Urban living: better together

The concept of co-living – community-based shared accommodation – has been around since the 70s. However, this time, its drivers and manifestations are different.

Co-living in its modern form typically sees members rent a small living space (studio apartments are often 200 to 350 sq ft) consisting of a bed and bathroom, and receiving shared access to a range of state-of-the-art facilities, such as office-standard technology, a gym, spa, rooftop terrace, cinema, garden and games rooms. Rents are around £230 to £360 per week (inclusive of bills, council tax, cleaning and other core services). There is no need to sign a long lease or make a significant capital outlay. Co-living members register with the provider in advance to secure a place for at least a month and all living spaces come fully furnished and equipped. Equally as valuable as the physical space is what happens inside it – at the heart of co-living are the principles of sharing, flexibility and community. Essentially, co-living offers members all the convenience of living at a hotel plus the advantages of socialising and networking with like-minded people.

Co-living spaces are being established in major cities around world. London currently leads the way, hosting the largest co-living space at the Collective at Old Oak, Willesden, followed by Amsterdam. Outside Europe, Australia was recorded to have more than 160 operating co-living schemes in 2017. The co-living trend is also sweeping the United States – WeLive, the sister company to the co-working giant, WeWork, has two spaces in New York and Washington DC, located above existing WeWork sites. Purehouse, Roam, Common and Fizzy Living are among the leading co-living providers fast becoming globally recognised brands.

The co-living trend is being driven by a combination of practical pressures and a more pervasive change in the consumer mindset.

• affordability: The lack of affordable housing and insatiable demand in the world’s leading cities has led to many professionals turning to sharing with housemates as a cost-effective living solution. The number of 18 to 35 year olds living with roommates has doubled since 1980. In New York, 42% of people are recorded to live with people who are not their partners. With wages for young professionals largely stagnant and rents continuing to soar, many post-recession professionals no longer see getting a mortgage as possible, or, in fact, desirable. It is estimated that one in three “millennials” will never own their own home, and half will be renting in their 40s.
• flexibility: As evidenced by the co-working trend, flexibility is key to the new generation of professionals. This new thinking about how we work is affecting our thinking on how we live; the traditional “one job, one home” model and inflexibility of 12 or 24 month apartment leases no longer appeals to young professionals on a financial or practical level.
• convenience: Within the real estate sector, the concept of working and living as “services” has moved at a far slower pace than the services industry, which has evolved over the last decade to respond to the way we now work and live. The stratospheric popularity of Uber, rental cars and bikes, film and music subscription services (such as Netflix and Spotify), and food delivery services (such as Deliveroo and Uber Eats) is attributable to the value consumers place on convenience. Co-living conveniently caters to the growing desire for ultra-convenience by packaging up the costs of living into one monthly rent – there is no additional expenditure on gym membership, furnishings, cleaners – everything is provided.
• community: Paradoxically, the rise of social media and technology has led to many young professionals seeking real world connections and a sense of community to combat the growing sense of isolation of city living. The sense of community and experiences that co-living spaces facilitate is making co-living a genuine aspirational lifestyle choice and not just a necessity.

Examples

• The largest co-living scheme is the Collective at Old Oak in Willesden comprising 323 flats. Rents start at £960 a month. The average age of occupiers is 29.
• Moda is constructing 6,000 build to rent apartments in cities across the UK including health and wellness zones.
• Common recently raised $40 million in funding to expand across America.
• WeLive has established co-living communities in New York and Washington DC and has now submitted plans for its first London site near Old St Roundabout EC1 which will combine co-working and co-living in one space.
• In Asia, Shanghai hosts Harbour, which is targeting 80,000 co-living spaces across China and Hong Kong by 2019.
• Medici Living Group opened its 175 resident Quarters property in Chicago’s Fulton Market in April 2018.
• Port Apartment opened in May 2017 – 6 km from Beijing’s CBD.
• Singapore-based co-living start up Hmlet announced the launch of its second co-living space of 30,000 sq ft in April 2018.
• Singapore’s Mamahome opened in April 2018 and is in discussions with developers and property owners to secure further sites.

Co-living providers are responding to these changing perspectives by providing a relatively inexpensive way for the 18 to 34 age group in particular to have their own home, comforts and access to a community. However, the market is not without its challenges.

Co-living has been heralded as a solution – albeit an unconventional one – to the housing crisis. However, in London, despite hosting the world’s largest co-living scheme, the Greater London Authority (GLA) has yet to grant consent to a single co-living scheme. Operators such as the Collective are operating as sui generis and short stay apartments. Other schemes have been granted by making minor material amendments, or s.73 applications to avoid mayoral sign-off. Adding to the uncertainties are conflicting local authority planning policies. The GLA is presently the only authority in the UK to deploy minimum space standards – 37 sq m for traditional C3 housing. The Collective offers 8.5 sq m of private space in its smallest units at Old Oak, although in their next development at Canary Wharf, they are almost doubling this to a minimum of 16 sq m per room. Furthermore, as co-living residences do not have residential use classification, investors looking to sell would not be able to carve up buildings and sell off individual units; they would have to sell them in their entirety and have the management structure to back it in place. For so long as there is a lack of recognition of co-living as an asset class in its own right and absence of cross-borough consensus on whether it is acceptable to build units that are below minimum space standards, the planning challenges will remain an issue for potential investors in London.

Student housing and the PRS markets are raising billions in investment, therefore co-living, essentially a hybrid of both asset classes, should have strong appeal to institutional investors. However, co-living in isolation is an unproven asset and the sustainability of the demand for co-living, the rents and the net operating income are all difficult to forecast. Co-living providers are essentially monetising the community and services provided to users in preference to the space, which is difficult to place a value on. As the first completed co-living scheme to hit the market, the impending sale of the Collective, Old Oak, is being watched closely as a test for investor appetite.

So, what is next for the co-living market? The co-movement revolution continues to diversify and entwine the places we work and live as people’s views on the meaning of work in their lives is changing, with the importance of community and values taking precedence. This raises interesting questions. As landlords in the world’s leading cities move towards delivering more complete solutions for convenience-driven renters, will landlords eventually rate their buildings’ value not by the cash flow of rent, but in cash flow received from services?

While co-living schemes currently cater to a specific demographic (most of the initial sign-up tend to be university students) there is also appeal to other age groups looking for a sense of community, such as senior living. People across all age groups are seeking a more integrated life, combining work, play and leisure. We may see landlords offering more bespoke schemes, catering to a specific set of values. In London, Peabody is partnering with The Trampery (a workspace provider) to launch affordable workspace and accommodation through a live/work scheme targeted at creative and tech entrepreneurs (Fish Island, Hackney Wick). There are also opportunities for landlords to appeal to large corporations who value the high quality office facilities and office-standard technology present in co-living hubs for their project teams and interns while they are out in cities for business.

Recognition of co-living by UK planning authorities is essential to investor appeal. There are some promising signs – the draft London Plan suggested that purpose-built student accommodation without a university commitment will be recognised as purpose-built shared living schemes where they meet certain requirements, such as “meeting an identified need”. A combination of co-living and traditional residential housing manifesting in mixed-use developments may present a more palatable solution to the planning authorities. For investors, operating co-living residences as part of mixed-use developments spreads risk and properties such as these could be less vulnerable in a recession than traditional office space.

Co-living may well evolve into a crucial element of the real estate market, but as we have seen, there are several challenges to overcome in order to become truly recognised as a desirable option by investors, local authorities and renters alike. However, as the line between working and living becomes increasingly blurred one thing is clear – one size does not fit all.

What about Community Land Trusts?

A Community Land Trust (CLT) is another example of a community-led housing project. However, it differs from co-living in how it is set up and run.

A CLT is an organisation which is initiated and governed by the local community to provide affordable housing and other community facilities for a particular geographical area.

A CLT is set up on a “not-for-profit” basis (often as a community benefit society, company limited by guarantee, or industrial and provident society) to acquire land for the development of affordable housing. When offering accommodation for sale or rent, the CLT will impose restrictions on resale which means that homes will remain affordable in the long term.

The CLT will have a governing body who appoint a committee (including a Chair, Secretary and Treasurer) to take responsibility for funding, regulatory compliance, liaising with potential partners, and community engagement.

A key principle for CLTs is to meet local needs. CLT homes are allocated using points-based criteria. In addition to the potential occupier being unable to afford a home on the open market the CLT will take into account housing need, connection to the locality and having a job in the area. These allocation policies differ between CLTs and must be agreed with the local authorities. However, a criticism of such policies is that they can exclude residents who cannot demonstrate sufficient local connections.

CLTs have a unique ability to garner support for a new housing project because the development proposals are defined by engagement with the local community. However, if this type of community-led housing is really going to take off, there needs to be a policy framework in place which supports community-led development. At the moment CLTs have only been successful on a small scale. London’s first CLT project to convert a derelict hospital into flats in Mile End in 2014 was only possible because the development site was owned by the Greater London Authority and it was the GLA that asked the developer, who was also bidding for the site, to work with the CLT. Of the 252 homes developed there were only 23 CLT flats. However, this was a successful project and CLTs are growing in popularity as communities demand more of a say in the regeneration of their area. The Community Housing Fund announced in Spring 2016 that it will support the delivery of more homes by CLTs. The Fund will deliver a five-year investment of £300 million in the sector.

The CLT is a concept which was born in the United States and first appeared in England in the early 2000s. A key step in the recognition of the CLT as a credible option for the provision of affordable housing came when it achieved a statutory footing in the Housing and Regeneration Act 2008 (the Act).

The Act includes a precise legal definition of what a CLT is. It only applies in England and states that CLTs must be set up to further the social, economic and environmental interests of their communities and requires CLTs to be accountable to the local community. As a result it is important that the governance structure of a CLT has broad community representation and an open membership.

Initially CLTs were located in rural areas but have recently become more popular in urban locations. A national CLT network was launched in 2010 to provide advice and guidance to new and existing CLTs.

However, CLTs face a number of challenges. In order to successfully provide affordable housing on a significant scale they need support from local authorities. The local authority can identify and unlock land for development. It can also support funding applications for grants or loans to enable the CLT to fund a project.

To overcome the difficulty in accessing public housing grants CLTs can choose to enter into a partnership arrangement with a housing association. The CLT might elect to grant the housing association a long lease of the development which enables the housing association to manage the properties and take the rental income. However in any partnership it is important for the CLT to remain independent and act in the interests of the local community.

In a bid to keep homes affordable CLTs will often offer to sell properties on a shared-ownership basis. While keeping these properties affordable, by not charging rent on the part of the property the occupier does not own, the CLT imposes a restriction on staircasing which means the occupier can never acquire their home outright. This can put off buyers as they will not own their properties and cannot take full advantage of future increases in property value. The counter argument is, of course, that such restrictions are necessary to preserve affordability in the long term.

An additional challenge that CLTs have in achieving their goal of long-term affordability is the ability of tenants in urban locations to exercise enfranchisement rights to acquire the freehold of their property. This means that the CLT will no longer own the property and can no longer control affordability. Efforts to exempt CLTs from the leasehold enfranchisement regime have, to date, been unsuccessful. This means that urban CLTs have been forced to work around the rules by, for example, linking house prices and the cost of mortgages to local incomes rather than going down the shared-ownership route.

CLTs continue to operate on a small scale, but, in the future, they may become more important vehicles through which land value can be captured and used for the benefit of local communities.