PadSplit Aligns Incentives To Grow Profits

Learn how PadSplit is boosting affordable housing supply by aligning the incentives of investors and Members.

May 25, 2022

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In this article:

  • Affordable housing is in short supply, and current solutions are failing to close the gap. Meanwhile, oversized houses abound with unused spaces that present an untapped investment opportunity.
  • PadSplit provides a secure and accessible workforce housing solution that is also profitable for owners, leveraging existing stock as a way to increase supply.
  • PadSplit’s platform offers secure and accountability to align incentives and mitigate risk on both sides. Low-income individuals can access secure, clean housing close to jobs, while housing providers get a steady revenue stream.
  • PadSplit gives investors access to a $100 billion a year market — while minimizing the risks typically associated with affordable housing investment.

The lack of accessible workforce housing has been an issue for years, and it has only gotten worse with a squeeze in supply and stagnating wages.

In fact, in its 2017 report, even prior to the pandemic, the National Low Income Housing Coalition estimated a shortage of 7.5 million affordable rental homes for Americans living under the poverty level

It’s clear that the existing responses to this crisis — namely subsidized housing — just haven’t worked.

There are many reasons for this, including a supply gap and an accessibility gap, which is why PadSplit’s solution is unique. Unlike other housing affordability solutions, Padsplit seeks to align incentives, as CEO Atticus LeBlanc explains on the New Homes Insights podcast.

PadSplit’s bold idea is to increase housing supply by leveraging existing stock, creating new affordable single-person living spaces out of traditional larger homes. 

It’s a win for Members who get a secure and accessible place to live, as well as for property owners — who gain more value out of inefficient spaces. PadSplits can also generate significantly higher yields than traditional rentals. 

In other words? By aligning incentives, PadSplit has found a way to close the housing gap while allowing investors and Hosts to “do well and do good simultaneously.” 

Affordable housing: The problem is bigger than we think

When most people think about those who may be struggling with homelessness, they probably don’t imagine people working two full-time jobs, frontline workers, or others striving to serve their communities every day. 

However, according to Atticus, “if you look at the top 20 occupations in the United States, 11 out of the 20 don’t pay enough to afford traditional housing options.” This may include anyone from TSA workers, restaurant staff, and even teachers and paramedics. 

Furthermore, the problem isn’t confined to high-rent cities and urban centers. Similar housing shortages exist in exurbs and rural areas across the entire country. “There’s a gap almost anywhere you can think of,” Atticus notes. 
Atticus points out that up to 14 million Americans don’t have access to housing through the traditional channels.

Photo by Sandy Millar on Unsplash

Misaligned incentives help explain the supply gap 

Historically, the potential profitability of traditional low-income housing is so marginal that investors and banks have tended to stay away. 

Atticus breaks it down to simple math. The national average to build apartments runs $200,000 per door. Based on typical rent qualifications, someone earning under $30,000 a year can only afford rent below $800 per month. Banks are unlikely to underwrite the construction costs in this scenario. The numbers just don’t line up, and neither do the incentives. 

Even if the units get built, housing providers continue to face multiple risks. And traditional solutions push incentives further in the wrong direction while making apartments even less attractive and accessible to the workforce. 

There’s furnishing, credit checks for utilities, security deposits, and many other factors that prove cumbersome and inefficient for everyone involved. 

The consequence is a massive gap in housing inventory. People who are priced out of the market are forced to “go under the radar,” resorting to sleeping in cars, couch surfing, staying at exploitative motels, and other unsustainable stopgaps. Without a solution that works for both sides, no one is incentivized to change.

Why existing housing stock is a profitable solution 

The lack of affordable housing is a clear trend. Yet there are two other trends that are exacerbating the issue.

One is that the average size of single-family homes has tripled in the last 60 years. Meanwhile, Boomers are living longer and Millennials are waiting longer to marry and cohabitate. 

The result is a glut of unused space in large houses, as well as a rise in the predominance of single-person households. Therein lies an opportunity.

PadSplit’s platform lets housing providers make profitable use of spare bedrooms and other spaces by renting them out to individuals who are priced out of the traditional market. More specifically, converting an underutilized formal dining room to a bedroom automatically creates more housing. 

This is an extremely efficient way to increase the supply of affordable housing, almost as if out of thin air. Owners get more value from existing space and create a viable alternative for hard-working people who can’t afford anywhere else to live. It’s a win-win.

When starting PadSplit, Atticus’s thesis was that if he “could show investors how they could provide more affordable housing in a way that was actually more profitable than whatever their other alternatives happened to be, then they would do it. That has absolutely proven to be true.” 

Owners see a 129% increase in Net Operating Income (NOI) across the board. Suddenly, the incentives are lining up.

Reducing the risk of investment in affordable housing

Most people live with roommates at some point in their lives, but the idea of moving into a house with a group of strangers would sound unappealing to almost anyone. 

How does PadSplit ensure a quality experience for residents? And convince owners that their properties will be well maintained? There are a few different approaches:

  • Basic screening processes: Atticus explains: “We are looking at income verification, identity verification, and background checks on every Member that comes in.” Owners and residents create profiles on the PadSplit platform and can give ratings and shout-outs, providing transparency and accountability. 
  • Fire safety: Atticus explains this is the “biggest existential risk in a shared housing situation.” PadSplit not only complies with basic HUD standards, but it also goes above and beyond by implementing additional fire safety measures like no deadbolts on doors, smoke detectors in individual bedrooms, and kitchen appliances with automatic fire suppression.
  • Payment processing and collection: Although the median income of PadSplit residents is $25,000 a year, PadSplit has a 95% collection rate thanks to customizable billing cycles that take the real needs of its Members into consideration. Owners don’t have to worry about collecting from several people each month, as PadSplit’s backend technology streamlines the process, and can guarantee their revenue stream.

By eliminating the most common risk factors, PadSplit aligns incentives to create an attractive investment option where it never existed before, while taking real steps toward solving the affordable housing crisis.

This article is based on PadSplit CEO Atticus LeBlanc’s interview on the New Homes Insight podcast. Check out the full episode to learn even more about aligning incentives for affordable housing.

Want to learn more about managing a PadSplit? Visit our Help Center for everything a Host needs to know about PadSplit onboarding, listing, and operating procedures.

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