Can Roost transform the broken housing market?

Hello there,

Today we’re sticking with the theme of rethinking housing that we began on Tuesday.

Meet the startup that wants to turn housing co-operatives into a mainstream, widely accepted alternative to buying or renting.

Scroll down to read all about Roost.

But first:

• The Startup Coalition is looking for feedback on its new policy suggestions designed to “mitigate” the impact of the controversial new government rules on angel investing

• Founders: Has PreSeed Now profiled your startup? If so, don’t miss the email Samantha sent you yesterday - we have something useful for you! 👀 (if you didn’t get it, reply to this email and let us know)

– Martin

Roost thinks there’s an alternative to buying or renting a home… can they make it work?

The housing market is pretty grim these days, to say the least.

House prices continue to cut first-time buyers out, while the rental market encourages poor-quality homes at increasingly high prices, owned by landlords who don’t particularly care about their tenants.

One solution to this is housing cooperatives, where residents are shareholders in their properties, get freedom to make changes to them, and don’t have to worry about being evicted by landlords on a whim. 

Investors in the properties, meanwhile, don’t have to worry about maintenance and other issues landlords would prefer not to bother with.

But despite these advantages, and these co-ops being popular in other parts of the world, they are barely a blip in the UK housing market. 

Roost is a startup that wants to massively boost the number of housing co-ops, with a modern take on the idea. 

It works like this: you find a property either on Roost’s website or elsewhere, find some people you want to move in with, and then Roost helps you set up the co-op as a legal entity with its online software.

You then move in as a member of the co-op, paying for rent and utilities. Any funds left over from everyone’s payments can then be spent on things like home improvements.

“If I want to move out, I can terminate my contract. If I don't want to move out, I hold the contract so I can just not kick myself out. It's a slightly different way of working to a landlord-tenant relationship, because the person living in the home is effectively both the landlord and the tenant,” explains Roost co-founder Ben Dunn Flores.

The startup has developed tech to help potential co-op members identify homes for sale that would suit their location and rent payment requirements. 

They’ve also developed tech to (significantly!) ease the administrative burden of launching a co-op.

“Housing co-ops take about 15 years to set up, and the vast majority of them never actually move into a home. We can set up a co-op in a few minutes,” says the startup’s other co-founder, Andrew Bailie.

Getting real (estate)

It’s all very well finding a property you’d like to run as a co-operative, but someone has to buy it first, right?

The startup has developed two models to let it acquire properties for co-ops, Bailie explains:

“One is arranging the finance to purchase a house and lease it to the co-op. Tech helps us do that at scale. And then the second is to take a long lease from a building owner and reassure them the building's being looked after. And tech also lets us meet the pain points in the supply side.”

Finance for purchasing a home would be provided by investors arranged by Roost. A shell company would then be set up to own the home and lease it to the co-op.

“The reason why we prefer that model is because we disintermediate more of the agents. So instead of just the property managers and letting agents, we also disintermediate the sourcing agents and a number of brokers that help find the property,” says Dunn Flores.

Meanwhile, the other model–directly leasing a building–is currently being trialled in Sheffield. There, they have a 20-year lease with rent control, and which sees some of the responsibilities for managing the building passed to the co-op. The landlord still manages the structure of the building itself. 

In this model, the tenants pay rent into the co-op, which then pays the landlord.

With both models, Roost takes a 10% cut from rent payments as its revenue.

The story so far

Dunn Flores and Bailie both come from backgrounds that helped them see the distinct benefits of housing co-ops.

While working as a consultant to the UK government, Dunn Flores saw how housing was a critical social issue and “the elephant in the room that nobody was talking about, because it was nobody's job to deal with it.”

Bailie spent time working with Venture Studio from Crisis, which aims to use entrepreneurship to end homelessness.

“I saw a lot of apps and tech innovations that were using the same financial models that we already have; making mortgages a little bit fancier, or trying to iterate on the landlord-tenant responsibility. But no one was looking at the incentive structures,” Bailie says.

Bailie met Dunn Flores, and the pair realised the barriers to co-ops becoming more widespread could be approached as tech problems, and thus Roost was born a year ago.

“We launched in April with a LinkedIn post that immediately went viral. A few thousand people signed up to our waiting list, which was exhilarating and terrifying, because we did not have any homes to put all these people in,” Dunn Flores says.

Late last year, Roost took part in Techstars’ London accelerator programme. This allowed them to refine the product and the business model, which helped them sign the deal for the property in Sheffield.

The focus this year is on scaling up Roost’s approach. Bailie says they plan to focus on the long-leasing of buildings for now, but when economic conditions are favourable, they’ll be ready to start arranging the finance for co-ops to acquire individual homes.

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