A New Alternative to Affordable Housing?

A report by Bloomberg details an Atlanta startup called PadSplit, which is working to help landlords turn rental properties into pay-by-the-week rooming houses. 

The company already manages more than 400 rooms in lower-and-middle-income neighborhoods of single-family homes. 

“We’re investing in this because we have basically come to believe that there is going to be a housing crisis again,” says Arjan Shütte, Founder of Core Innovation Capital, a venture capital firm that’s backing PadSplit. “Ten years ago the crisis was a financial one. This time it’s a crisis of supply.”  

PadSplit instructs landlords on how to convert properties into lodging and then manages them for a fee, working within local regulations. 

The report states that Atlanta currently doesn’t allow rooming houses in single-family neighborhoods. PadSplits are designed so the tenants meet the city’s definition of “single family”: up to six unrelated people, plus another four, as long as the latter occupy no more than two rooms. 

Bloomberg states that PadSplit Founder Atticus LeBlanc plans to spread the concept and estimated 14 million people in the U.S. are candidates for PadSplit housing. 

Atticus says he is targeting “the thousands of mom and pop investors out there taking rent.” He claims investment returns can jump to 9% from 6%, due to the economics and how the house is structured. The report adds that a six-bedroom house that stays fully rented can take in $43,000 in annual revenue. 

According to the report, single-room housing disappeared in the 1990s as more than 1 million units where either banned, or had limited zoning. 

Housing insiders are divided on the idea, and Chris Ptomey, Director of the Urban Land Institute in Washington, says in the report that advocates have been hoping “co-living” arrangements could expand to low-wage workers at a larger scale. 

“I think there’s a lot of hope that these kinds of models could work at a lower price point,” he says. “I think it’s a great, novel model if it can be additive, if it can add units that are affordable.”

Georgia State University professor Dan Immergluck said PadSplit is mainly a testament to the severity of the housing situation. 

“It’s kind of a market solution, I guess, for the affordable housing crisis, to get one room, on a week-to-week basis, that really could be yanked out from under you at any time,” Immergluck said. “It’s a logical market response to a desperate need among single, low-income people. It’s designed for people earning $10 to $12 per hour.”