Affordable housing is expensive to build–and that means construction is happening far too slowly to meet demand. In Atlanta, a startup called PadSplit is adding new affordable units more quickly by reusing rooms in single-family homes instead.
“I saw a misalignment of incentives throughout the industry,” says Atticus LeBlanc, the founder of PadSplit, who has been an affordable housing investor and developer in Atlanta for more than a decade. To get a subsidy to build affordable housing, for example, developers in the city have to meet a minimum size requirement of 750 square feet for a one bedroom apartment, “whereas we know we can house people comfortably in 250 square feet,” he says. That requirement for developers, among others, makes the cost go up. Like other construction projects, new affordable housing also has to go through a lengthy planning process and takes time to get financing.
Rather than building new buildings, PadSplit works with property owners who are renting out single-family homes. The property owners agree to fix up the houses to a certain standard, and then PadSplit helps them add walls to create new rooms–if there’s a formal dining room or an extra den, for example, those will be converted into bedrooms. Then the company screens potential residents and rents out each room, including utilities, internet, and laundry, for around $550 a month. For a property owner who might have been renting the whole house for $1200, it’s a way to make more money. For renters, it’s a way to save; the average PadSplit member makes only $21,000 a year, and saves $460 by renting through the startup. (The cost is similar to renting a room through Craigslist, but LeBlanc says that the homes are in better condition, and all housemates are given background checks.) The company offers furnished bedrooms that can be rented by the week.
The model is similar to SROs, or “single room occupancy” housing that was once much more common in cities, taking the form of low-cost residential hotels or rooming houses. When much of that housing stock disappeared as cities banned new SRO buildings and converted some other units to more expensive housing, it helped contribute to a rise in homelessness; now, cities like San Francisco and Los Angeles are converting some old SRO units back into housing for people who are homeless. The homes that PadSplit works with, with a high standard for living conditions, might be able to avoid some of the negative perceptions of SROs that led to campaigns against them.
PadSplit’s system works without any subsidies. “I felt very strongly that if you wanted to solve the affordable housing crisis, you had to figure out a way to demonstrate to the private market how affordable housing could in many cases be as profitable or more profitable than market rate housing,” he says. “Because if you could demonstrate that to the private market, then guess what? Everybody would actually do it. And you would start to dig yourself out of this massive hole that we’ve created for ourselves in terms of the lack of affordable housing in this country.” For the cost of the federal subsidy for a single unit, he says, PadSplit can create 50 units. It can also address some common issues in rentals–for example, by paying for utilities, the property owners have the incentive to invest in energy efficiency, something that often doesn’t happen when tenants have to pay electric bills.
LeBlanc had experimented with a similar model in a home that he owned himself and saw how it could help people who had been struggling to pay rent. “I saw how quickly they were able to accelerate their lives in a way that just simply wasn’t possible before,” he says. In 2016, he entered the concept in a competition from the nonprofit Enterprise Community Partners and won, and launched the startup in 2017. The company, which is now a public benefit corporation, raised a $4.6 million seed round this month to expand. The company has worked with property owners to offer more than 200 affordable units so far, and plans to have around 1,000 by the end of the year. Many will be in “opportunity zones,” areas that give property owners a federal tax break when they buy property. It also plans to expand beyond Atlanta.
The concept isn’t without challenges. Not everyone wants to live with housemates and share a kitchen and bathroom. (It also wouldn’t work for many families, as rooms are limited to a maximum of two people, and the houses also have limits based on the number of bathrooms available.) Neighbors don’t necessarily want to see the house next door converted into a multi-unit rental, says Sarah Kirsch, executive director of the Atlanta office of the nonprofit Urban Land Institute. But she says that it’s a solution that especially makes sense in single-family neighborhoods that are close to jobs and transit. It’s also a smart way to create new affordable housing as subsidies shrink. “Finding solutions that are purely private sector is a big deal,” she says. It can also be used as a way to quickly house people who are homeless; an Atlanta church is sponsoring one home now for this purpose.
“With a deficit of over 7 million affordable homes nationwide, we need to do more than just build new affordable units,” says Patrick Jordan, vice president of Enterprise Advisors at Enterprise Community Partners. “We need to better utilize our existing infrastructure as part of the solution. PadSplit’s approach to scalable co-housing in existing structures can quickly create a significant number of affordable housing units with minimal cost, as a part of that broader solution. Enterprise is committed to supporting innovative approaches like PadSplit that support affordability and have the potential for national scale and impact.”