SROs: A new, old idea

I read a TON about business, in general, and real estate, in particular. So it’s fairly rare for me to come across an idea that’s genuinely new to me. But I came across one last night, during a conversation with a much more experienced owner-operator, that I’d like to share.

We were discussing the housing affordability crisis currently affecting cities across the country, and particularly on the West Coast.

The usual suspects came up: Zoning, construction pricing, stricter building codes, etc.

But he had another take: That cities ought to be allowing the construction of SROs (single-resident occupancy hotels).

SROs are cheap to build, because the residents share communal kitchens and bathrooms, and generally don’t get parking. Because they cram a lot of people into a relatively cheap structure, they can generate a good yield, even with very low rents.

SROs flourished in LA and other cities during most of the 19th and early 20th Centuries. Young, unmarried men, in particular, used to congregate in SROs while they worked to find their footings in adult life.

However, during the 20th Century, cities adopted more stringent zoning codes aimed at increasing property values and banned construction of SROs, either explicitly or through things like minimum dwelling size restrictions, parking requirements, etc.

In doing so, city governments wiped out a whole stratum of cheap housing that was ideal for single people, thereby forcing those people to double- and triple-up in conventional apartments, pushing the price of those units up as well. From a housing affordability perspective, this wasn’t so smart.

Now, you could argue that the birth and growth of the co-living model is sort of a rebirth of SROs. However, it seems to me that the co-living companies target the more affluent end of the single-renter demographic, by bundling in expensive services and space (like group dinners, communal living rooms, etc.), which drive up the monthly rent.

Perhaps what is needed, as my fellow owner / operator pointed out, are new SROs, or co-living facilities stripped way down to allow for the lowest possible monthly rent.