By Ori Zohar
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In the second quarter of 2016, homeownership fell to 62.9%, its lowest rate since 1965. Despite a housing market that’s rebounded significantly over the past few years, younger adults remain reluctant to jump on the buying bandwagon. The homeownership rate among 18- to 35-year-olds is at 34.1%, the lowest of any generation.
Student loan debt and stagnating incomes are keeping some millennials out of the market, but others are making a conscious choice to approach their housing situation in a different way. The rise of so-called “millennial dorms” is one example of how members of Generation Y are reshaping real estate before they hop into the ownership market themselves.
Dorm living: Not just for students anymore?
When you think of dorms, you may imagine a 15-by-15-foot room complete with a mini-fridge and bunk beds, but that’s a far cry from what communal living looks like for millennials. Instead, startups and real estate developers are envisioning a completely new lifestyle for young adults who prefer the perks of co-living to homeownership.
Take Common, a New York-based startup launched by Brad Hargreaves, co-founder of technology education company General Assembly. In October, Common opened the doors to a 7,300-square-foot building in Brooklyn that features 19 bedrooms divided among four suites. Each suite has a kitchen and two bathrooms, and tenants share access to common space — hence the name.
The bedrooms are fully furnished, including bed linens and towels. Utilities, high-speed Wi-Fi and free on-site laundry are included. The company stocks the shared areas with cooking equipment and cleaning supplies, and cleans them weekly.
The company has since opened two more locations in Brooklyn, one of which is a 20,000-square-foot property in the trendy Williamsburg neighborhood, as well as one in San Francisco.
Common isn’t the only startup getting in on the action. WeWork, which got its start developing collaborative work spaces, is applying that same model to housing. Company founders Adam Neumann and Miguel McKelvey have transformed the upper floors of WeWork’s Wall Street office into living spaces.
Residents can rent space in WeLive’s studios and apartments with one, two or three-plus bedrooms, All units are fully furnished and include bed linens and towels, HDTVs and in-ceiling speakers, and have private kitchens and bathrooms. A full-time concierge and housekeeping team are on-site, and there are common areas where residents can play video games, do laundry, watch movies or cook dinner together. Residents can rent on a month-to-month basis, with no credit check or broker fees. WeLive also promises all the coffee, tea and beer you can drink.
Currently, WeLive has properties in New York and Arlington, Virginia. The New York property is at 100% capacity while 80% of Crystal City’s rentals are occupied. The typical WeLive renter is around 30 years old, but the units are also drawing interest from older adults with children and business travelers who need affordable digs for short-term stays.
What’s the appeal of communal living?
What makes millennials want to flock to a more upscale version of dorm living once their college days are done?
Cost may be one answer. A private furnished room at Common’s Pacific property in Brooklyn starts at $1,455 a month with a 12-month rental agreement. An individual bed unit in WeLive’s Wall Street location starts at $1,700 per person. Compared to the typical rental rate in Brooklyn, which averaged $2,809 a month as of June 2016, dorm living may be the less expensive alternative. The fact that so many amenities are included in the price raises the comfort level for renters who don’t want to go to the trouble of getting cable hooked up or lugging their dirty clothes six blocks to a laundromat.
The social component also seems to be a big draw. At the WeLive apartments, there’s a community manager who’s responsible for organizing regular meet-ups between residents. Being able to go to karaoke night just a few feet from your front door may be attractive to millennials who’d rather not brave the local bar or nightclub scene.
Gauging the impact on housing
These kinds of millennial dorms raise the issue of what’s next for homebuying. The millennial housing market is showing some signs of life: as the generation is getting older, homeownership rates have started to increase at a faster rate than in previous years.
Whether the communal dorm model will disrupt real estate by making renting a more attractive option than buying remains to be seen. At this stage, co-living is limited to larger cities like New York, where people may be naturally more inclined to rent than buy in the first place — and the vast majority of young buyers aren’t making those purchases in these wildly expensive urban areas, but rather in smaller markets.
For now, communal living is still a small niche in the larger real estate industry. In some cities, buying is the better option than renting for millennials, which could make it harder for the dorm living lifestyle to catch on over the long term. It’ll be interesting to see, however, if companies like Common and WeWork can apply their models to smaller markets across the U.S.