CO-LIVING NEED ASSESSMENT

Transcription

1 CO-LIVING NEED ASSESSMENT Report prepared for Rainbow Properties June 2017

2 CONTENTS Executive Summary 3 Introduction 4 Policy Overview Defining PRS and Houses in Multiple Occupation Recent Trends in PRS London Wide Demand and Supply 9 Current stock supply in London How has tenure changed in London PRS household composition in London Household growth in London Residential demand and supply gap Co-Living Market Assessment 15 Study Area Extent Supply Overview Hackney residential stock condition Existing stock The widening gap between demand and supply What are current rental choices in the catchment area Characteristics of Demand How has tenure changed in Hackney Changes in demographics of private renters Socio-economic characteristics of private renters Household size and number of bedrooms Tenant profiles Employment projections in Hackney Affordability Assessment Median monthly asking rents in Hackney Catchment area rental performance Affordability of current rents Rent affordability for private renters in Hackney Rent affordability for private renters in catchment area Conclusions 34

3 EXECUTIVE SUMMARY Rainbow Properties approached Knight Frank to assess the need for a Co-Living product in Hackney. We have observed the current policy, existing supply, quality of stock, existing and potential future demand, and affordability levels of rental properties in the area. Government policy is showing a more positive view of the new types of residential products. Both the London Housing SPG and housing white paper indicate increasing understanding by policy makers that the Private Rented Sector (PRS) could provide support in solving the housing crisis. There is recognition that professionally managed and owned residential blocks can provide a higher quality of product and service to tenants, as well as an increased interest in place making from investors. The UK housing market has been experiencing a significant shift towards the PRS in recent years, with further increase in the sector being expected in the coming years. The main reasons behind the increase in the PRS are affordability, population growth and the perception of renting as a desirable conscious living choice. At the same time, the residential supply is significantly below demand. GLA s household growth projection indicates that, based on past trends, household population will continue to grow and taking into account the limited provision of housing stock in the last few years, it would appear that this potential housing demand is significantly suppressed. The catchment area covers the 20 minute walking distance from Wilberforce Road, N4 and includes parts of three London boroughs, Hackney, Islington and Haringey. This area benefits from excellent transport links. The London Borough of Hackney, following the trend of the rest of the capital, faces undersupply in residential properties. Similarly, the current rental offering in this area does not satisfy the demand of young professionals. The current offering of studios accounts for 7% while larger properties (2+ bedrooms) make up approx. 58% of all dwellings on the market. In view of the large proportion of overcrowded dwellings (more than 32% of households live in accommodation that is overcrowded), the need for high quality Co-Living properties to provide accommodation for current sharer households and potentially release some of the larger units for family occupation, seems greater than ever. Single occupancy in Hackney is proving to be significantly unaffordable, with only 65% of PRS households gaining enough income to rent alone in a one bedroom flat. Approximately 85% of PRS households are able to afford a room in larger properties.

4 INTRODUCTION Rainbow Properties approached Knight Frank to assess the need for a Co-Living development at Wilberforce Road, Hackney, London. This report aims to assess the need for a Co-Living residential product by exploring the main characteristics of the residential demand within the London Borough of Hackney. It also aims to explain how the changes in demand impact the current provision of affordable residential product. We observed how the current residential market landscape is changing both in terms of policy and development. We analysed changes in demand, driven by factors ranging from affordability to choice of flexibility over ownership, and we analysed how affordability compares across different types of households and different areas. Our analysis draws on data assembled across three geographies, as follows: Local catchment area 20 minutes walk from the site; London Borough of Hackney; and Greater London overall.

5 INTRODUCTION Policy overview The latest London Housing Supplementary Planning Guidance (SPG) was published in March It provides guidance on implementation of the 2015 London Plan (which is currently being updated). One of the issues the housing SPG addresses is the issue of conversion of larger family homes into Houses of Multiple Occupation (HMOs) and the rising concern that these conversion will impact the availability of larger properties for families. The housing SPG in London provides several guidelines for planning proposals for non-conventional housing schemes. Besides meeting identified housing needs and demonstrating a creation of balanced communities, they need to contribute to affordable housing, have effective management arrangements and support services in line with the needs of tenants, not be used as student or hostel accommodation, and need to be located in areas with high transport accessibility. Additionally, in the recently published housing white paper Fixing Our Broken Housing Market, the Government reviewed a requirement for planning tools that could help achieve more efficient uses of existing sites within urban locations. The Government proposed that plans and individual development proposals should make efficient use of the land and avoid building homes at low densities where there is a shortage of land. The Government is willing to support new approaches in housing, which will increase supply to meet the ever-growing demand. In particular, it stated that high quality compact living developments will be taken into account when reviewing the Nationally Described Space Standard. Areas of high demand where available land is limited, such as Hackney, could greatly benefit from the willingness of the government to explore innovative approaches to meet demand. In its new Housing Strategy (currently under consultation), London Borough of Hackney recognises that sometimes private renting is the only option for households not able to purchase property. It also recognises that homes specifically built for rent may provide accommodation that is of better quality and better managed than the current private rental properties managed by individual landlords. The Council states that it is dedicated to improve the standards and increase enforcement on landlords who break the law. As one of the strategic responses to worsening housing affordability, the Council hopes to address this by considering if good quality, well managed shared housing can help affordability especially for younger singles and couples (page 6 of A New Housing Strategy for Hackney). One of the considerations for the Council is also the provision of affordable homes at the London Living Rent levels. All of the above mentioned papers indicate increasing understanding by policy makers that the PRS could provide support in solving the housing crisis. The SPG recognises that the PRS supports labour market mobility. It also recognises that professional ownership of residential blocks can provide a higher quality of product and service to the tenants.

6 INTRODUCTION Defining the PRS and Houses in Multiple Occupation For the purposes of this report we define here what we mean by PRS and how we understand the definition of an HMO. The PRS encompasses both people and dwellings. It refers to tenants in residential accommodation which is let either by a letting agency, or directly by a private landlord, at a market rent. This definition therefore excludes tenants or households living in rent-free accommodation (e.g. as employees or as relatives of the householder). The PRS is now playing an increasingly pivotal role in the structure of the UK s housing market. Over more recent years national planning policy has begun to focus on the PRS, recognising the scale of the structural shift towards the sector. However meaningful reform and large-scale inward investment are hampered by the sector s relative infancy. Looking at the population projections, as well as the housing pipeline for the following years, it is clear that London has a housing supply problem. However, the rise of the PRS may have the potential to increase housing supply across the region. For the purposes of the Housing Act 2004 a building or a part of a building is deemed a house in multiple occupation (HMO) if: a) it consists of one or more units of living accommodation not consisting of a self-contained flat or flats; b) the living accommodation is occupied by persons who do not form a single household; c) the living accommodation is occupied by those persons as their only or main residence or they are to be treated as so occupying it; d) their occupation of the living accommodation constitutes the only use of that accommodation; e) rents are payable or other consideration is to be provided in respect of at least one of those persons' occupation of the living accommodation; and f) two or more of the households who occupy the living accommodation share one or more basic amenities or the living accommodation is lacking in one or more basic amenities. However, DCLG required that local authorities assess their housing stock using a looser definition of an HMO: a house occupied by three or more people who constitute two or more households. As a result, for many boroughs across the region, the scale of unofficial or un-monitored/unverified HMO occupation is considerably larger than the volume of licensed HMO dwellings. Whilst just under 5% of all housing stock across Greater London may be in HMO-style use approx. 160,000 dwellings in areas like Camden, Southwark, Lewisham, Waltham Forest, Newham and Hackney, unofficial HMOs may represent a much larger proportion of the stock.

7 INTRODUCTION Recent trends in the PRS There has been a significant shift towards the PRS within the UK housing market in recent years. Demand has grown substantially and is projected to further increase in the coming years. Between the two Censuses (2001 and 2011) the number of households in private rented accommodation in the UK increased by 1.8 million or 6.4% per year. Knight Frank s estimate is that, if the conditions present during the last few years continue, the demand for rental accommodation in England could grow at a base rate of 3.68% per year. PRS is continuing to grow in size, with around 5.4 million, or 20% of households in the UK now renting privately. Rented accommodation has become an established flexible form of tenure, especially among younger workers. Today, 46% of 25 to 34 year olds rent privately compared to just 21% in 2004, according to the English Housing Survey. In terms of supply, the sector is largely made up of private landlords, many of whom have one or two properties. However, there is a recent trend where institutional investors, such as pension and investment funds, are looking to purchase and hold purpose-built rental accommodation over the longer-term bringing the UK in line with markets such as the US and Denmark where residential rented accommodation is a specific asset class. A quarter (25%) of those in the PRS live alone, according to Knight Frank s Tenant Survey 2015/2016. Some 16% live in a property with adults who they are not related to i.e. in a flatshare, however, it is clear that in urban environments this figure will rise in London nearly a third (30%) of tenants live in a flat-share, rising to 57% for those aged under 25. Across the country as a whole, some 43% of those aged years old live in a house-share.

8 INTRODUCTION Recent trends in the PRS The main reasons behind the increase in the number of tenants in the PRS are: Affordability The home price to income ratio has been continuously growing after the financial crisis of 2008, and is currently 13.0 in London. Increasing difficulty in obtaining a mortgage has resulted in large proportions of the population not being able to afford home ownership. Flexibility There is an increasing requirement for flexibility from where people live and work. People want to be able to move with job opportunities. On the other hand, older generations want to be flexible and able to live near their family. Residential undersupply The projected growth in households in London is approximately 51,000 per year over the next five years (based on the latest GLA household central trend based projections). The current expected annual supply of residential units in the next five years is approximately 24,000 units per year (based on Knight Frank research of schemes under construction). Based on the GLA household projection (central trend based) the number of sharer households is expected to continue to rise as affordability remains the key issue for the younger generation while the total number of households is expected to increase at a rate of 1.4% per year, sharer households are expected to increase by 2.6% per year.

9 LONDON WIDE DEMAND AND SUPPLY

10 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown LONDON WIDE DEMAND AND SUPPLY Current stock supply in London Data from the VOA shows that London s housing stock is roughly evenly distributed between flats and houses approx. 1.5m houses (circa 44%) and approx. 1.8m flats (circa 55%). The most common property type across the capital is two bedroom flats, comprising 23% of the 3.5m dwellings in London. The age of London s stock has a degree of relevance to the PRS, since much of the accommodation in the sector is not purpose-built, but is instead converted Victorian or pre-wwii stock originally conceived as family housing. As shown in the graph on the right, approx. 22% of all London s housing stock was built pre-1900, whilst, only 11% of the capital s 3.5m dwellings were built after the millennium. London stock distribution by property type and size 22% 23% 16% 9% 7% 6% 4% 0% 1% 0% 0% 1% 2% 3% 0% 0% 0% 0% 1% 0% 0% 0% 1% 2% 0% Bungalow Flat Terraced House Semi-detached House Detached House London stock distribution by build period 22% Accommodation standards in the PRS are therefore not helped by the age of 17% much of the adapted PRS stock. However this is not the sole reason for the concern over housing standards in the sector amongst regional policymakers. Whilst an owner-occupier of a Victorian property in the capital may have emotional and practical reasons to invest their capital into improving 9% 7% 5% 7% 6% 6% 4% 3% 7% 4% 1% and maintaining their property, a landlord tends to make such investment decisions based on purely pecuniary factors. Pre to to to to to to to to to to to 2016 Unknown Source: VOA Stock of Properties Table CTOSP1.0

11 LONDON WIDE DEMAND AND SUPPLY How has tenure changed in London? Knight Frank s analysis of the regional PRS shows that London is subject to unique demand pressures that place additional stress on existing private rental stock. However these PRS demand factors are not uniformly 1,675,690 Household tenure historical units in London 1,576,207 1,656,939 distributed particular nodes will exist within the capital s housing market at local level where these pressures are felt more acutely. The latest data from 790, , , , ,485 Experian shows that the number of PRS households in London is 934, ,482 an increase of 14% since Between 2001 and 2011 the number of households in privately rented accommodation in Greater London increased by 386,000 households. These households are mainly living in traditional rental units let and managed by individual landlords. At the same time the total number of new households in Greater London was lower 282,000 households. This indicates that not only most of new households as they formed became renters, but also households from other tenures (such as social rented or even owned tenure) transferred to the PRS. 58% Owner Occupied Social Rent Private Rent Household tenure historical distribution in London 50% 49% 27% 25% 26% 28% 24% 15% Owner Occupied Social Rent Private Rent Source: ONS Census 2001; ONS Census 2011; Experian; Knight Frank Residential Research

12 LONDON WIDE DEMAND AND SUPPLY PRS household composition in London Data from the 2001 and 2011 Censuses indicate exceptional growth of the PRS in London over the last few years (76%). At the same time, owners have shown minimal overall growth (4%), but also a significant drop in young households (34%). In general, the proportion of younger households (between ages 16 and 34) is significantly higher in the PRS than in the other tenure types. This indicates a trend for more and more young people choosing to rent privately instead of buying a property. Breaking the figures down into constituent household groups, the change in household composition in the PRS is evident. In 2001, the most common type was households with dependent children. By 2011 this type reduced to 19% and to third most common household type. On the other hand, one person households took over as the dominant type in 2011, with 36% of all PRS households in London. Other types, such as childless households (i.e. students), households with non-dependent children and other households have more or less remained stable in terms of proportion between 2001 and Household historical units by tenure and age in London 1,235,528 1,409, , , , , , , , , , ,581 Owner Social rent Private rent Owner Social rent Private rent Age 16 to 34 Age 35 or older PRS Household composition in London 36% 28% 29% 23% 24% 17% 19% 18% 3% 3% One person household Dependent children Non-dependent children No children Other household Source: ONS Census 2001; ONS Census 2011; Knight Frank Residential Research

13 LONDON WIDE DEMAND AND SUPPLY Household growth in London London s population has risen by around one million over the last 10 years, the fastest rate of growth in the city s history. This growth is set to continue, Household tenure units projection in London with new official forecasts showing that London s population will hit 9.4 million by This is the equivalent of adding another Birmingham to London s population. By 2029, the population is forecast to rise to more than 10 million. Employment is also set to grow, with the Greater London Authority 432, , , ,069 1,028,002 1,075,719 1,123,329 1,171,380 forecasting the creation of another 850,000 jobs in London over the next two decades. This will take the total number of jobs to 5.75 million by 2036 equating to around 35,000 additional jobs being created per annum and 790, , , , , , , ,973 enhancing London s role in the UK economy. The city already accounts for more than a fifth of the country s total GDP output. 1,675,690 1,576,207 1,656,939 1,651,163 1,644,931 1,637,984 1,630,456 1,622, Owner Occupied Social Rent Private Rent Source: Experian; Knight Frank Residential Research

14 LONDON WIDE DEMAND AND SUPPLY Residential demand and supply gap The Office for National Statistics (ONS) provides projections of resident population for national, regional and local authority areas. Household Demand and supply gap in London projections are trend-based and indicate the number of additional households that would form if recent demographic trends continue. 67,571 The household growth projection for Greater London indicates that, based on past trends, a steady increase in household numbers about 51,000 is 58,219 63,475 projected to be formed every year in the Capital. With the current provision of 51,286 50,990 50,059 50,579 50,956 51,381 51,299 housing stock the London residential market remains undersupplied. This undersupply specifically impacts the younger households who are suppressed in forming as there is currently no significant offer of affordable options of smaller residential units for the younger population. 24,870 21,040 23,580 26,840 30, Additional annual dwelling supply Additional annual households Source: DCLG; Knight Frank Residential Research

15 CO-LIVING MARKET ASSESSMENT IN HACKNEY

16 STUDY AREA EXTENT Catchment area and accessibility For the purpose of this report we have analysed the London Borough of Hackney overall and specifically the catchment area surrounding Wilberforce Road, N4. The catchment area covers the 20 minute walking distance from Wilberforce Road and includes parts of three London boroughs, Hackney, Islington and Haringey. This area benefits from excellent transport links, with Arsenal and Manor House underground stations (Piccadilly Line), as well as Finsbury Park station (Piccadilly and Victoria Lines and National Rail) which is located less than 0.5 mile from the proposed site. This enables residents of the area to reach Central London via London Underground and the City of London via the National Rail route to Moorgate, in less than 15 minutes.

17 SUPPLY OVERVIEW

18 SUPPLY OVERVIEW Hackney private residential stock condition The latest Housing Needs Survey in Hackney took place in We have included below results regarding housing conditions: Overcrowding across all household types has increased significantly (+4.5%) between Census 2001 and Census 2011, to reach 32.16%. The key increases are households with students and/or people aged 65+ (+9.8%) and cohabiting couples with no children (+ 10.9%). The PRS saw the highest growth in overcrowded properties (+7.7%). The PRS respondents were the most likely to be overcrowded (47%) compared to social renters (34%) and owner occupiers (15%). The issue of overcrowding was more evident among younger households that are sharing. Another important issue associated with the condition of housing stock is the existence of mould and/or damp, as stated by over half (circa 52%) of the survey s PRS respondents. The provision of Co-Living within large scale professionally managed buildings will provide a high quality alternative for more renting in this sector, compared to what is often low grade and very poorly managed stock. Source: Hackney Housing Needs Survey, 2014

19 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown 1 Bedroom 2 Bedrooms 3 Bedrooms 4+ Bedrooms Unknown SUPPLY OVERVIEW Existing stock There is a low proportion of larger properties within the borough only 9% of properties within Hackney have four bedrooms or more. Within the borough, the most common property types are one and two bedroom flat, which accounts for circa 30%. The majority of stock in Hackney is not suitable size for sharer households. Distribution of housing stock in Hackney by property type and size 30.3% 30.8% Based on the above, the provision of Co-Living rental product would provide accommodation for current sharer households, and potentially release some of the larger units for family occupation. 13.8% 8.0% 5.9% 3.6% 2.4% 2.7% 0.1% 0.0% 0.1% 0.0% 0.0% 0.2% 0.8% 0.0% 0.2% 0.3% 0.5% 0.0% 0.0% 0.0% 0.1% 0.1% 0.0% Bungalow Flat Terraced House Semi-detached House Detached House Source: VOA Stock of Properties Table CTOSP1.0

20 SUPPLY OVERVIEW The widening gap between demand and supply GLA Projections expect Hackney population to grow approximately at the same rate as the capital s average (approx. 10%), reaching a population of 301,000 by ,146 3,113 Demand and supply gap in Hackney As can be seen in the graph, residential supply has constantly been below demand for new homes over the last five years. The household growth projection for Hackney indicates that, based on past trends, household 2,481 2,546 population will continue to grow, although with slower increases per year. The borough is expected to need approx. 1,900 new homes per annum by Taking into account the limited provision of housing stock in the last few years, it would appear that the potential housing demand is significantly 1,640 1,939 1,901 1,919 1,894 1,975 1,920 suppressed. 1,160 1, Additional annual dwelling supply Additional annual households Source: DCLG (supply except 2015); A New Housing Strategy for Hackney (supply 2015); Knight Frank Residential Research

21 SUPPLY OVERVIEW What are current rental choices in the catchment area? In May 2017, one and two bedroom apartments represented the highest number of rental properties on the market. This corresponds with the existing housing supply as the majority of the stock in this area comprised of apartments of this size. Whilst one and two bedroom properties made 76% of the total rental market in May 2017, only 7% of rental properties on the market are studios. There is no offer currently in terms of smaller units even with communal sharing. The area lacks self-contained and on-site managed apartments with amenities included in the offer. The Knight Frank Tenant Survey highlighted the priorities of tenants across the country. Some of the highlights of the results are as follows: More than half (52%) of tenants said living close to work or their place of study is a key priority and just under one third (30%) said that the main reason for moving between rented properties was to upgrade to a nicer property. A quarter of those living in the PRS live alone, while 34% live in a couple without children. Some 43% of years olds share with other adults in a flat-share. Rental listings by property size in the catchment area May Studio One bedroom Two bedroom Three bedroom Four bedroom All listings New listings Source: Knight Frank Residential Research

22 CHARACTERISTICS OF DEMAND

23 CHARACTERISTICS OF DEMAND How has tenure changed in Hackney? The change in the household tenure mix between the 2001 and 2011 Household tenure historical numbers in Hackney censuses and 2016 has been significant. The PRS in Hackney surged in importance, rising from 15% (12,632) of all households in 2001 to 30% 43,669 44,430 48,348 (29,449) in 2011 and 31% (31,756) in Although social renting is still the dominant type of tenure in the borough, the PRS has come to double its 26,286 24,179 29,449 22,293 31,756 share and outgrow owner occupation, to become the second most common 12,632 tenure type. The pace of this growth in PRS households has been significant the addition of 44,694 PRS households between 2001 and 2016 roughly Owner Occupied Social Rent Private Rent equates to approx. 1,275 new PRS households per year. Household tenure historical distribution in Hackney 53% 45% 47% 32% 15% 25% 30% 31% 22% Owner Occupied Social Rent Private Rent Source: ONS Census 2001; ONS Census 2011; Experian; Knight Frank Residential Research

24 CHARACTERISTICS OF DEMAND Changes in demographics of private renters Data from the 2001 and 2011 Censuses demonstrate the exceptional Household historical units by tenure and age in Hackney growth of the PRS in Hackney. Moreover, the proportion of younger households (between ages 16 and 34) is significantly higher in the PRS than in other tenure types. 29,506 35,427 11,809 Breaking the figures down into constituent household groups, the change in household composition in the PRS is evident. In 2001, the most common type was one person households. By 2011 this type reduced to 28%, whilst other households took over as the dominant type, comprising 31% of all PRS households. The proportion of other types of 20,306 6,226 Owned or shared ownership 9,627 8,338 5,941 8,988 Social rented 5,695 Private rented or living rent free 20,611 Owned or shared ownership Social rented Age 16 to 34 Age 35 and over 18,888 Private rented or living rent free household composition have remained stable. PRS Household composition in Hackney 36% 28% 31% 22% 20% 19% 20% 19% 3% 2% One person household No children Non-dependent children Dependent children Other Source: ONS Census 2001; ONS Census 2011; Knight Frank Residential Research

25 CHARACTERISTICS OF DEMAND Socio-economic characteristics of private renters The London Borough of Hackney has a significant proportion of rental households, with only 22% owning their accommodation. The amount of social renting households is also high. However, this is more evident in other parts of the borough, as the percentage of social renting households in the catchment area (40%) is lower than the borough in total (49%). This is opposite to the PRS. In the catchment area the density of PRS households is higher than in the borough overall. The median annual gross household income within the catchment area is higher than the median income within the borough. This is the case for all tenure types, although less evident in social renting. Median household annual income of PRS households sits between those of owner occupied and social renting households. In particular, PRS household income for 2016 was 58,057 in the catchment area and 50,056 in Hackney. It is worth mentioning that PRS households in the catchment area have higher incomes than owner occupiers across the borough, which shows a trend in favour of the PRS for high earning households. 67,555 Distribution of tenure in % 49% 38% 29% 22% 22% Catchment Area Hackney Owner occupied Privately rented Council/housing association Median household gross annual income in ,057 55,990 50,056 37,610 36,175 Catchment Area Hackney Owner occupied Privately rented Council/housing association Source: Experian; Knight Frank Residential Research

26 CHARACTERISTICS OF DEMAND Household size and number of bedrooms Renters are significantly less likely to rent a flat with an additional room, Bedrooms per household by tenure - Hackney compared to owner occupiers. This is particularly evident in 2-person households, where almost all renters choose either exactly or less than one bedroom per person, whilst circa 40% of buyers purchase properties with more bedrooms than people. According to the English Housing Survey, 85% of owner-occupied properties in England have at least one spare bedroom, with 49% being classified as under-occupied, that is to say they have two or more spare bedrooms. In contrast, in the PRS, only 15% of properties are under-occupied. 3% 4% 15% 22% 46% 56% 9% 38% 23% 44% 1% 3% 8% 19% 25% 50% 6% 29% 20% 37% 2% 2% 5% 7% 30% 52% 7% 37% 36% 33% This can be explained by the fact that renting provides the flexibility to move to a new flat if there is need for an additional bedroom. On the other hand, buyers usually choose to buy properties with additional bedrooms, in order to save on the taxes associated with moving. 36% 1 person in household 18% 2 people in household 47% 6% 3 people in household 30% 3% 66% 28% 4+ people in 1 person in 2 people in household household household 54% 12% 3 people in household 39% 4% 63% 39% 4+ people in 1 person in 2 people in household household household Owner Occupied Social Rented Private Rented 1 bedroom 2 bedrooms 3 bedrooms 4+ bedrooms 46% 10% 27% 4% 3 people in 4+ people in household household Source: ONS, Knight Frank Residential Research

27 CHARACTERISTICS OF DEMAND Tenant profiles The catchment area of the site is characterised by high diversity. The area is dominated by two different types of tenants: youngers renters who value good connections and vibrant lifestyle and social renting families who usually live in overcrowded conditions. Based on the characteristics of the proposed Co-Living development and the different Mosaic tenant types, we identified two key Mosaic types that could be considered as potential targets: Flexible Workforce: This group includes young renters, usually employed in the service sector, valuing flexibility in accommodation. Summary of households Catchment Area Mosaic Type # % Description Metro High- Flyers Crowded Kaleidoscope 6,989 47% 3,154 21% Uptown Elite 2,291 16% Inner City Stalwarts 2,156 15% Ambitious 20 and 30-somethings renting expensive apartments in highly commutable areas of major cities Multi-cultural households with children renting social flats in over-crowded conditions High status households owning elegant homes in accessible inner suburbs where they enjoy city life in comfort Long-term renters of inner city social flats who have witnessed many changes Target Type Summary of households - Hackney Mosaic Type # % Description Crowded Kaleidoscope Metro High- Flyers Inner City Stalwarts 29,413 34% 24,633 28% 16,903 19% Uptown Elite 8,641 10% Multi-cultural households with children renting social flats in over-crowded conditions Ambitious 20 and 30-somethings renting expensive apartments in highly commutable areas of major cities Long-term renters of inner city social flats who have witnessed many changes High status households owning elegant homes in accessible inner suburbs where they enjoy city life in comfort Target Type Central Pulse: This group includes young renters, who are looking for flats in central area, close to their work and to entertainment options. These types account for 1,034 households, or approximately 7% of all households in the catchment area and 10,097 households, or approximately 12% of all households in Hackney. Flexible Workforce World-Class Wealth 805 5% 599 4% Penthouse Chic 267 2% Central Pulse 229 2% Self-starting young renters ready to move to follow worthwhile incomes from service sector jobs Global high flyers and families of privilege living luxurious lifestyles in London's most exclusive boroughs City suits renting premium-priced flats in prestige central locations where they work hard and play hard Entertainment-seeking youngsters renting city centre flats in vibrant locations close to jobs and night life Flexible Workforce 7,887 9% Cultural Comfort 2,782 3% Central Pulse 2,210 3% Penthouse Chic 2,049 2% Self-starting young renters ready to move to follow worthwhile incomes from service sector jobs Thriving families with good incomes in multi-cultural urban communities Entertainment-seeking youngsters renting city centre flats in vibrant locations close to jobs and night life City suits renting premium-priced flats in prestige central locations where they work hard and play hard Source: Experian; Knight Frank Residential Research

28 CHARACTERISTICS OF DEMAND Employment projections in Hackney Experian forecasts indicate that by 2021 there will be 125,100 employees in Hackney a growth of 2,800 jobs from Projection of workforce jobs ('000) by Broad Sector in Hackney In recent years, the dominant sectors in terms of workforce jobs have been professional services, finance and insurance. Since 2001, jobs in these sectors have grown from 24,900 to 34,300 in 2011 and to 39,800 in They are projected to reach 40,600 by This could be attributed to the proximity and good connections of the area via Finsbury Park station to the City of London, a major financial district at a global level. At the same time, the largest growth in jobs has been in the public services sector, which have increased from 21,500 in 2001 to 33,200 in They are projected to reach 33,900 by The employees in these sectors are likely to value flexibility and convenience when it comes to choosing their accommodation Professional Services, Finance & Insurance Public Services Wholesale & Retail Construction, Manufacturing, Utilities Accommodation, Food Services & Recreation Other Source: Knight Frank Residential Research, Experian

29 AFFORDABILITY ASSESSMENT

30 Monthly rent Growth AFFORDABILITY ASSESSMENT Median monthly asking rents in Hackney The compound annual growth rate of median monthly asking rents in Hackney was 6% during the last eight years. The highest rental growth occurred in , which could be explained by the large number of 2,500 2,000 Median monthly asking rents in Hackney 20.0% 15.0% new residential developments that were completed during that period, such as Dalston Square and Paradise Park in Lower Clapton. 1,500 1,000 CAGR % 10.0% 5.0% Overall during the time period between 2009 and end of 2016, the most significant rental growth was observed in three bedroom properties, with a compound annual growth rate of 7.5%, followed by four bedroom properties, with 7.2% % -5.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q YoY quarterly growth Median monthly asking rents - Hackney CAGR Median rents of smaller properties have also grown, but at a slower rate 5.7% for studios, 5.8% for one bedroom and 5.1% for two bedroom properties per annum. The higher historical growth rate of larger properties indicates that, despite single occupancy being the preferred accommodation choice of tenants, the demand is stronger for large properties, as sharing is more affordable compared to single occupancy within the PRS in Hackney. 17.9% 16.8% 12.9% 8.9% 1.9% 27.6% 14.6% 15.3% 13.1% 5.8% Median asking rents historical annual growth in Hackney 11.9% 11.1% 7.5% 5.7% 8.5% 7.7% 7.9% 6.6% 5.3% 5.3% 5.3% 3.5% 4.3% 2.1% 3.1% 2.9% 1.7% 0.8% 0.6% % % -0.9%-0.1% -2.8% -5.5% Studio One bedroom Two bedrooms Three bedrooms Four bedrooms Sample size: 126,293 listings between Q Q Source: Knight Frank Residential Research

31 AFFORDABILITY ASSESSMENT Affordability of current rents Within the catchment area the median monthly asking rents are between 953 for a studio and 2,899 ( 725 per room) for the four bedroom property. The variety of properties across the borough is evident in the wider range of rents in Hackney the median monthly asking rent is between 1,100 for a studio and 2,995 ( 749 per room) for a four bedroom one. To afford single occupancy in the catchment area, the potential tenant needs to have gross household income of around 43,560 per annum. For a room in larger properties within the catchment area, the household income needs to be at least 29,682 per annum in a three bedroom property and approximately 21,743 per tenant occupying one room in a four bedroom property. It is a no surprise that the growth in sharer households in Hackney is significant the required income for a single person household is 19,000 lower if they share accommodation with two other people. The scheme s proposed rent is 1,040 per calendar month. Tenants will need a to have an income of 31,200 per annum, in order to afford the rent in the proposed scheme. This is lower than the amount required to afford a studio or a one bedroom property in Hackney. Even including bills, the gross rent would reach 1,300 per calendar month, an amount still lower than the rent without bills for a one bedroom property in the area. 1, ,100 31,200 33,000 28,590 1,452 1,408 Median monthly asking rent per room (2017 Q1) Studio One bedroom Two bedroom Three bedroom Four bedroom Scheme Rent Catchment Area Hackney London Living Rent Minimum gross annual household income needed to rent a room (2017 Q1) 43,560 42,240 27,665 29,682 28,438 15, ,580 23,248 21,743 22,459 11,271 Studio One bedroom Two bedroom Three bedroom Four bedroom Scheme Rent Catchment Area Hackney London Living Rent 307 9,222 Source: Knight Frank Residential Research

32 AFFORDABILITY ASSESSMENT Rent affordability for private renters in Hackney Total number of households within the Hackney is 86,994. Out of those, 29% are PRS households. About 65% of all PRS households in Hackney can afford a one bedroom property at the median monthly asking rent of 1,408. The proportion of most likely sharer households, MOSAIC types Central Pulse and Flexible Workforce, who can afford the above mentioned rents is even lower. MOSAIC Group Central Pulse (1.9 people per household) Flexible Workforce (2.5 people per household) All PRS households in Hackney Affordability of households (# and % of households) Hackney Median Rent Studio ( 1,100) One bedroom ( 1,408) Room in a Two bedroom property ( 948) Room in a Three bedroom property ( 775) Room in a Four bedroom property ( 749) # % # % # % # % # % % % % % % 3,399 82% 2,254 55% 3,632 88% 3,690 89% 3,693 89% 20,278 82% 16,099 65% 21,054 85% 21,570 87% 21,615 87% Affordability of households (# and % of households) Scheme proposed rent Affordability of households (# and % of households) - London Living Rent (Brownswood ward)* MOSAIC Group Studio ( 1,040) MOSAIC Group Studio (N/A) One bedroom ( 922) Room in a Two bedroom property ( 512) Room in a Three bedroom property ( 376) Room in a Four bedroom property ( 307) # % # % # % # % # % Central Pulse (1.9 people per household) Flexible Workforce (2.5 people per household) All PRS households in Hackney % 3,521 85% 20,687 83% Central Pulse (1.9 people per household) Flexible Workforce (2.5 people per household) All PRS households in Hackney % 1,186 68% 1,506 86% 1,635 94% 3,641 88% 3,782 92% 3,848 93% 3,911 95% 48,429 85% 52,312 92% 53,413 94% 54,040 95% Source: Knight Frank Residential Research, Experian *Wilberforce Road is located in the ward of Brownswood (source: 2011 census data)

33 AFFORDABILITY ASSESSMENT Rent affordability for private renters in the catchment area Total number of households within the catchment area is 14,750. Out of those, 38% are PRS households. About 72% of all PRS households in the catchment area can afford a one bedroom property at the median monthly asking rent of 1,452. The proportion of most likely sharer households, MOSAIC types Central Pulse and Flexible Workforce, who can afford the above mentioned rents is even lower. MOSAIC Group Central Pulse (1.9 people per household) Flexible Workforce (2.5 people per household) All PRS households in Catchment Area Affordability of households (# and % of households) - Catchment Area Median Rent Studio ( 953) One bedroom ( 1,452) Room in a Two bedroom property ( 989) Room in a Three bedroom property ( 853) Room in a Four bedroom property ( 725) # % # % # % # % # % % 89 51% % % % % % % % % 5,195 92% 4,092 72% 5,186 92% 5,231 92% 5,478 97% Affordability of households (# and % of households) Scheme proposed rent Affordability of households (# and % of households) - London Living Rent (Brownswood ward)* MOSAIC Group Studio ( 1,040) MOSAIC Group Studio (N/A) One bedroom ( 922) Room in a Two bedroom property ( 512) Room in a Three bedroom property ( 376) Room in a Four bedroom property ( 307) # % # % # % # % # % Central Pulse (1.9 people per household) Flexible Workforce (2.5 people per household) All PRS households in Catchment Area % % 5,147 91% Central Pulse (1.9 people per household) Flexible Workforce (2.5 people per household) All PRS households in Catchment Area % % % % % % % % 5,201 92% 5,443 96% 5,491 97% 5,558 98% Source: Knight Frank Residential Research, Experian *Wilberforce Road is located in the ward of Brownswood (source: 2011 census data)

34 CONCLUSIONS

35 CONCLUSIONS The catchment area benefits from excellent transport links. Finsbury Park station is located in the immediate vicinity of the proposed site and provides quick access to Central London and the City of London. This makes the area popular with people who value quick connections to central areas and with professionals who work in the professional services. The London Borough of Hackney, following the trend of the rest of the capital, faces an undersupply of residential properties. Similarly, the current rental offering in this area does not satisfy the demand of young professionals. Studios account for only 7% of all properties available on the rental market in May In view of the large proportion of overcrowded dwellings (more than 32% of households live in accommodation that is overcrowded), the need for high quality Co-Living properties to provide accommodation for current sharer households and potentially release some of the larger units for family occupation, seems greater than ever. Single occupancy in the borough is proving to be increasingly unaffordable, with only 65% of PRS households being able to afford a one bedroom property. It therefore seems a valid concern to suggest that the specific housing needs of young professionals may currently being overlooked in the borough, given the tension between increasing tenant family and migrant numbers, policy initiatives to restrict the extent shared accommodation (like the pioneering new PRS licencing scheme) and older rental stock that is often uneconomic to repair to modern standards. The solution to squaring the circle seems clear the borough needs a new, modern and affordable housing product designed to meet the specific housing needs of it s young professionals, particularly those starting to live alone or independently for the first time. It is considered that the presence of this scheme, alongside the self-contained flats and the commercial / office uses, will enhance the amenity of the area by creating a vibrant community environment. The regeneration of this site will help to improve the surrounding area, bringing people to the area to both live and work, thereby helping to support local businesses. Rainbow Properties' proposed product will be located in a highly accessible position, with excellent access to public transport services. All residential units will be designed to a very high standard, meeting or exceeding the relevant London Plan minimum floor space standards. The provision of Co-Living within large scale professionally managed buildings will provide a high quality alternative for more renting in this sector, compared to what is often low grade and very poorly managed. The proposed product will have a net rent of circa 1,040 per calendar month, derived from a gross rent of 1,300. This product will be affordable to 91% of current renter households in the area, making it significantly more affordable than single occupancy in a one bedroom flat and almost as affordable as renting a studio or sharing a room in a two bedroom property. It is also only 1% shy of the affordability pool for London Living Rent.

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37 Dr Diana Babacic Head of PRS Research Knight Frank 55 Baker Street London W1U 8AN United Kingdom T +44 (0) M +44 (0) E diana.babacic@knightfrank.com Emma Matthews Associate Residential Capital Markets Knight Frank 55 Baker Street London W1U 8AN United Kingdom T +44 (0) M +44 (0) E emma.matthews@knightfrank.com CONTACT DETAILS