The Future of Housing May Be $2,000 Dorm Rooms for Grownups
This article is part of Into the Valley, a feature series from OneZero about Silicon Valley, the people who live there, and the technology they create.
One of the most ambitious real estate projects in Silicon Valley is just getting off the ground in San Jose, on the 100 block of Bassett Street. As early as 2021, a massive, 803-bedroom high-rise apartment building will sit here, not far from the city’s major rail and transit hub. Most importantly, the building will be located a couple miles from a soon-to-come Google campus, which will have twice the office space of the Empire State Building and support 25,000 employees.
When completed, the building will look just like any other apartment complex from the outside. But inside, there will be one key difference: Every resident will get one bedroom to call their own, and that’s it. The kitchens, the bathrooms, the living rooms — really anything that might be considered a common area — will be shared between strangers. According to Jon Dishotsky, the CEO behind the construction, this co-living project represents the best way to create affordable housing in the most expensive place to live in the U.S.
A 36-year-old with a boyish swagger, Dishotsky is the co-founder and CEO of Starcity, a three-year-old startup that specializes in constructing co-living arrangements. Today, almost 200 people live in 11 different Starcity houses in California. If Dishotsky succeeds, that number will multiply many times over.
Monthly rent for Starcity residences varies depending on the location, but generally ranges from $1,000 to $2,300. That fee includes utilities, Wi-Fi, basic essentials like dining utensils and toilet paper, a weekly cleaning service, and televisions with subscriptions to HBO, Hulu, and Netflix. Kitchens, bathrooms, laundry rooms, and living rooms are all shared. Some observers have likened it to college housing for grown-ups.
“It’s sort of like an upgraded version,” says Dishotsky, when we meet in late November at the company’s San Francisco headquarters.
Co-living, of course, is nothing new. Companies like Common and WeWork have pitched similar projects as a solution to the housing problems of America’s big cities. Just last fall, Common won a New York City-sponsored competition to build affordable housing in a massive new co-living project.
Dishotsky wants to bring a similar model to one of the most strained housing markets in the country. Starcity, he insists, is for people who are making way less than an entry-level software programmer — for anyone, he says, who has been squeezed harder and harder by the skyrocketing price of shelter in the Bay Area.
“Our focus is really solving for the middle-class,” he says. “We really wanted to prove that it is possible for people in the middle- and lower-income class to afford a nice, high-quality, class A place… And so, if you’re making $35,000 a year, you can afford to live there.”
“This is what passes for innovation in Silicon Valley. It’s a dorm. It is a very expensive dorm.”
Dishotsky says the makeup of current Starcity renters reflects this: tenants include tech workers, people in insurance, real estate, and finance, but also teachers, hotel workers, journalists, bartenders, and baristas. (How a low-income worker such as a barista would manage to afford a $1,350-room at Starcity is a bit curious. Even at San Francisco’s $15.59 minimum wage, a 40-hour-per-week worker would take home just $32,427 a year before taxes.)
In San Jose, the state’s housing crisis has reached a boiling point. A November 2019 report underwritten by the City of San Jose Housing Department outlines some of the grimmer statistics. Since 2005, median rent on regular apartments has risen in the city from $1,458 to $1,950. And almost 40% of all of San Jose’s 146,705 renter households makes less than $50,000.
In turn, more than half of the city’s renter households are “rent-burdened,” meaning residents pay more than one-third of their income to their landlords. To afford the rent for a one-bedroom apartment in a “Class C” building — defined as a “no-frills, older building” with “below-average maintenance and management,” which is a jargon-filled way of saying crummy — a person has to make $54,090 a year.
To ease a tight housing stock, San Jose Mayor Sam Liccardo has a plan to add 25,000 residential units by 2023. Starcity, Liccardo says, is part of that plan. In February 2019, the city council even amended the zoning code for Starcity, making San Jose the first city to add a specific use for “co-living.”
Meanwhile, local housing advocates worry about who’s being left behind in the city’s plans.
“This is what passes for innovation in the so-called capital of Silicon Valley,” says Matt King, organizing director at Sacred Heart Community Service in San Jose, a group that provides social services and organizes for immigration and housing reform. “It’s a dorm. It is a very expensive dorm.”
To get a taste of what Starcity San Jose might look like when it’s completed, I traveled to San Francisco, where the company runs multiple co-living properties. About 100 people live in eight different Starcity houses in the Bay Area, with a ninth on the way. Another 70 people are split among three Starcity buildings in Los Angeles.
On a bucolic block in the city’s Mission Dolores neighborhood, I found a four-story Starcity complex housed inside an Edwardian building, renovated from the ground up: wood floors, stainless steel kitchen appliances and farm sinks, chic bathrooms, and on-trend furniture from West Elm and CB2. “No IKEA stuff,” said Ellis Tran, a Starcity on-boarding manager for new tenants and my tour guide for the afternoon.
Each of the 23 bedrooms is bright and airy, painted white and outfitted with nightstands, wardrobes, and custom-made bed frames. Outside is a patio equipped with all the supplies for throwing a barbecue.
The house is impeccable. Monthly rent, Tran told me, is $2,050 for a year-long lease, or $2,300 for one of the five bedrooms with bay windows. (A quick scan of local Craigslist ads suggests renters can find a room in a traditional shared apartment in San Francisco for significantly less.) The house had been open two weeks, and 10 of its 23 rooms were rented out. Tran said that so far, the residents are a “tech-heavy” bunch in their mid-twenties and mid-thirties.
“Nowhere in the state have we built enough housing to meet the demand.”
Long before he was renting out bedrooms in shared living communities, Starcity CEO Dishotsky posted his own ad on Craigslist. But he wasn’t trying to split rent.
After a decade of working in commercial real estate in and around Silicon Valley, in 2015, Dishotsky’s mind started drifting toward the residential market. What he observed, and what he heard from friends, was the cost of housing was going up even as wages had stagnated. The San Francisco studio apartment that cost $500 in 2010 had suddenly become $2,000, and people were stretching their budgets.
So he conducted an ad hoc survey: “I started by just putting up a Craigslist ad, giving people $5 and asking them to talk to me,” he says. “If they were 20 to 50 years old, if they made $50,000 to $100,000 per year, if they had a full-time job. I wanted to just ask them questions about their experience.”
Over three months, he says, he found hundreds of people who said that if they could find a reasonable co-living arrangement with strangers, they would move in the next day. The following year, Dishotsky helped launch the first Starcity building by converting a single-family home in San Francisco’s SoMa neighborhood into a five-bedroom co-living suite. Close to 1,000 people applied for a spot.
“That, to me, was like, ‘Okay, we’re on to something,’” he says.
Dishotsky was pouncing on a housing market in crisis. Over the last decade, more than 700,000 jobs in tech have been added in the Bay Area. During that same period, just 175,000 new units of housing were built.
“Nowhere in the state have we built enough housing to meet the demand,” says Leslye Corsiglia, executive director of the local affordable housing group SV@Home.
Myriad factors are to blame. For one, Proposition 13, which took effect in the late 1970s, capped property tax increases on residential and commercial structures in California. That, Corsiglia says, incentivized cities to prioritize taxable jobs over building new housing. In cities like San Francisco, construction costs are exorbitantly high, while permitting is discretionary and “nightmarish,” says Patrick Carlisle, VP of business development at the Paragon Real Estate Group in San Francisco.
“It can easily be three to seven years before a project is even completed,” says Carlisle. In December 2019, San Francisco surpassed New York City for the world’s highest construction costs: At least $750,000 is needed to build one new apartment unit. Not building. Unit.
That makes subdivided real estate projects like Starcity particularly lucrative. In addition to the development underway in San Jose, the startup is building two more projects in San Francisco, one of which is a 270-bedroom co-living high-rise that will break ground later in 2020 in downtown San Francisco. Like all Starcity residences, bedrooms will range in size from 130 to 220 square feet. Approval will be based on criminal background and credit checks. Dishotsky says half of the rooms will be rent-restricted rooms priced around $800 — an affordable housing requirement mandated by the state in exchange for bypassing cumbersome permitting processes.
Another 28,000-square-foot development in San Francisco’s Tenderloin neighborhood represents Starcity’s largest development so far, as well as its first purpose-built co-living space. Set to open this year, the building features a coffee shop on the ground floor. Though some rooms will have their own bathrooms, many will be shared, with a building-wide ratio of two people to every one bathroom. Many of the rooms will feature Starbeds, Murphy beds with built-in couches, designed by a former Tesla engineer. Rents here will be in the $2,500 range, in stark contrast to the neighborhood, an area of high poverty and homelessness.
Dishotsky insists the business is built on two main principles. The first is economic: people are willing to exchange private space for cheaper rent. The second is slightly more idealistic: that people could benefit from more social interaction. Starcity organizes events for its members, like barbecues and Bob Ross painting nights, and also holds a periodic “town hall,” where members of a house come together to talk about their hardships and problems.
Not everyone is buying the pitch. For housing advocates, the project represents a market-based housing solution for the very individuals squeezing out lower-income residents. “We don’t seem to be able to do anything but provide housing for young professionals and people with high income,” King says. “Why can’t we innovate for homes for people who can’t afford this?”
In the San Francisco subreddit, users on a thread about Starcity’s co-living communities take a similar view. “Only chumps and/or rich folks are paying $2,400 for a studio,” writes one commenter, while another wonders “how this beats having one or two roommates in a regular apartment.”
In San Jose, the city has taken additional steps that have alarmed fair housing advocates. On top of adopting a new zoning designation for Starcity, the city also exempted the development on Bassett Street from an inclusionary housing ordinance that mandates developers make 15% of all new units affordable. That means Starcity isn’t obligated to price some units so they’re affordable to people who make $65,000, or half the city’s median income.
“Co-living is just another tool that can offer more affordable housing by design, by offering those smaller units,” says Jared Hart, a manager in the city’s Department of Planning, Building, and Code Enforcement. “The Starcity project is a market-rate project, but just because of the design of the project, you’ll have units that could be more affordable.”
Dishotsky says the price point for units in San Jose will be between $1,500 and $1,800 a month. “I think the $1,500 mark gets you down to where somebody on around $50,000 a year can afford to live there,” he says. Dishotsky told OneZero that salaries of Starcity residents range from $30,000 up to $300,000, and that the typical renter makes anywhere between $60,000 and $120,000.
For a teacher in San Jose, where their average base pay is $57,000, a room in Starcity’s new San Jose building would mean spending more than 30% of their income on rent.
“Co-living can be an important model to help get moderate-income professionals into the urban core near employment, high-quality transit, and amenities in a very expensive city,” says Michael Lane, deputy director of SV@Home. “However, the proposed rents described by some as ‘naturally occurring affordable housing’ won’t meet the needs or budgets of very low-income workers and families. We’ll still need inclusionary housing and subsidized 100% affordable housing developments as well.”
“It’s creating a lily pad for people to move to the city in a way that’s more affordable.”
A January 2020 report on displacement shows that a majority of San Jose’s residents are particularly concerned about being priced out of their living situations, at the same time as the city is weakening its rent-control policies in favor of developers. There are now more than 6,000 homeless people living in San Jose, an increase of 42% in two years. And while the city is trying to make 10,000 of its target of 25,000 new units affordable, it’s on track to build only one-third of those.
“What we hear from developers is that they’re only going to build more units if the rents go higher,” says King. “As a society, we have turned over this basic human right to the whims of a global finance market that sees housing as an investment vehicle, rather than the thing that we need to build healthy families and healthy communities.”
More affordable units are surely necessary. Google’s new campus in San Jose — which still needs to clear city approval — will bring an influx of new employees. Other tech companies in the area are expanding, too: Adobe is taking up more space in downtown San Jose, while Roku has already leased office space at a soon-to-be opened office park near the city’s airport. Hart says that a development like Starcity is intended to plug some of the gap. Late last spring, Mayor Liccardo said the forthcoming Starcity high-rise is a “promising solution particularly for workforce housing.”
“Most major metropolitan areas with high job growth and high income inequality are struggling with that housing supply problem, and they see co-living as a tool,” Dishotsky says. “It’s creating a lily pad for people to move to the city in a way that’s more affordable.”
If there’s a criticism of Starcity, it’s just that: This is housing for the upwardly mobile and the untethered. It’s more a tool for people moving into an area, and not necessarily affordable housing for area residents.
Dishotsky says he doesn’t expect anyone to want to live in a Starcity unit their whole life. That said, he also signaled that he was interested in building Starcity houses for whole families. The San Jose project, he says, will be a nod in that future direction: It will feature all the usual perks as well as “vertical neighborhoods,” where multiple floors are linked together by two-story communal spaces.
Since the new zoning designation was created in San Jose, officials in other cities have reached out to talk about how to integrate co-living policies into their own zoning ordinances, he says. There are plans on the horizon to take the Starcity concept to Chicago and Boston, as well as, potentially, Nashville.
“Lifestyles have completely changed,” says Dishotsky. “People now view the white picket fence and the single-family home perhaps as a burden more than a potential American dream.”
When I ask him what he thinks of critics who suggest that Starcity is just a 21st century flophouse, Dishotsky flatly rejects the notion. “Let’s look at it this way: 95% of a single room occupancy building are these soul-crushing individual units, and there’s no community space,” he says. “And they’re not furnished, they’re poorly kept… and our spaces are 65% individual bedrooms.”
He says that Starcity residents are satisfied with their experiences. Shared living, he says, means “you’re paying less to be in the best zip codes in the best cities.” Dishotsky says 50% of people stay for at least a year, and that 40% of all members stick around for longer than 12 months.
“At the end of the day, you live in a room,” he says. “You get that at Starcity.”