Coliving is the ideal combination of great space and great design with great service, with great service being the central ingredient. When these three elements come together with the customer and community in mind – that’s great coliving.

Don’t be fooled into thinking that coliving is just one cookie-cutter concept: it comes in all shapes and sizes. It’s not just the purview of larger shared spaces, and it’s not just for the digital nomad - their core offering is that coliving spaces have community at the heart of their properties. Scott Baker Properties have been developing small-scale coliving for three years now, and evolved an offering we are unabashedly proud of. Our small-scale properties feature many benefits to the occupier and the developer that larger, institutional-serviced coliving fail to offer.

Does size matter?

Larger coliving developments are increasing all over the world. They attract media attention, large institutional investment and have economies of scale. But what about the humble shared house, the house of multiple occupancy (HMO)? These, which have been around a lot longer, can be very attractive as both a development and investment.

The UK has begun to distinguish between the newer, larger model and the more traditional HMO. London’s pioneering planning policy now recognises large-scale coliving, using the somewhat arbitrary 50 units as the cut-off for what they consider ‘Large-scale purpose- built shared living (LSPBSL)’. These developments require more facilities onsite, placing a higher burden on management, whereas far more modest properties, which fall within the HMO realm, are what I like to call the co-home.

Co-home opportunities are by definition more numerous, as we can take existing housing stock and convert it to shared living, a generally less complicated and less costly process, as it attracts more modest investors and those looking to supplement their income rather than run a whole business – the hobbyist landlord. The hobbyist is someone likely investing for retirement, putting their savings into property knowing that, discounting inflation, the average house price has tripled over the last 20 years: a 70% increase in real terms. In fact, 85% of UK landlords are hobbyists, only owning 1–4 properties, and just 15% who own 5 or more. These 15% are grass-roots entrepreneurs who are more likely growing a business and will become a large-scale developer over time.

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Developing on the small scale

In scaling towards being a larger developer, main challenges to the sprawling co-home model include juggling multiple projects, sites and construction teams, requiring project management of the highest quality. Accordingly, projects are judged successful when they come in on time and on budget. Indeed, a study by PricewaterhouseCoopers shows that a mere 2.5% of organisations successfully complete 100% of their projects. A Gartner survey also shows that project failure rates are higher with larger budgets. If large projects are less likely to be completed on time and on budget, and success decreases as budgets increase, one can extrapolate that smaller-budget, smaller-scale projects are far more likely to succeed.

The hobbyist or grass-roots entrepreneur is less likely to possess the required skills to bring multiple projects together, so bringing in professional project management to help scale is a decided benefit. Where a competent hobbyist or contractor could oversee one or two projects, having an independent third party to administer the contract becomes increasingly necessary at scale, the cost of which is typically mitigated by the increased likelihood of success. Notably, a survey report of UK construction companies states: “[T]here is an extremely strong correlation between the Project Manager and the success of the construction projects. In construction projects the Project Manager is considered to be one of the most important people who can lead and drive the projects in the right direction and conclude construction projects successfully.”

Small-scale projects are also decidedly quicker to acquire and deliver. According to TheAdvisory’s ‘Time to sell’ benchmark study 2019, it takes 11 weeks to complete the purchase of a standard house once the offer is accepted. Commercial and land deals can take a lot longer due to the greater complexities and potential planning permissions which are sought. A quicker acquisition translates to a quicker development start, meaning residents are introduced earlier and seed capital is recycled sooner, through sale or refinance, ergo much quicker profits. The average conversion time of a smaller development can range from 8–16 weeks, whereas larger projects would take a minimum of 12-24 months.

Given that hundreds of residents aren’t needed to make this model work, you can develop in more areas. And because the co-home model doesn’t need huge economies of scale, developing this coliving model works in smaller towns and cities where larger developments wouldn’t. Occupants still need and want to connect with others, so bringing coliving to otherwise abandoned marketplaces where lower- quality HMOs may dominate is a boon.

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Small-scale community

The hobbyist landlord can create community through self-management. Let’s assume that the average HMO has five tenants; given the hobbyist has 1-4 properties, that’s on average 20 people to manage. One person can easily do this – they can learn the names, individual personalities and group dynamics. However, beyond this, it becomes unwieldier, and the difficulty is one that all small businesses face: how to scale while maintaining quality.

‘Community’ exists on various levels. In the larger coliving model, community must be encouraged so the individual doesn’t get lost, or feel like a small fish in an ocean. The British anthropologist Robin Dunbar found that any one person can only maintain 150 stable social relationships at once, so if a space has more than 150 residents, it may seem like an overwhelming number of possible connections. In the smaller model, relationships are more likely to form naturally through
a limited number of potential social connections. In March 2020, Scott Baker Properties conducted its Shared Living Survey, revealing that residents prefer to share facilities with only three or four others; according to this research, small-scale coliving, where the resident-facility ratio is inherently smaller, is inherently more attractive.

That said, a larger community feeling can be facilitated by creating a network of smaller properties, although
it presents some logistical challenges. Where to hold sociable events? Is technology needed to bring and keep people together? The flexibility and accessibility that larger spaces have must be considered. One solution is to build connections with local businesses and spaces to create mutually beneficial relationships between those businesses, residents and your coliving organisation. Once this connection is made, technology comes into play. Whether a simple WhatsApp group, Slack channel or a more complex property/community management tool, technology is critical to communicate with residents and those in co-homes nearby.

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Small-scale financing/developing

The funding model of the co-home model is simple. When the investor has some level of property experience (e.g., a previous project or buy-to-let portfolio), obtaining institutional funding is easier. Available funding ranges from simple buy-to-let HMO mortgages to commercial bank financing. It’s fairly simple to finance an up to 6-bed HMO; beyond that it becomes more complex. For seven or more unconnected people to occupy a UK property, planning permission is required. When this barrier is overcome, the co-home model crosses into the same funding lines as larger coliving buildings. They are valued on the business’s turnover and profitability, which, in most of the UK, represents a higher value than if the property were traded as a house.

For Scott Baker Properties, the ideal tipping point for when a project works is seven occupants.

This provides sufficient economy of scale of turnover versus running costs, as the profit derives from the rent from the final 2–3 residents. It means it needs planning permission to furnish the relevant uplift in value, whilst community can still naturally form. When we take several such properties in one area, we create a decentralised community. For the occupier this results in the ability to create more meaningful connections outside their immediate community. By encouraging this wider community, we the developer encourage brand loyalty whereby residents are more likely to stay within our wider portfolio - moving between houses in a town or even between our properties in multiple cities.

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Coliving is not a marketing tool

Since the co-home decentralised model is an easier investment, the pool of potential investors is larger, leading to a watering down of the meaning of coliving and a varying level of service and experiences for residents. There is a danger – already evident – that standard HMO operators will call themselves ‘coliving’ to attract attention, jumping on what they see as a fad to better their business, but won’t follow through with community or other added service layers.

The ideal scenario is a co-home developer who aims to be professional, with multiple properties, one who delivers on space, design and service by putting the right teams in place. By using property professionals to deliver multiple schemes successfully, instead of cutting corners, you can ensure quality of service is maintained. As every large-scale developer knows, if you buy cheap, you buy twice. Apply this same premise to small-scale development and the opportunity for growth is there for you, for the taking.