"Home, small home" in London

London house buyers are resorting to “micro-living” because of the capital's crazy property market, says Natalie Stanton.

London's spiralling house prices are forcing first-time buyers to consider some peculiar alternatives, including "micro-living" squeezing into a tiny home. Some apartments now coming up for sale are truly minuscule, ranging from 12m sq to 30m sq. This has been made possible due to relaxed planning rules, introduced by the last coalition government.

Previously, a one-bed apartment for two people had to be no smaller than 50m sq to get planning permission, while a one-bed for a single inhabitant needed to be at least 37m sq. But developers no longer need planning permission to convert offices into residences, allowing them to build flats that don't meet these minimums.

One company, Pocket, creates 38m sq new-build properties that go on the market for about £160,000. Over the past decade, Pocket sold about 200 of these units, but has already sold the same number of units this year alone. Meanwhile, Twodio, a development in North London, squeezes a kitchen and two en-suite bedrooms into just 29m sq, plus a larger communal kitchen and living area on each floor (as well as a library and work hub). Each unit costs about £250 a week to rent.

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While tiny houses cost less than a normal property, critics say buyers must watch out for poor-quality developments and inflated prices. "Cowboys who convert commercial buildings can easily flog a coffin-sized bedsit," David Birkbeck, chief executive of Design for Homes, told The Times. If you can pay more for a larger place, you're likely to get better value for money.

The UK's young people may be priced out of owning a home at least one that will fit both a bed and a desk at the same time but they're not the only ones who are keeping London's rental market healthy. An increasing number of the capital's super-rich are choosing to rent at a cost of up to £5,000 per week, rather than invest in their own luxury properties. The number of lettings on homes worth upwards of £10m each year has more than doubled since 2011, soaring by almost a third in the year to March 2016 on the previous year, says estate agency Knight Frank.

Meanwhile, sales of such homes fell by a third over the same period. This is partly a result of increased stamp duty on expensive homes. Purchasing a £15m property means paying £1.7m in stamp duty equal to three years' rent for a similarly priced home. But it's also a response to prices sliding in London's wealthiest areas, and economic uncertainty surrounding Brexit, says the Financial Times. More recently, the desire to rent may be affected by the Panama Papers leak, which has focused attention on the way the mega-rich use offshore companies to make property purchases while keeping their ownership hidden.

Building societies are campaigning to stop European regulators imposing tougher rules on mortgage lenders, which they argue would restrict the growth of their businesses. The European Banking Authority (EBA) is looking at imposing higher leverage ratios, so that building societies will need to hold more capital against their loans. This is because the regulator is concerned that specialist lenders such as building societies are too concentrated in one sector, and could easily find themselves in trouble if the housing market overheats.

Higher leverage ratios would mean building societies would need to raise additional capital, raise interest rates, or reduce growth. "None of these options are... palatable," Andy Caton, Yorkshire Building Society's chief of corporate affairs, told The Daily Telegraph. But the European Commission has urged the EBA to skip its usual consultation process and implement the new rules by the end of this year, so it seems unlikely building societies will succeed in preventing the changes.

Natalie joined MoneyWeek in March 2015. Prior to that she worked as a reporter for The Lawyer, and a researcher/writer for legal careers publication the Chambers Student Guide. 


She has an undergraduate degree in Politics with Media from the University of East Anglia, and a Master’s degree in International Conflict Studies from King’s College, London.