The Collapse of Coliving Operators, and Why the Solution Is Upstream

I want to see co-living exist at scale. I live in a demographic that loves it. Hundreds of my friends have founded, operated, grown, or joined communal living environments. I’ve lived in and organized them myself, and the experience can feel like lightning-in-a-bottle.

I’ve never seen environmental circumstances so radically improve my basline happiness.

Why do we buy products, pay for experiences, subscribe to services? To improve our lives — to gain efficiency, joy, health, connection. Coliving, when it works, produces the single greatest effect-size of any “product” I’ve experienced.

The founders of coliving companies have shared this same insight, and have tried to bottle the magic.

So why do we face two competing truths — extraordinary UX and consumer demand on one side, and the collapse of most major coliving operators on the other?

The wave of coliving/working startups surfaced real insight about the problem space:

1. Housing shortage and real estate squeeze

2. Communal living UX can be “off-the-charts good”

3. Strong product-market-fit & endogenous consumer demand

4. Shared resources can be lower cost and higher quality

5. Can get higher $/sqft rent for coliving product (which is the bottom-line driver for much of commercial real estate decision-making)

So, the potential is real, right?

But almost every major operator has failed. The drivers are consistent:

Why Most Coliving Startups Imploded

1. Poor income forecasts. Costs were higher, and net occupancy lower, resulting in DSCR pressure.

2. Operational difficulties: hired people inexperienced in real estate. Interest in “community” is a vibe, not a skillset.

3. Management challenges. Cohesion is hard to deliver consistently, and “bad agents” in a house can erode the model quickly.

4. Regulations. Parking minimums, unrelated tenant occupancy caps, health codes, ADA, and room size limits.

5. Design constraints & CapEx. Retrofitting existing product is expensive, and great user experience requires fundamentally different design.

So then, is the coliving business model screwed?

Not exactly.

In contrast, grassroots houses continue to survive and thrive:

1. Lean structure: Less middle management creates better margins (the analysts, portfolio managers, leasing specialists are cut out)

2. Emergent P&L: Cash flow is balanced iteratively, instead of speculated on and levered.

3. Community protocols: Community organization requires is bespoke and requires care. Community houses develop protocols for pulling in good agents and creating collective social value.

4. Regulatory burden. Mostly falls on developers/landlords, not organizers. Some costs are still are passed through to tenants.

5. Product fit depends heavily on building stock: Grassroots coliving exists largely in metros that already have housing types conducive for communal use — like San Francisco’s large Victorians, originally designed for extended families and live-in staff. Large coliving operators often tried to scale into metros without conducive building stock, forcing expensive retrofits of assets that were never designed for communal use.

Despite the failure of institutional coliving, [natural consumer demand still exists and is growing rapidly.](https://content.knightfrank.com/research/2854/documents/en/co-living-report-2024-11304.pdf?)

There’s also residual acquisition demand from the few commercial coliving operators still standing. These firms remain eager to expand, but their growth is capped by a lack of suitable building stock. The multifamily assets available on the market rarely align with the layouts or unit mixes needed for successful communal living, and retrofits are prohibitively expensive.

So, here’s what was wrong with the commercial coliving business model:

At least not in a centralized, standardized way that delivers compelling investment returns. This is the real driver behind the string of operator failures. The magic of community is bespoke — it resists commodification.

But before turning to design solutions, it’s worth underscoring the scale of organic demand. I live this reality every day:

I share a 13-person coliving house in San Francisco.

We (questionably legally) master-lease a large single-family house, and then sublease each room. The landlord collects thirteen people’s worth of rent on what is technically a single-family home — while each of us still pays below-market rent. The landlord does nothing to foster community, other than turning a blind eye to the regulatory gray zone.

Everything that makes the house work — the middle-management labor of creating cohesion, maintaining systems, and curating culture — is done by us, the tenants. And we do it willingly, because the experience cultivated is extraordinary.

When we last had a vacancy, over 50 people applied.

We narrowed that pool to eight interviews and finally selected one new roommate. The demand is overwhelming, the UX is transformative, and yet the built environment doesn’t support it (yet).

That’s why purpose-built coliving product matters. With the right design, developers can capture the economics directly rather than leaving it to under-the-table tenant improvisation.

The leverage point is not operations. It’s upstream — in development itself. The built environment continuously and scalably shapes social flow. Purpose-built coliving assets solve much of the problem space:

1. No retrofits: Standard dev costs are more predictable.

2. Not an ops company: Hire real developers. The innovation is in product design, not management. Property management has already been (largely) solved.

3. Offtaker model. Build the asset and pass operations to an offtaker. There are still some established operators hungry for good product.

4. Design advantage. Purpose-built assets are more efficient in capital lifecycle, UX, and differentiation. Superior UX and differentiation leads to higher revenue per sqft.

1. Regulation: Zoning policy is an abhorrent ouroboros of arbitrary bureaucratic bullshit blockers can be unpredictable.

2. Slow dev cycles: Real estate is network-driven, capital-intensive, and requires public-private coordination.

3. Capital markets: Real estate capital markets are highly-risk adverse and tradition-focused: they walk backward into the future while looking at the past. Capital access is driven by three things: track record, comparables, and pitch (diligence, analysis, planning). Only the latter of these is really solvable by a new firm,

The collapse of most coliving operators doesn’t mean the model itself is flawed. What it shows is that coliving cannot succeed at scale as a retrofitted product or as an operations-first company. Community doesn’t institionalize through standardized management. And existing multifamily assets were never designed to deliver the user experience that makes coliving magical.

The real insight is upstream: the built environment dictates the possibilities of social life. If we want to grow coliving, we need to design and deliver buildings that are inherently conducive to it.

This is not an operations play, or a vertical integration play — it’s a pure development play. Build innovative and differentiated assets, pass them to operational offtakers, and let the community organically nucleate itself within the walls.

I believe this points to a whitespace business opportunity: a dedicated coliving developer. A firm that designs housing specifically for communal living, integrates lessons from grassroots houses, and delivers projects in markets where demand is strongest. Such a developer could occupy a unique position in the real estate ecosystem: meeting a rising consumer need and capturing the upside of a product type that — when designed well — has unmatched impact on happiness, connection, and urban life.