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CHALLENGES TO LAUNCHING A CO-LIVING SPACE | COLIVING CHALLENGES

Published on April 15, 2019 by Qasim Naqvi

While co-living arrangements have the potential to offer an affordable route to home ownership, in addition to a new social, community-oriented model of living, its successful roll-out faces a number of challenges, which we discuss below.

Affordable housing and minimum space requirements

We note potential challenges associated with gaining planning permission for co-living developments. If the size of studio apartment needed to make a development financially viable is too small, then the co-living plans could be barred due to falling short of minimum space requirements set out by the government. The extent to which co-living may fall subject to minimum space requirements in the future is unclear, particularly if it is a “to buy” offer. In its discussion of “to rent” co-living offers the draft New London Plan states that there are currently no minimum space requirements for these units, though “if deemed necessary, the Mayor will produce planning guidance, including minimum space standards, for this form of accommodation.

Requirements to provide “affordable housing”, such as affordable rental housing, may also undermine the financial viability of some co-housing developments. In its discussion of “to rent” co-living spaces in the capital, the draft New London Plan states that this form of accommodation is required to contribute to affordable housing. However, because it does not meet minimum housing space standards and generally consists of bedrooms rather than housing units, it is not considered suitable as a form of affordable housing itself. Therefore, a financial contribution is required for affordable housing provided through the borough’s affordable housing programme.

Land space required to create viable developments, and developer interest

Depending on the quality and number of communal services offered, the amount of land space required to create viable co-living developments could vary significantly. In particular, co-living developments with a wide range of services (such as a gym and cinema) might require a large number of living spaces, so that the high service costs of maintaining these facilities is spread across a large number of housing units. That is to say, co-living developments with high quality and wide-ranging communal services may lend themselves to large “campus”-type developments.

Campus-type developments seem to be particularly well-suited for co-living; their size might make it easier for a co-living development to create a strong sense of community. Furthermore, campus-style developments can provide mixed-use developments – for example including retail offers, offices and co-working spaces within the development. The inclusion of commercial spaces within a co-living development can further enhance the sense of community.

Land requirements for co-living developments could be large and it might be difficult to find such land space in urban areas such as central London. Smaller developments located very close to the city centre might have to compromise on some communal facilities, or have sufficiently premium service charges, in order to be financially viable.

Financing the offer

Given the lack of co-living developments that can be bought in the UK (particularly “Collective-style” rooms and small studios), there are significant unknowns around the value of such developments, and the potential demand. This is likely to make it relatively difficult for developers to gather the finance necessary to build co-living spaces.

Similarly, given the same unknowns, mortgage lending for co-living spaces might not be forthcoming, given the risks to the lender if such developments do not hold their value.

Creating a liquid market

Creating a liquid market – where it is easy to buy and sell co-living spaces – will be crucial if co-living is to be a success. It is important that this type of housing avoids the lack of liquidity that has plagued niche types of housing, such as retirement housing. Research by the Elderly Accommodation Counsel published in 2017 showed that about half of new build retirement homes sold during a 10-year period were later re-sold at a loss3. This is likely to reflect lack of demand for second hand retirement homes, in addition to under- investment from developers of retirement homes once they have built the properties (e.g. in terms of maintaining and upgrading facilities)s.

Ensuring liquidity will require careful research of likely demand for different types of Co-living space across the UK, ensuring that developments are tailored to local needs. Furthermore, retention of demand and value with co-living spaces, much like with retirement homes, requires continued investment and management by developers. Ensuring liquidity and continued demand may require property developers to develop a new approach to doing business, with a much stronger focus on ongoing, high quality property management and investment.

Also Visit: Making a Co-living Offer Financially Compelling

Category: Coliving

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