The Future of Housing, in Three Parts

Mar 20, 2018

The future of housing will look very different from the past. This essay will discuss three aspects of the future of housing. The first section looks at the economics of housing, particularly the cost savings which come from shifting emphasis to common space over private. The second looks at the social dimension of cohabitation, proposing means by which the interpersonal challenges associated with communal living might be reduced. The third looks at the question of ownership and residency, and proposes mechanisms for aligning incentives between renters and owners.

I. Economics

There are many challenges associated with life in cities; here we will focus on two:

The first challenge is that housing is damned expensive. As a knowledge-driven economy has pushed more and more people into cities, demand for housing has increased. While new development is helping to meet this demand, we inevitably end up paying more for less, with a room in a shared apartment costing upwards of $1,400 a month in many cities.

The second challenge is that people in cities are lonely. Despite being surrounded by people, many urban dwellers experience feelings of profound social isolation. Some people find social affirmation at work, or among a lucky draw of roommates, but many do not.

Now consider: these problems are each other’s solution.

Increased demand for limited urban space and an unsatisfied hunger for meaningful social interactions creates exciting opportunity for a new approach to housing, one which emphasizes shared space and more efficient infrastructure. For example, instead of offering a dozen studio apartments, each with small bathrooms and kitchens, offer fifteen bedrooms, with a shared industrial kitchen, common areas, and three or four large bathrooms. This latter approach allows more people to live in the same space, reduce costs via economies of scale, all the while creating myriad opportunities for affirming social interaction. Further, offering housing at the bed or room level rather than the apartment level makes it easier to provide flexible contracts and lends itself naturally to the inclusion of pre-existing furnishings: both attractive conveniences for urban dwellers. In short, more of the good stuff, and for less.

While this model of housing is not new, with roots in the decades-old cooperative movement, it is in the process of being re-discovered by for-profit housing providers across the United States. The basic sketch is this: modern urban dwellers value flexibility and convenience more than personal space, so offer them small personal spaces paired with amenities and common spaces, via flexible contracts as reasonable prices. Starcity, Common, Ollie, and WeLive are a number of companies attempting to innovate along these lines, often under the banner of “co-living”. While similar in spirit, these organizations differ in their target demographics, and thus in their approaches to amenities: some, like WeLive and Ollie, choose to charge a premium for events and services; others, like StarCity and Common, seek to pass much of their savings along to the residents, offering housing at competitive price points and letting residential social dynamics unfold organically.

While this model of housing may be unfamiliar to many, the significant advantages it provides to urban residents all but guarantees that this model will continue to expand in the years to come. As early adopters help refine early experiments, a virtuous cycle will be created, improving the experience of communal living in the short and medium term and shaping tastes and expectations among the general population in the long term.

Current ventures in the space focus primarily on new construction. It would be interesting to see a company attempt to develop a general model for turning appropriate single-family homes (such as a New York brownstone) into communal living space. While this approach likely poses additional challenges, it stands to reason that many of these homes are more suitable than not, already being possessed of shared kitchens and bathrooms. The property management company that manages to develop a quality product – offering low prices and flexibility to renters, and a stable income stream to owners – is positioned to do quite well.

Quoth Starcity:

Communal housing is often the highest and best use of existing real estate, and we work with owners and developers to turn their properties into resource efficient spaces with higher-than-market yield.

As an aside, the adoption of the shared kitchen model leads directly to the viability of shared food buying, in which the building purchases food at bulk prices and/or participates in CSAs, making it easier to provide residents with high-quality food at low cost, and with less waste.

II. Relationships

הִנֵּה מַה טוֹב וּמַה נָּעִים שֶׁבֶת אָחִים גַּם יַחַד

Behold, how good and how pleasant it is for brethren to dwell together in unity!

Beyond physical health, relationships are the most important thing in life. While relationships are built in many ways: through school, work, hobbies, and sports, one tried and true route to friendship remains shared housing. When people live together, there are countless opportunities for interaction, creating the conditions for friendships to blossom. Having friends at home turns the home into a warm space: an emotional as well as physical refuge.

If living with friends and loved ones is so great, then why isn’t everybody leading fun, affirming home lives? The answer is that living with people is hard. There are boundaries to be negotiated, tasks to be distributed, and decisions to be made. Without the appropriate structure and maintenance, tensions accumulate, the good times run out, and folks decide that it’s a bad idea to live with friends. Some people have the luck or maturity to pull it off, but many don’t. It’s a prisoners dilemma-style tragedy (if everyone cooperates, everyone wins, but if only one person doesn’t cooperate, they benefit from everyone else’s work, so in the end no one cooperates).

Fortunately, there’s hope. Just like we invented tools to build houses and to do math, we invented tools to make help us make choices. Voting systems. Legal systems. Chore wheels. Mechanisms and processes of all kinds, each with their strengths and weaknesses. And while the work of living together goes beyond a single system or process (as generations of idealistic leaders inevitably rediscover), these tools can and do help. After all, decision-making is fundamentally a problem of information-processing, and we’ve gotten quite good at that.

As an aside, it is worth noting that most of the mechanisms we associate with free decision-making were developed hundreds or even thousands of years ago: proposals, votes, elections, representatives. These tools were developed during an era of significantly more limited technology. If we had to start again, with all of our sophisticated information-processing tools, what might we build?

Imagine for a moment that there was technology layer which significantly reduced the friction involved in living with others. A technology layer which made it easier to resolve conflict, to organize work, and to manage resources. Such a tool would allow more people, from more backgrounds, to successfully navigate the ups and downs of shared space, with less overhead than the managed solutions discussed earlier.

One could argue that there is no tool which can really substitute for a group of people gathering with intention. In response, consider that we give children training wheels when they learn to ride a bike. By providing a tool to help the child, they are able to develop the foundational skills to eventually ride on their own. For groups who are already functioning at a high level, they should continue to do so. The question is developing tools to make it easier for more people, with potentially less intention, to successfully live together.

Now, what are some things we might expect this tool to do?

  • A way to describe, prioritize, track, and reward chores and household work.
  • A way to pool funds for shared expenses like utilities, basic supplies, etc.
  • A way to describe and decide between building goals , such as parties and major purchases.
  • A way to represent seniority, if desired, with senior residents receiving extra priority or influence over domestic affairs, such as voting or room selection.
  • A way to penalize members for bad behavior.

A tool which made it easy for groups of people without prior experience in self-governance to accomplish these tasks would significantly lower the frictions involved with shared living, and allow more people to access the financial and emotional benefits which come from low-conflict cohabitation.

Such a tool could go much further. By providing a flexible and powerful means for explicitly measuring and rewarding household work, this tool provides a potential means for addressing the long-standing devaluation of domestic labor, a phenomenon historically linked to gender and racial inequality.

There are many ways in which one might build such a tool. One creative and promising approach involves leveraging contemporary ideas from the cryptocurrency community, in which a multi-purpose token is used to create an internal economy. Here’s how it might work:

Imagine that all residents possessed some amount of a building token. Every week, a fixed percentage of existing tokens are re-allocated to a pool. All chores for the week are assigned a token-denominated bounty, which can be dynamically increased by residents if they feel the chore is pressing. Residents who complete chores (with verification) receive tokens, with those taking on high-value chores getting more tokens. Holding tokens gives residents voting power on house issues, which means that residents who take on more of the work of the house have a bigger say in house issues. Residents who misbehave can be fined in tokens, which go back into the shared pool. If a resident runs out of tokens, they may be asked to leave.

This approach is promising in that it makes explicit the implicit link between contributions to a building and influence over the direction of the space. Further, it allows for the residents to collectively, dynamically determine the value of various tasks, without specifying when and by whom those tasks must be completed. If a task, such as dishes, is going undone, residents can upvote the task until a member feels that the bounty is worth the work. If one resident is regularly contributing more than another, the overall allocation of tokens will shift towards the person contributing more to the building. If all residents are contributing equally, then the token distribution remains equal.

In regards to the dollar value of these tokens, one idea might be to peg the tokens to a security deposit: moving in, you receive a certain number of tokens. When you move out, assuming you have the same number of tokens, you receive your deposit back. If, during your tenure, you have accumulated more tokens, you receive more than your deposit. If you have lost tokens, you receive less. This creates an internal market in which residents are incentivized, but not obligated, to participate on the ongoing maintenance of the building.

The hope is that by providing a transparent, explicit mechanism for coordinating house activities, a more diverse (economically, culturally, neurologically) group of individuals will be able to successfully live together.

This could go even further. It would not be a stretch to take a resident’s activities in a single building (priorities, contributions, reliability, etc) and feed it into a persistent reputation system which carries in between buildings, making it easier for people to find compatible housemates in the future, as well as making the provider of this tool an indispensable resource in the long-run. An essential distinction would be made between absolute traits (such as timely rent payments) and relative traits (some people prefer a more laid-back environment, some a more tidy one, the important thing is to pair people with similar wants).

III. Ownership

This section begins with a personal story. In January of 2016, I moved into the ground floor of a brand-new building in Bushwick. Our 4-bedroom unit came with a backyard, and as the first occupants of the apartment, we found our new yard filled with the construction refuse that the contractors had neglected to remove: trash, metal, and unset concrete left in the rain. When we signed our lease, the property managers pledged that when summer came around, they would have the yard cleaned up.

June rolled around, and as management continued to drag its feet, one of my roommates and I decided to take ownership of the situation. We went to the local hardware store and bought some tools: rakes, shovels, and a pickaxe. Over the next month, we spent afternoons and weekends restoring our yard: clearing out the metal and glass, digging the garbage and rocks out of the soil. We pulled what seemed to be a never-ending stream of garbage (pipe! tire!) out of the ground – it felt as though we were the first people in years to give that land any love.

We cleared the ground, built a firepit out of the reclaimed stones, planted grass, and even set up an archery range. For a time, it was a magical yard, with archery during the day and friends around the bonfire at night. Creating that yard was a physical labor, but even more, it was a spiritual one. It was a powerful experience, to use one’s own body to create an aesthetic and harmonious order in a living space, and one which left a permanent, positive mark on the apartment, the building, and even the neighborhood.

Fast forward about a year, and things at the apartment had gone south. Poor communication, excessive partying, and lack of clear boundaries had brought the good times to a close. Myself and another of the roommates (ironically, the two who had built the yard) decided to call it quits (at about the same time).

Since we were moving out mid-lease, we had to pay a fee. I reached out to the management company to ask if they would discount any of the fee in light of the contributions I had made to the apartment. They refused. I then asked if they would be willing to at least compensate me for the cost of the tools and my time, in light of their failure to follow through on their own promise to do work on the yard. They refused again. They made no acknowledgment of the value which my labor created for their property. It hurt, and made me cautious about giving again.

Demand for housing in cities has created a perpetual seller’s market, in which landlords have few incentives to provide good service, often acting as “rent-seekers” in the classic sense of the term. This can, and often does, create an antagonistic relationship between renters and landlords. Some owners are motivated to extract as much value as possible from tenants, and provide as little as possible in return. As a consequence, renters learn to extract as much as possible from the landlords, and give as little as possible in return: a cycle of neglect leading to derelict living spaces. While some owners and renters establish good relationships and work towards mutual benefit, bad actors create a market-for-lemons in housing. While efforts have been made to address this, there remains work to be done.

It is important to realize that properties exist in space, but they also exist in time. Neighborhoods change, and properties increase or decrease in value because of the people who live in them. When a person occupies a place for a period of time, they contribute to that place for the duration of that time. If a person occupies a building, and that building appreciates in value, we can argue that the person played a part in creating that value. To fix the broken relationship between owners and tenants, we need a way for tenants to capture a share of that value. Further, while gentrification may be inevitable, the bitter pill would be much easier to swallow if it could be washed down with a sweet ambrosia of a four to seven figure dividend (depending on the situation).

On the other hand, it is important to acknowledge that tenants destroy value (via general wear and tear), just as much as they can be said to create it (although we would say that this depreciation is already built into rents). Further, the effect of individual tenants on property value is highly contextual. To take the example of New York City, a group of individual tenants living in the Lower East Side (a well-established, popular neighborhood) in 2018 are unlikely to be contributing much to the value of the neighborhood. On the other hand, the group of artists and proprietors living in Williamsburg in 2000, and who lay the foundations the vibrant neighborhood it would later become, can be said to have contributed immensely. The same could be said for the punks who squatted in abandoned buildings in Alphabet City in the 70s and 80s and built a series of community gardens, many of which exist to this day.

With that in mind, we can say that there are some situations in which tenants have a legitimate claim to the appreciation of their buildings, and some where they do not. For short-term tenants in established and desirable neighborhoods, there is likely little that they can be said to have directly contributed. For tenants in less established neighborhoods, or long-term tenants in gentrifying neighborhoods, there is a stronger case for their receiving some fraction of the appreciated value.

The solution need not be dramatic, and there are a number of ways to approach the issue.

The first is for the owner to take out an equity loan against the value increase of the building, and to disburse this loan to tenants as a function of their tenure and behavior. As part of the lease, the management could guarantee that 2% of the increase in appraised value will accrue to the tenants, with rules that late rent payments will result in a penalty to the disbursement.

The second is to set aside some percentage of future rental income in a separate fund, and to disburse shares of this fund to tenants. In this way, tenants can enjoy some of the future rental income of the building: advantageous if they expect that future rent will be higher than present. Conditions could be placed on these shares limiting the horizon of time for which they hold value (i.e. a share could represent the right to 1% of rental income each month for the next eighteen months).

The third is to have tenants purchase a share in the building, in a similar spirit to a condominium purchase, which gives the tenant the right to rent a room in the building. When moving out, the tenant can sell this share on an open market, letting the tenant capture the differential in the desirability of the space from when they moved in to when they moved out: a security deposit which increases in value as the neighborhood does.

The essential idea is to encourage tenants to think as though they were owners: creating wealth slowly and for the long-term. Such a mechanic has the potential to improve the relationships between tenants and landowners, as well as provide a novel means for renters to build wealth and establish themselves in life – particularly compelling for younger renters with less work experience, and especially for those who are struggling to gain a foothold in the modern economy. All of these mechanisms entail the owner giving up a small fraction of their asset, but we believe that this value be more than repaid by the improved relationships with the tenants. Our hope is that owners who offer these terms find that they attract more desirable tenants, and thus competitive forces will bring these practices into the mainstream.

IV. Conclusion

This essay has discussed three aspects of the future of housing. Each issue was treated separately, but it is not difficult to imagine how all three of these aspects naturally synergize. Housing stock emphasizing shared space, internal tools to facilitate self-management, and leases providing a share of ownership could come together to create a radically new type of housing which transforms the experience of life in cities.