The rapid growth of technology has surely enabled positive economic growth, but the speed of change has left many struggling to climb out of debt. But perhaps more important than those things, at least economically, is the ever-increasing price for rent. Median rents have risen more than 60 percent when adjusted for inflation since the 1960s, with wages lagging far behind. Add to that a real estate industry which is not adapting fast enough and unwilling to change, and renting starts to make less and less sense in the modern era — especially for millennials. Enter co-living. The housing edition of carpooling, bill-splitting, and meal-sharing.
Younger adults are turning to co-living as a way to bypass lock-in contracts and eschew expensive rents. But perhaps even more attractive to the 20-somethings of today is the social capital that comes with communal, cohabitated spaces. It is the carpooling, bill-splitting or meal-sharing possibilities of co-living which saves even more cash and translates into something far more valuable: bonding. Welcome to the rental revolution.
Money, money, money
Finances are the main reason young adults are even interested in the co-living concept. Contemporary rental prices have continued to grow in the face of stagnant wages. Consider that median rents in the U.S. have increased by more than 60 percent from $568 in 1960 to $934 in 2014. The situation was particularly challenging in the first decade of the millennium as household incomes fell by seven percent while rents climbed by 12 percent. This resulted in the share of national cost-burdened renters to double from one-quarter in 1960 to half of the renters in 2014.
High rents have a knock-on effect on the overall finances of Americans. Consider that if rental prices only rose at the rate of inflation, the average person would have an extra $366 in their monthly budget. That’s a fair sum, especially when coupled with stagnant incomes and high student debt. According to Business Insider, American millennials are saddled with more than $1 trillion in debt — and student loans make up the biggest share.
Further, rising home prices and a booming economy are only adding to the problem of unaffordability. For example, an individual earning minimum wage in Massachusetts would need to work 104 hours weekly to afford a fair-market, two-bedroom apartment. In some cases, such prices have moved from unaffordable to impossible. Homelessness in the state increased by more than 20 percent since 2010 according to an annual report by the U.S. Department of Housing and Urban Development.
Jeff Berman, general partner at real estate technology venture capital firm Camber Creek, explained to Forbes why the millennial generation is actively seeking change to their living arrangements. “From an economic standpoint, you’re dealing with a demo that has come of age in a job market with largely flat wage growth,” he said. “Meanwhile, for a variety of reasons – like zoning restrictions – housing in many popular cities is very expensive.”
Finances drive people to co-living, so let’s discuss what’s keeping them there.
Co-living is community
Co-living is more than economics — it’s socioeconomics. Millennials, those born from 1981 to 1996, are famous for prioritizing convenience and flexibility, and it is this group who have wholeheartedly embraced the concept of cohabitation. Co-living translates into multiple people sharing a single home with communal areas such as bathrooms, kitchens, and living rooms. Not only do more people mean less rent, but more community.
On paper, co-living is marginally more expensive on a per-square-foot basis in comparison to regular renting. However, the majority of co-living apartments are cheaper in terms of absolute dollars, offer more flexible terms than standard leases and create a community on-demand. It is this last point that is integral to the millennial demographic.
Three-quarters of Americans prioritize experiences over products, and modern life is fundamentally shifting around this fact. Think about the rise of the sharing economy: Rather than hailing a taxi, we can use our cellphones to connect with a freelance driver who can pick and choose their hours. Instead of a hotel, we can access lodging in homes all around the world for cultural and personal exchange. Co-living thrives on the same principal. It is more than renting — it is a lifestyle among like-minded peers who, ideally, become much more than housemates.
My housemate, my friend
Co-living turns the idea of “housemate” on its head. People in a co-living space are not strangers, but rather a collective who help one another out. Perhaps they carpool, cook communal meals, or split bills – the aim of the game is to share and, in turn, lower overall living costs. These are usually people of similar age, experience and mindset who simply want to live in harmony – and escape the uncertainty of long-term contracts and high rental costs.
Rent money is dead money, and it is also boring money. What kind of fulfillment does one get from a one-bedroom apartment? Millennials would rather save their hard-earned money for experiences, with 65 percent of the demographic currently saving money to travel. This figure is higher than the average of generations past and should come as no surprise: This demographic wants to allocate money for something more than rent If they can cut down their outgoings and simultaneously bond with people around them, it is a win-win.
The reality of being a contemporary young adult equates to uncertainty and the rise of co-living should come as no surprise to the real estate industry. Why sign a 12-month lease when the job is only guaranteed for 6 months? Why furnish an apartment when the combined cost of tables, beds and couches will drain my savings account? This is the mindset of co-living, exchanging economic uncertainty for flexible living arrangements and convenience.
Disclosure: This article includes a client of an Espacio portfolio company