The pandemic has shifted attention to every dollar we spend, focusing on necessities, such as shelter and food.
As far as housing is concerned, the U.S. has an affordable housing problem — where decent housing is out of reach for millions of low-income Americans.
One firm, PadSplit, leverages technology — via platform model — to help bring renters and property owners together in a bid to match supply and demand to lower the cost of renting and provide income to homeowners.
Atticus LeBlanc, PadSplit’s founder, told PYMNTS in an interview that the company’s target customer is the renter earning less than $35,000 annually and with the credit score lower than 500 — a demographic that includes the frontline workers, the waitresses, the cashiers and Uber drivers who keep so much of the economy humming.
Housing affordability is a bit stretched when, as studies have shown, roughly half of renters in the U.S. spend more than 30 percent of their income on rent — and that was before the pandemic.
PadSplit’s marketplace model lets property owners list rooms to rent for weeklong (or longer) stays to renters, known as members. The marketplace model addresses several pain points extant in the U.S. housing market geared toward low-income, “thin” credit file tenants.
The Market — And Pain Points
As LeBlanc told PYMNTS: “There are a number of pretty significant problems. The biggest is the simple problem of supply and demand as it relates to housing — and specifically in the affordable housing space.”
He noted that (up until the pandemic), housing prices — whether for rent or for sale — have gone up significantly over the past 20 years. That pricing surge has come against the fact that there is insufficient supply of affordable housing in markets that are experiencing significant growth.
“And so, the biggest issue that we are trying to solve now is: How do we create more supply?” said LeBlanc. “As home prices and constructions costs have gone up, it's been harder to build new units at the rate that would be required to meet the market demands.”
The key to creating supply, he said, is to “enable” spaces that had previously been underused and monetize those spaces (which is an attraction for property owners) in order to provide that housing stock to those who had little access to it.
By doing so, housing opens up for the estimated 12 million to 14 million people across the country that don’t have the income to access traditional housing options in a world where one typically must earn a gross salary equal to three times the rent.
And, he said, people with credit scores less than 550 are typically cut out of the applicant pool automatically.
For those individuals, the choices can be dire, noted LeBlanc — choosing between homelessness, sleeping in their cars, or opting for short-term stays in hotels. Many of these would-be renters don’t have the social network to find better housing situations and may not have relationships among family or friends who could help them qualify for rentals.
The platform model, said LeBlanc, helps demand meet supply — and illuminates for property owners a way to monetize their spaces and earn attractive rates of return.
He said that without the platform model, there’s no easy way to “carve up that space and offer it piecemeal to the single-person households that would need it — other than Craigslist.”
Trusting and verifying information (across credit and background checks) during the application process also creates friction, noted LeBlanc.
He said that PadSplit helps property owners entering this subsidized market evaluate space by a bedroom-by-bedroom standpoint (and partition new living quarters) — and incentivizes the owner to evaluate all the other spaces that could be used in that home (such as formal dining rooms or home offices) that could serve as residential bedrooms.
“Then what we do is handle all of the marketing and lead generation for that population,” LeBlanc said. “We handle all the communications with residents inside the home.”
Ratings systems, similar to those seen with firms like Airbnb, are also part of the platform.
Asked about the payments aspect of the platform, LeBlanc told PYMNTS that PadSplit handles payments and collections, and billing occurs on an all-inclusive weekly basis — which he added makes it easier for residents to budget effectively.
“The entire rental industry banks on the idea that anyone — even a low-income renter — will budget around the first of the month,” LeBlanc said. “That’s in spite of the fact that it has absolutely nothing to do with their pay period and is not at all easy to remember, particularly when you've got five other sets of bills that are coming due at other random dates throughout the month.”
Technological advances in payments — and prepaid debit cards — have made it easier for underbanked populations to work with PadSplit and ensure timely payments.
“Interestingly, over the last several years, what we've seen is almost everyone has a prepaid debit card regardless whether they have a bank or not,” said LeBlanc.
Electronic payments, he said, have “really been a game changer and why I think this business is possible in any respect today — where I don't think it could have scaled in 2010.”
Timely payments are reported to credit agencies and help renters improve their credit scores.
The Roadmap Ahead
The company has about 1,000 units in Atlanta and has recently made inroads into Maryland and Texas. And in terms of strategy, LeBlanc said that the company seeks markets close to major employment and public transportation centers that will be needed for residents.
The company said last month that it raised $10 million in a series A funding round led by Core Innovation Capital.
In the affordable housing market, “we want to create a platform that is effectively the ‘rails’ and provides real estate entrepreneurs in various markets to use these rails to create their own business model,” LeBlanc told PYMNTS.