage 3 and Common, which just opened a 51-bedroom property split among four, five-story buildings in the Williamsburg neighborhood of Brooklyn. Stage 3 is seeking venture-capital backing.

 Other companies, including San Francisco-based Open Door, take control of entire townhouses then lease out rooms. Still Open Door—which isn’t backed by venture capital and has slower expansion plans—also wants to partner with developers on new apartments custom designed for the concept.
All the companies and their investors are trying to find ways to capture a slice of U.S. housing spending by the young. The typical renter between 22 and 34 years old living alone would have to spend 53% of his or her income to pay the median apartment rent in the U.S., according to real-estate research company Zillow. Spending 30% of one’s income on rent is considered financially sustainable.
The startups are targeting people such as Cole Kennedy, a 24-year-old copywriter for a tech company who pays $1,550 a month for a room in a 19-bedroom building in Brooklyn’s Crown Heights neighborhood run by Common. The space has weekly potluck dinners, furnished bedrooms and cleaning services.
“Trying to find a place in New York is the biggest headache in the world,” Mr. Kennedy said. Coliving offers a group of like-minded people, mostly in their 20s, with whom to chat or go out for a drink, he said. “It’s jump-starting your ability to make friendships.”
Another startup, Stage 3, which does business under the brand Ollie, is slated to run a 425-bed project now under development in Long Island City, just across the East River from Manhattan.
The company, run by brothers Christopher and Andrew Bledsoe, plans to rent rooms for about $1,600 a month—less than a typical studio in the area that rents for more than $2,000 a month. All renters have access to a lounge area with free food at special events, roof deck, pool, maid service and a visit from Alfred, a butler service that comes once a week to do tasks like pick up prescriptions or drop off dry cleaning.
The economics of the business are tricky. Prices need to be low enough to appeal to young workers, but high enough to make more sense for landlords than other uses like microapartments. The coliving model has already proven unworkable for one startup, called Campus, which folded in 2015 after opening more than 30 clusters of rooms in two years.
The company, which received backing from PayPal PYPL -2.32 % co-founder Peter Thiel’s venture-capital firm, was renting a few apartments at a time—paying market rates to landlords—and then trying to sublet them out room-by-room at higher rent. In the end, the prices it charged its members weren’t enough to meet costs and provide a needed cushion of profit.
One of the main challenges is that a more organic model of the same concept—sharing an apartment with roommates—has long been a rite of passage for young adults in pricey cities.
Even as a business, Coliving has long existed in urban America by other names, though with less emphasis on creating community and at lower price points.
Variants include rooming houses, boardinghouses and single-room occupancy hotels, all of which offered housing for new arrivals and others in the working class, often with common facilities like shared bathrooms and in some cases ground-floor dining rooms.
These offerings largely disappeared, as subpar living conditions led to new regulations, which encouraged large, airy units aimed at families instead.
Today, as young employment-seeking residents find renewed appeal in major cities, historians and other observers see a parallel with the era that gave rise to dense, shared housing.
“Widening income gaps and the resurgence of the city create the market conditions for the rebirth of rooming houses,” said Alan Durning, executive director of Sightline Institute, a nonprofit think tank. “The way people have afforded to live in central cities is to have less space.