Co-living grows up
Co-living is emerging as a new housing type across the U.S., and cities—particularly those starved for middle-income housing — are beginning to take notice. At the forefront of this trend is Jon Dishotsky, co-founder and CEO of Starcity, a developer and operator of co-living buildings on the West Coast. Just last week, Starcity announced its latest project: an 800-unit building in San Jose, what would be the largest co-living development in the world.
“If you look at both San Francisco and San Jose’s housing affordability goals over the next 10 to 15 years,” says Dishotsky, “the category that is the most underserved with potential new supply is middle-income housing by a huge margin. These mayors and city staff are saying, ‘Okay, maybe this is the tool that we utilize in order to get us to meet that middle income affordable housing goals.’”
Sidewalk Talk spoke with Dishotsky to learn more about the San Jose project (including the zoning rules the city had to pass to make it possible), the converging trends that are causing co-living’s popularity today, and where co-living developments could be headed in the future.
What were you hoping to achieve with Starcity?
We set out to really solve for the gap in middle-class housing. Right now, there’s low-income housing, which you have to win the lottery to get into, or the luxury condos that maybe start at about $1.5 million. So people are doing three things. They’re commuting an hour or two outside of the city. They’re fitting four people into two bedrooms. Or they’re paying 70 percent of their income towards rent in new construction studio apartments. All of those are really crappy options.
Who are Starcity developments for? Who are the people that end up living in them?
The age ranges are between 20 and all the way up to 70. Our average age is in the mid-30s, average salaries in the 75k range. 50/50 male, female. We actually have a less than a third of the folks in the technology industry. We have an airplane pilot, a teacher. We have baristas, bartenders.
You’ve described the people who live in Starcity developments as falling into two kinds of categories. Can you explain?
One is what we call a communitarian. This is somebody who’s really excited about living with other people, really excited about feeling like there’s a place that they belong.
Then we have somebody that’s called the optimizer, and the optimizer is really just looking to be taken care of. We provide fully furnished units. All the utilities are included. There’s enterprise-grade WiFi. We have janitorial services in the common spaces every other day. They can walk in, put their bags down, and they’re moved in, and then from there on out, will be taken care of.
That first category of person that you described, they might have gone with the more traditional route of just looking for roommates five years ago. The second person wouldn’t have looked for roommates at all. Why do you think that this new model for co-living works for both of these folks?
If you’re using what’s called the “sublease Craigslist roulette,” you interview with some people, and you’re like, “They seem chill, this is going to work out.” Inevitably, there’s friction, and friction really comes down to three things. One is finances, two is cleanliness, and three is lifestyle.
Finances is: who’s in charge of paying the rent? Who’s in charge of paying the bills? That’s where a lot of friction can be caused. If you have to fill a room and you can’t do it in time, then all of a sudden you have to come up with an additional month of rent for a room that you don’t even occupy.
Number two would be cleanliness. Every different culture, every different person has a different representation of what clean means. You may see me leave the dishes in the sink and say, “You’re an animal, Jon.” From my perspective, “I’m really deep into this book right now and I’ll get to the dishes later.” We have an argument about that and our whole roommate situation is in flux because of, well, a dish.
Then third, lifestyle. You are a club promoter and I am a teacher, and you get home at 5:00 a.m. and I have to leave first thing in the morning to go teach second graders, and that’s not ideal. Since these situations arise quite a bit with all the various roommates that you get, there’s really no avenue for people to mediate conflict should they arise.
Starcity takes care of all the finances. We are cleaning all the time. And if it’s a rowdy house or a rowdy group of people, know that going into it when you apply, or if it’s a more professional group, just know that there’s quiet hours that are a little bit different than a house that’s a little bit lively. By reducing the friction for all of those three major categories, we find that there’s a lot more harmonious way to live together.
Which one are you? Are you a communitarian or an optimizer?
I am a little bit of both. I actually grew up in a form of communal housing. My dad and mom moved out from the East Coast in the 1960s to the heart of San Francisco. They ended up living in communes and got a lot out of that, but also had the issues that I mentioned before — there was this chore wheel but no one would actually do the chores.
When they settled down in Palo Alto, in order to make ends meet, they had students living with us. At any given time, we had five to 10 people in our little home, including students. The students got a cheap place to live. My parents got inexpensive child care and we had older brothers and sisters from all around the world. So for me, it was originally born out of being a communitarian and meeting people from all around the world.
As I’ve gotten older, I’ve also become an optimizer because I know that for me to really enjoy San Francisco or Los Angeles, or whatever city that I lay my head in, I would prefer to not to do the mundane things I’d have to do with housing and actually enjoy the culture of the night life, the arts, and continue to build this company. Those regular household chores can get in the way of that.
There have been examples of communal housing before. But co-living is different. How do you define co-living as different from the other models of communal housing that exist? And why do you think it’s taking off now?
There are tons of historic examples of how this has occurred in the past. People living in community — that’s been around since modern humans have been on earth, and so there’s nothing innately super special about co-living.
There are two things that are really making this moment in time occur. One, affordability. Many of the best cities in the world are extremely expensive to live in and the creation of new supply is terrible. A lot of that is because of policy, because of political will, because of the real estate developer model. Co-living, if done right, can allow for a higher density of living, which brings the cost of living down significantly.
Then the second thing is social isolation. We’ve been trained to go on this path, that American dream, where you’re buying your home and then you live in the suburbs. I think we got away from what humanity is really good at, which is congregating, living together, sharing resources, helping each other out.
In certain ways, technology has also hurt. Right now, you can push a button and get anything done for you, like borrow a car or get a ride. But in the past we used to just ask a friend or a neighbor for that. We have these services that push us away from relying on each other.
Experiences, deep connections, new friendships — all that stuff is actually moving the needle for people. That’s what we find in our communities. The people who stay the longest, the people who renew the most, the people who are the most engaged, have made between one to three new deep meaningful connections.
A lot of these trends you’re talking about are at a macro level. But it’s one thing to look at your society and say, “Oh, yeah, these things are happening, interesting.” It’s another thing to actually put your skin in the game and start a business. What made you think that here’s a business here that could be successful?
I started to see these headlines saying everyone’s leaving cities, they can’t afford it. I started to grow angry. There’s a way to provide a solution. Stop leaving! I was like, “Okay, well let me talk to my friends who actually build housing.”
What I started to see was that it was really this middle-income demographic that was suffering with finding new housing. I put up a Craigslist ad and said, “I will give you five bucks and buy you lunch if you earn $50,000 to $150,000 a year income, if you’re 20 to 50 years old, and you have a full time job, and just come talk to me.”
Over that three-month time period, I talked to 750 people, and the overwhelming majority of them were completely dissatisfied. They were ready for something new and something different.
I showed all of them this idea for how I grew up, but more professionalized, and the majority of them said that they would be open to living that way so long as they had the privacy of their own individual space, and their bathroom, and that they shared the kitchen with a small enough group of people to feel like an extended family. With that inspiration in having those conversations with people, it really felt like to me that I could build this.
Once we built our first location, so many people applied to it — the product market fit occurred before we even started the company. That gave me the sense of, “Okay, we’re really onto something here.”
I knew that I could get product market fit for the individual. I could get capital market fit for the investor. The third bucket, which we’re still working on, is regulatory market fit. Meaning, changing zoning such that co-living becomes part of city planning. We recently were able to do that in the City of San Jose, so that’s very exciting.
What did that process look like?
First, you got to think about it from the perspective of city government, mayors, the planning department. Every approval request that comes across their desk is for luxury housing. When you come to them and you say, “Here’s an idea for more people who are in this income demographic,” which the planning staff is all in, they’re like, “This is awesome.”
Secondarily, you now have mayors of cities and city supervisors who hear their constituents day after day, saying, “We cannot afford to live here.” Or the restaurants can’t hire people because the people working in the kitchen can’t afford to live nearby. Teachers are not able to stay. From the top, you have mayors who have the will to try some new things.
In the City of San Jose, we were in the process of acquiring a piece of land in downtown San Jose, which is going through a major resurgence. There’s a really great opportunity to create something special there. The project was originally approved for 302 apartment units.
San Jose didn’t have anything that addressed communal housing in their planning code. We think co-living as a product is a new physical form, where each individual has a private bedroom and bathroom, and then we centralize the kitchen between 10 to 20 people. That is more sustainable for the future and fits more people comfortably in the same envelope. We call it a vertical neighborhood. That is a lot different than what the apartment zoning allows in that district.
When we showed the city our plans, they were like, “Well, you could re-entitle this project as a hotel. You could re-entitle it as student housing. You could re-entitle it as a single-room occupancy [SRO].” We said no, for a host of different reasons. They said, “Well, why don’t we just work with you on introducing co-living to city zoning?” We were like, “Okay. That sounds wonderful.”
Over a period of about six months, we worked with them on that code and all of the details. What’s the parking ratios? What are the open space requirements? What are the inclusionary housing and below-market rate fees that we have to pay? What’s the transportation demand management program there? All of these were really bespoke to a higher density of living format.
The City was very careful with doing it the right way. They were super good at getting input from the neighbors and the neighborhood, and really thinking critically about what’s the right mix of real estate typology. In the end, the code was unanimously approved, and so was the project. I think that, as we look forward into the future, you’re going to see a lot of major cities in the coming year or two start to adopt this zoning change, because it fits a big need.
In San Francisco, there is this really beautiful section of the code called group housing. We used a part of that code to get approvals on a few of our projects. But in the City of Los Angeles, none of those exist. There’s only traditional multifamily and old SRO code, but there’s a lot of issues with SRO.
Primarily, what it comes down to is the experience. When we build a building, 65 percent of the space is private residential; 20 percent is communal, beautiful kitchens and living rooms, and work spaces; and then the other 15 percent is circulation, right? Hallways and elevator space. In an SRO, you have 95 percent private residential space, tiny hallways and no communal areas. It’s really another socially isolated experience.
This is not SRO. This is not hotel. This is not senior care. This is a new category.
Do you think that people will stay in these developments? Will they have families in these developments?
We’ve had a few Star babies, for sure. We are looking to try out Starcity for families in an upcoming location. Right now, it’s primarily for singles and couples, and it works well for those, and we really need to think critically about how you would allow for people with children.
Do you think that co-living has potential to expand into different demographics?
Yeah. I really feel like the sky is the limit. I mean, people in their 60s and 70s live in our communities, and so it works for them. We have this huge aging boomer population that doesn’t necessarily want to live in hospice. They want to live in more social, active communities.
If the co-living trend continues, do you think it could potentially change the way Americans feel about home ownership?
I think that there’s two ways to look at it. One is that our generation came out of the recession extremely poor with very few job opportunities. We’ve optimized for experiences and lifestyle over ownership because we just didn’t have any money.
The other way to look at it is that we’re waking up to the fact that being burdened by these things actually doesn’t make you any happier. If that is the outcome of what the recession caused, I don’t think it’s a bad thing. If we all come out of this and say, “Far fewer people actually have the desire to own a home,” then that’s okay.
Anecdotally, I can say that people who have sold their homes and moved into Starcity have actually seen an uptick in their happiness. The question is, will that be broadly reached by the general population? I don’t know. I still think we have a long way to go for people to accept this — in the same way that getting into a stranger’s car a decade ago was really weird, or occupying somebody’s living room that you didn’t know was really weird. I still think that people have an aversion to living with roommates and living communally, but I do think that once they see that these are everyday normal people living this way, and that they’re getting more joy out of it, then that adoption will start to increase.
June 14, 2019