Like I said, if SROs are legal, you will get better and worse examples. Certainly a lot of people lived in university dormitories which are not, of course, filled with the dregs of society. Is there a market for an SRO hall filled with young Congressional staffers in Washington DC? Or one on Wall Street for young entry-level folk working in investment banks pulling 16 hour days in their first couple of years? Almost certainly. You keep out the dregs of society the same as anywhere else: you charge more than the cheapest places and ask people to sign a strict behavioral code where violations result in quick eviction.

And you share a toilet with a hundred other people in your workplace. So what? SRO rent pays for cleaning staff for common areas.