Communal Living

Tired of Dirty Dishes and ‘Hacker Houses,’ Millennials Revamp Communal Living

‘Co-living’ offers more affordable rent, a cleaning service and even the occasional happy hour. And no more psycho roommates.

By MAX BLAU

One night in January 2016, Bryan Cannon was searching for an apartment in Silicon Valley, scrolling through an endless sea of Craigslist ads. He wanted a place he could afford with roommates he liked. That wasn’t a problem in his home state of Michigan, but next to impossible to find in one of America’s most competitive rental markets—where rents averaged a whopping $2,360 for a one-bedroom apartment, and where people have been known to pay to live in converted garages, tool sheds or outdoor tents. Eventually, the 26-year-old science researcher spied a listing for a bedroom in a peach-colored ranch near the headquarters of tech companies like Google and Yahoo. It almost seemed too good to be true: great location, relatively affordable price and a pool? There had to be a catch.

What Cannon had stumbled upon was actually a burgeoning trend in rental housing that had begun to shake up cities most popular with millennials. It’s called “co-living,” and it’s attempting to rewrite the exasperating and paycheck-crushing hassle of finding a decent place to live near the place where you work. The ad Cannon responded to had been placed by a startup called HubHaus, one of a number of “co-living” companies that have popped up in the last few years. Several hours after Cannon responded, HubHaus scheduled a showing. And when he drove out there, he was met at the door by one of HubHaus’ founders, Shruti Merchant.

As they walked through the house, Merchant pitched Cannon not just on a relatively affordable place, at $1,250 a month, but the chance to live with five roommates from diverse backgrounds who would eat dinners together, play board games and form a community in an all-too transient region where newcomers find it hard to break into social circles. Later that night, Merchant wrote to Cannon that 15 people had come out to look at the house. Two of them—one who worked for Google, and another employed by an electric motorcycle company—had already accepted offers to join “our community.” Do you want to be the third? she asked. Cannon loved the idea but was skeptical a startup could really cure the plight of urban-dwelling millennials.

The miniboom of companies like HubHaus signals that millennials are demanding new solutions for a rampant housing problem the public sector has mostly failed to deal with. Over the past five years, nearly a dozen U.S. companies have raised more than $130 million to sell the concept of co-living, the latest iteration of a millennial-focused economy that shares everything from car rides to workspace. Inspired by boarding houses and long-term hotels of generations past, these companies generally target the “underserved middle of the housing market,” the segment between traditional affordable housing programs like Section 8 and luxury apartment units, according to Brad Hargreaves, founder of the co-living company Common, which operates roughly two-dozen buildings in cities including New York, San Francisco and Chicago.

Skeptics of the model might wonder how co-living is different from old-fashioned roommates. But the companies are more than just landlords: They’re part cruise directors too, providing cleaning services and happy hour get-togethers, tastefully furnishing common areas and ensuring that housemates are decent people who won’t steal everyone’s food. On top of that, most co-living startups, HubHaus included, dispense with traditional rental agreements—a fixed-term lease for an individual unit—for one that provides “members” a small private room, and the flexibility to transfer from one property to the next—within cities and even across the country. All of this for less than renters in Silicon Valley have paid for a repurposed closet.

Over the past decade, as millennials have flocked to large U.S. cities, they have seen wages lag behind the rising costs of living. Faced with credit-sapping student debt, Americans born between the early-1980s and mid-’90s have waited longer to get married, buy homes or have children. More likely to rent—and devote a higher portion of their paychecks to rent—millennials are also more likely to be socially isolated than past generations. Even in the nearly 2 million-person San Jose area, where median household income exceeds $100,000 thanks to a humming job market, the dream of home ownership is increasingly elusive, with prices rising faster here than anywhere else in America. That’s left many employees of the world’s largest tech corporations—plus the teachers, firefighters, and police officers serving Silicon Valley—in a dilemma: Either make lengthy commutes or devote a disproportionate amount of their salaries to live near their jobs. Despite San Jose’s reputation for inclusivity (about 40 percent of residents are foreign born) and economic mobility (ranked best among U.S. cities), Mayor Sam Liccardo says the region’s affordable housing shortage has forced thousands to crash on couches, live in their cars, or stay on the streets. And while Silicon Valley has the tools and talent to mitigate the affordability crisis, the broader lack of political or corporate leadership on housing has threatened the region’s long-term ability to attract talent.

“We deserve the best and brightest,” Liccardo says. “But if we cease to become the place where people who have a passion or drive can make ideas happen, we’ll cease to be Silicon Valley.”

One of those people is Merchant, who has brought a bit of Silicon Valley’s entrepreneurial spirit to solving an intractable urban problem. In Los Altos, 10 miles west of San Jose, the 24-year-old CEO sits in the corner of a crammed, 1,100-square-foot storefront, building her company in a classic startup uniform of plain gray T-shirt and open-toed sandals. Huddling over their laptops, her 15 employees spend their days signing leases on single-family homes, showing houses to prospective members, and addressing the needs of tenants. And they brainstorm ways to strengthen community from subsidizing monthly house dinners to organizing field trips to places like Alcatraz.

Merchant, whose company has more than 500 rent-paying members—TSA officers, Tesla engineers, chemists, schoolteachers and wedding planners among them—now operates nearly 100 Bay Area houses and recently expanded to Los Angeles. After raising $10 million this past spring, she is looking to launch in several East Coast cities, the next step toward an ambitious goal of having a presence in every major American city within a decade. If successful, Merchant believes HubHaus can change the way renters interact with their cities—just as Uber or AirBnb have done—in part by putting “home” back into shared housing.

“I hope people can feel like they can belong somewhere, and they can open up to people,” Merchant says. “I hope co-living brings people together. Everyone deserves community.”

***

Merchant, a high school student during the Great Recession, never saw home ownership as a major of part of her American Dream. Instead, she strove to be financially independent and to change the world, even if she didn’t know what exactly she wanted to change. A top student in a high school of overachievers, Merchant earned an academic scholarship to St. Bonaventure University in upstate New York. She studied biology and worked as an emergency medical technician. But after completing her undergraduate degree in three years, she dropped out of the med school track and in May 2014 moved back home. That summer, she launched her first startup—making Google VR cardboard kits—in her parents’ garage.

“If you become a surgeon, you could impact maybe 100 or 200 hearts a year,” says Merchant. “If you start a business, you could impact potentially millions of people. And I’ve always been a risk-tolerant person.”

A self-described “adrenaline junkie,” once caught going 101 miles per hour on California’s I-280, Merchant stumbled upon the idea for HubHaus after moving into a “glorified closet” in a Silicon Valley “hacker house.” The owners of these single-family homes are notorious for packing a dozen or more people into every corner of a property—paying little mind to the social costs of people living so closely together. Merchant says her house was by no means the worst—with only nine or 10 people living there—but it left much to be desired. Picture perpetual lines outside the bathrooms, dishes piled up in the sink, takeout cartons overflowing from the fridge.

“They had set it up as like a price-bidding structure, so everybody would auction off the rooms,” Merchant says. “They didn’t care who was in the house, or who was moving in.”

Frustrated with the experience, Merchant felt there had to be a better way to foster community among roommates respectful of one another’s needs—and to do so without the hassle of the traditional online housing search. Inspired by the Silicon Valley playbook, she thought about launching a startup that in essence acted as a clearinghouse for working professionals looking to live with like-minded renters in relatively affordable units. First, though, she wanted to test the model on a smaller scale. She and another roommate found a seven-bedroom mansion in Cupertino, where Apple is based, and inquired about renting it. Then they posted a listing on Craigslist, informally vetting the people who responded to see if they were genuinely interested in creating a community rather than just putting a roof over their heads. All seven tenants signed the lease, sharing equal responsibility for the property. Merchant became one of the de facto property managers who helped furnish common areas and stocked bathrooms with toilet paper so her housemates could focus on building relationships. Most of her housemates were friendly and courteous. However, they had a problem with one, learning the hard way that they couldn’t expel that person since all the tenants had signed the lease.

Despite the early hiccups, Merchant remained convinced the concept was desperately needed in Silicon Valley. Soon, HubHaus was born.

From 2010 to 2016, new jobs in metro San Jose outpaced housing growth more than sevenfold. Meanwhile, as local officials failed to meet affordable housing goals over the past decade, rents increased by a third (from 2009 to 2015) while renter incomes fell nearly 3 percent. “So many people are coming here for good jobs, and people are looking for every which way to squeeze housing out of existing stock,” says Adrian Fine, a Palo Alto council member. While many of the cities that make up Silicon Valley are required by the state to draft affordable housing plans, they’re not required to develop those units, leaving the biggest projects to the likes of tech companies such as Facebook or Google. “We don’t have to build,” Fine says. “It’s a shell game.”

In early 2016, Merchant and her co-founder, Sloane Yu, invested nearly $50,000 in personal savings to get a tweaked version of HubHaus off the ground. They reached out to owners of vacant mansions to see if they would be interested in someone to manage their properties. Absentee owners often didn’t want to deal with the hassles of being a landlord so perfectly good housing sat empty, adding to the shortage of potential rental housing. Co-living offered a new option: HubHaus would become their tenant—making monthly payments to owners that in some cases covered the bulk of their mortgage payments. HubHaus, in turn, would sublease the space to its members.

Once owners became convinced of HubHaus’ potential, Merchant’s staffers often reconfigured the layout of their homes to increase capacity beyond what was originally designed for a single family. A reconfigured layout of a five-bedroom house—often done by carving a master bedroom into two using Lego-like bricks to form new, temporary walls—means six members can each get their own 172-square-foot room on average. HubHaus ordered furniture for the shared rooms in the houses; members furnished their own rooms.

“When we said, ‘We’re going to put professionals into these properties,’ the [owners] first pictured the scene from the Facebook movie, where you build the sling and knock the chimney down, or some type of frat party, something crazy,” says Patrick Beadle, HubHaus’ director of business development. “We’ve had to overcome that perception.”

***

A responsible and respectful bachelor in his mid-20s, Cannon was exactly the kind of member HubHaus was looking for. The Detroit-area native felt socially isolated upon moving to the Bay Area, in part because his first employer, a federal research contractor, largely hired middle-aged workers. He moved into a rundown $1,550-a-month apartment in San Francisco’s SoMa neighborhood. He figured that pricey rent was the cost of finding a social circle. But then he started a new lab tech job at Stanford, more than 30 miles away, that paid less than $50,000 a year. His rent ate up more than a third of his salary and the long commute took its toll.

“I wanted more of a home feel,” Cannon says. “I wanted to know my roommates — and know they would clean their dishes. And I didn’t want to be in a situation where I was another white dude in a house of five or six white dudes.”

Cannon’s initial skepticism about HubHaus waned after he moved in February 2016. Halfway though unpacking, he and two new housemates struck up a long conversation about “Star Trek.” While the housemates hailed from countries like Iran and Italy and were just as diverse politically, a bond grew over shared meals and poolside chats. They argued over their favorite Kanye West records so much that when it came time to name their house—per HubHaus tradition—they dubbed it Casa de Yeezus.

HubHaus has tried to foster that sense of community between its houses as well as within them. There were happy hours where HubHaus picked up the first round. The members of other houses open their doors for board game nights, leading to intense matches of Settlers of Catan or Cards Against Humanity. Cannon found himself attending those events, including a BBQ hosted at the HubHaus where Merchant lived. Cannon felt that co-living helped him “go from not feeling comfortable with people to being in a community of people I enjoyed being around.”

For the heads of the co-living startups, the hope is this kind of community can grow so popular that people turn to them before mom-and-pop landlords.

“We’re like a crowbar opening the city for people,” says Jon Dishotsky, CEO of Starcity, one of the other co-living startups. “It’s hard to move to a new city and create new relationships. We have ‘Sunday suppers,’ ‘Wine-down Wednesdays,’ book clubs, poetry slams, bowling groups.”

Having built HubHaus without help from accelerator or incubator programs, Merchant solicited advice from other tech leaders including Geoff Donaker, former chief operating officer and current board member of Yelp; and Tom Currier, then the CEO of Campus, a Peter Thiel-backed co-living company. Among the things she learned from Campus, which has since shuttered, was the importance of building a product that capitalized on societal shifts toward millennials wanting more shared experiences. She also learned that the simple removal of “friction points”—making life as convenient as possible inside the houses—could increase the likelihood that roommates might bond faster.

“You naturally select people who are more appealing just to you,” Merchant says. “But the more diverse group you put together, as long as you remove all the obstacles along the way, it actually led to stronger house cultures.”

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Today the average member is 27 and stays in HubHaus properties for at least a year. The current HubHaus model, though, makes it difficult to have many couples in homes due to the strain it places on resources shared among individuals. But Merchant hopes HubHaus will grow its availability for couples in the future.

Now that she is earning that magic median salary of $100,000, Merchant has eyed potential expansion into Boston, New York and Washington, D.C., followed by other larger American cities. And as HubHaus’ footprint grows, allowing for the painless transfer among properties in different places, Merchant thinks the company will allow for people to more easily find housing in Silicon Valley, where roughly half of its properties are currently located. Looking toward the future of co-living, Common’s Hargreaves believes the “millions” of Americans who currently share apartments or live with roommates could be potential members of these companies.

“Every new resident makes HubHaus more valuable to owners,” Mike Ghaffary, a partner at the Bay Area venture firm Social Capital, wrote after investing in Merchant’s idea. “And every new [house] makes HubHaus more valuable to residents as they take new jobs, move to new cities, or even just want to move locally a few towns over.”

Not everyone is convinced of co-living’s value. Lenny Siegel, the mayor of Mountain View, thinks the model is too niche to mitigate the region’s affordable housing crisis. While co-living might fulfill a small fraction of San Jose’s housing needs, he believes local officials need to stop dragging their feet—and start building housing.

“Building community—and knowing your roommate—offers a net plus,” San Jose council member Lan Diep says. “But to the extent that boosts the cost of rent, to $1,500 a month, for a room in a four-bedroom house, that might have a mortgage of $2,000 a month? Something feels wrong with that.”

Merchant believes co-living is a consequence, not a cause, of the housing crisis. That said, she acknowledges companies like HubHaus don’t typically strive to tackle affordability in the traditional sense—in the way Section 8 targets low-income residents. Her goal is to “make quality housing accessible to more people” that, results in pricing for rent, amenities and other perks being closer to “what you would get if you were to look at like an average room available for rent.”

“You’re saving a ton of money living in a HubHaus,” Merchant says. “But I think what’s more important than affordability is building places where people can come to, where it feels like they belong, and where it feels like they can be with their community.” To that end, Merchant offers her employees a 30-percent discount on rent, undoubtedly one of the more significant perks that include free lunches of Vietnamese pho and peach-pear-flavored LaCroix to its workers.

Nearly two years ago, the HubHaus CEO moved into a new house, Ground Control, a sprawling 2,400-square-foot ranch-style house in the quiet hills above Silicon Valley, with hardwood floors, marble countertops and lots of natural light thanks to its many windows. On a recent Friday night in July, she and her seven roommates hosted a BBQ outside their house for a few-dozen HubHaus members. Employees snacked along with members who sipped on beers. As Merchant made the rounds, she checked in on Cannon, who was manning the grill, his hands too greasy to shake the hands of guests. When it was time for a group photo, Merchant and Cannon crowded onto the patio with their friends. Everyone milled about waiting for one of the guests to fly his camera-mounted drone into position. Once it buzzed overhead, in just the right spot, they looked up and smiled.

Merchant and Cannon had previously clicked at one of her early BBQs. They started dating, even though they were initially hesitant, given that she was his landlord. A few months into their relationship, Ground Control became available, located just down the road from Tesla’s headquarters. The location was perfect—near both of their respective jobs—even if it was a little premature to move in together.

While Cannon loved living at Casa de Yeezus, he also realized Merchant had brought him into this community in the first place. They looked at the in-law unit at the bottom of the new place in Los Altos Hills. As they toured the place, she cautioned that it would be a big step, but that staying in a HubHaus property was important for her work. This time around, having already experienced the community of HubHaus, he was no longer skeptical. “I was sold,” Cannon says.