How Atlanta-based start-up PadSplit ‘threads the legal needle’ to provide affordable housing

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By Sean Keenan

Many housing experts have said one of the best ways to wrangle Atlanta’s affordability crisis is to diversify the housing stock, and one local start-up is on a mission to corner some of that untapped market.

Founded by affordable housing advocate and investor Atticus LeBlanc, PadSplit has introduced a model that allows landlords and property owners to rent out homes by the room for periods as short as one week.

“Generally, folks would choose to live in their own space, if they have that option,” LeBlanc told Saporta Report during a recent interview. “But there are really no options that exist between supportive housing or shelter arrangements and studio apartments, which are averaging more than $1,000 a month.”

PadSplit rentals, he said, are available to people making less than 80 percent of the area median income (AMI), and the company now operates nearly 500 units in Atlanta.

“Most of the general population doesn’t truly understand the desperate situation that we’re in and the need for affordable housing,” LeBlanc said. “And I would bet that most people don’t realize that folks they see working every day in their communities are actually homeless.”

LeBlanc’s system is novel, yet simple. Property owners or landlords renovate homes up to PadSplit standards — think new appliances, furniture, artwork, and security systems — and then pay the company a fee to orchestrate the rental operations.

Part of the allure for prospective PadSplit operators is the chance to watch investment returns leap from 6 percent to 9 percent, according to a report by Bloomberg. That’s thanks to energy-saving upgrades made during the initial renovations, coupled with the fact that rooming houses are less likely to be totally vacant than residences that require long-term leases.

If it seems like PadSplit just appeared out of nowhere and unregulated — a la Bird e-scooters —that’s because it did, and it is. During last month’s Atlanta Regional Housing Forum, LeBlanc told attendees of a panel discussion on housing innovation that his company “threads the needle, legally speaking.”

That doesn’t mean PadSplit is a dodgy operation, though. Boarding houses were largely outlawed years ago, although there are still slumlords who operate outside the parameters of zoning codes.

“The whole idea was to put those guys out of business and to take the same model and make it more accountable,” LeBlanc said. “We’ve done that within a fully legal framework. I would not want to go on record and say what that was and give all of those same illegal operators the recipe for how to get legal, but, suffice to say, we meet the definition of family in every jurisdiction that we operate in.”

Per Bloomberg:

Although Atlanta doesn’t allow rooming houses in single-family-home neighborhoods, PadSplits are designed so that the tenants meet the city’s complicated definition of a “single family,” up to six unrelated people, plus another four, as long as the latter occupy no more than two rooms.

PadSplit also works to ensure its apartments aren’t occupied by ne’er-do-wells. Potential tenants undergo a background check to weed out people who have been convicted of felonies in the last 10 years and those who have ever committed violent or sexual crimes.

But PadSplit hasn’t come on the Atlanta housing scene without some controversy; some worry the system’s lack of regulation needs to be addressed.

“I’m sorry, but when someone tells me they are ‘working inside loopholes in local laws,’ that doesn’t feel like ethical behavior to me,” Doraville City Councilwoman Stephe Koontz wrote in a Facebook post. “Until local government is allowed to register these types of properties with just basic ‘here is who you contact’ info, this is putting a huge burden on taxpayers hunting this info down.”

Responded LeBlanc: “We would love to be regulated. It’s the challenge of any innovation of any kind. The counter to that is that our entire concept was borne out of housing competition sponsored by the City of Atlanta, JPMorgan Chase Foundation, and Enterprise Community Partners… They were looking for solutions to solve [the affordable housing crisis] very quickly.”

As for the people who are skeptical of the new company that’s taking control of homes in low- and middle-income communities — where PadSplit has been largely operating — LeBlanc said it’s important that people know part of the start-up’s mission is to help combat gentrification and displacement.

In many Atlanta communities, homes are bought up by flippers who just want to sit on a property while it appreciates in value. In those cases, as well as with conventional rentals, homes are liable to fall victim to blight, due to a lack of oversight, control, or upkeep by the owners or tenants, LeBlanc said.

“Our niche is to exist as a far more attractive option to those neighbors than either one of those,” he said, noting that PadSplit properties won’t become blighted and unsightly, due to company standards.

Still, Georgia State University urban studies professor Dan Immergluck told Bloomberg he’s unsure of PadSplit’s longevity. He understands there’s a demand for more affordable housing, and that PadSplit helps fill the gap, but as property values and taxes rise in fast-evolving metro Atlanta, selling property could become a more appealing avenue for owners than renting.

But for now, PadSplit is expanding as an affordable option for minimum wage workers, traveling film industry professionals and musicians, recent divorcees, and anyone else in need of a short-term stay.

This story was updated for clarity.