How can Co-living help resolve the housing crisis?

Welcome to part one of our three-article series where we explore how Co-living can help the housing crisis.

Earlier this year, CBRE published How to fix the broken housing market, highlighting the continued lack of housing supply across the UK. More than 50% of single-person working-age renters live either alone or in homeshares, according to Experian, highlighting the provision of accommodation for this cohort is paramount. With Co-living designed for this demographic, it could help alleviate pressure on housing.

Supply of rented accommodation for single occupants is decreasing. This can be seen across major cities such as London, Manchester, and Birmingham, where the number of studios and one-bedroom flats within the Private Rented Sector (PRS) has decreased by 45%, 21%, and 21%, respectively since 2019, as reported by REalyse. Over 20% of properties currently for sale in London were previously used as rental properties with landlords exiting the market, according to TwentyCi. Interest rates, taxation changes, and other legislative impacts have contributed to this with the number of buy-to-let mortgages currently trending 30% below the long-term average (UK Finance).

The number of Houses in Multiple Occupation (HMO), considered homeshares, is also shrinking. London, Manchester, and Birmingham are all experiencing shrinking supply of mandatory licensable HMOs (down 28%, 30%, and 33% from 2018/19, respectively).

Despite this declining availability of rental accommodation, these cities are considered ‘Rental Hubs,’ characterised by a higher percentage of renters, typically young professionals in their 20s and 30s compared to the national average. This highlights the need for alternative housing solutions, particularly for young professionals and single individuals, where Co-living can play a part.

On a backdrop of shrinking supply, the number of single-person childless renter households is increasing. This demand and supply imbalance has contributed to rental tension within some cities, which could lead to migration of this cohort out of urban centres as renters are priced out.

Co-living occupants reflect the single-person renter population in the UK. Most residents are aged 26–40 years old (but can extend from 18–70 years old), earning upwards of £40,000 per annum. It is also popular with international residents, making up 40-60% of a typical scheme, as well as students who may be struggling to find PBSA beds (10-25% of residents), according to Urbanbubble. At least 50% of PRS single renters and homesharers in London and Manchester earn over £40,000 per annum, and 35% in Birmingham, making Co-living an accommodation option for at least a third of the PRS population (Experian).

Being such a nascent sub-sector, planning policy has until recently been opaque. In February 2024 the Greater London Authority provided guidance for London local authorities and, as a result, clarity for investors and developers. While London is where the majority of operational and pipeline schemes are located, other large local authorities such as Birmingham City Council and Manchester City Council have provided guidance, and there is an active pipeline in many cities throughout the UK. Further understanding and recognition of the benefits of Co-living, such as the role it can play in placemaking, enhancing a sense of community, and contributing to the wider objectives of a local authority, should help encourage more local authorities to recognise Co-living as a housing typology and the positive contribution it can make.

As Co-living caters to single-person households, an increase in this type of accommodation could alleviate the pressure placed on housing supply and its knock-on effects for other types of renters (i.e. families). Co-living may not solve the undersupply of rental accommodation, but it can contribute to and complement housing options, as well as provide choice for renters in an undersupplied housing market across the UK.

Stay tuned for our following articles, where we will be exploring the realities of operating a Co-living scheme and the opportunities in the Co-living investment market in more detail.

Note: definition of Co-living as defined in Greater London Authority guidance:

Co-Living, also known as Large-scale Purpose-built Shared Living (LSPBSL), is a type of housing that consists of at least 50 private rooms and shared communal spaces. It focuses on communal living, providing shared dining areas, recreational spaces, and sometimes workspaces. The individual units are typically smaller compared to standard spaces. Unlike hotels and hostels, LSPBSL requires a minimum tenancy of three months and does not offer care or training like residential institutions. It is primarily targeted towards single-person households who may not have the option or preference for self-contained homes or HMOs. LSPBSL serves as temporary accommodation until residents find more permanent housing. However, it does not meet minimum housing standards and is not considered a long-term housing solution, despite providing an additional housing choice.

Definition from: Large-scale purpose-built shared living London Plan Guidance February 2024