London demographics favour the micro-apartment sector

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With the average London tenant getting younger and spending more income on rent, micro-apartments are becoming an attractive alternative for both developers and buyers.

People renting a home in London are getting younger and now spend nearly a third of their income on rent at a time when rents are rising, according to a new study from the Centre for London.

The average proportion of income spent on rent increased to 31.5% in the last quarter of 2018, the highest share seen in the last four years, according to a new study from the Centre for London. Simultaneously, the average age of a tenant has decreased to 32 years today, from 34 years in 2015. Whilst London tenants are getting younger and now spending nearly a third of their income on rent, the average rent in the capital has increased to just over £1,500 per month, partly due to the 18% decrease in sales in the year to October 2018.

With the number of first-time buyers at its highest since 2015, as well as the rental demographic changes discussed above, this calls for more affordable properties. However, there are worrying trends observed in the market, with new building down 7% in July to September 2018 and the delivery of new housing falling to 32,000, which is less than half of the desired level outlined in the new London Plan.

The analysis also found that lack of confidence in the market is affecting the delivery of new housing. New build starts were down 7% in July to September 2018 compared with a year previously, while net additional dwellings for the year ending March 2018 fell to 32,000, less than half the level stipulated by the draft new London Plan. Similarly, there has been a fall in the number of planning approvals, falling by as much as 30% in the third quarter of 2018 for major schemes. Similar trends are observed among minor schemes.

The suppressed supply levels may spur local authorities to incentives the private sector to deliver additional dwellings in the future, which opens up a new opportunity for the micro-apartment sector. With players like Pocket Living, specialising in the delivery of affordable studios and one-bedroom flats in London, this will enable some Londoners to overlook the existing Brexit uncertainty and the peak in the capital’s average asking rents. Such properties are also good news for first time buyers, as the micro-flat sector enables them to acquire reasonably priced alternatives in some of most London’s rapidly growing and bustling areas. Developers and investors may wish to reconsider their approach to affordable housing and investigate the growing opportunities presented by this sector.

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