Arthur investigates whether micro-homes are worth investing in for first time buyers.
According to reports from the Land registry, since 2014 there has been an increase of 172 per cent in micro-homes, with more than 8,000 properties built in 2016, a record number!
The rise in demand for cheaper inner-city houses together with rising prices, have led to an increase in the supply of this type of property. This trend can also be linked to a government policy introduced in 2013, which allows developers to convert offices into residential units without planning permission.
Distributing space for more affordable flats seem like a good option to appeal to first time buyers looking to climb on the housing ladder: London’s micro-homes were sold for an average of £279,000 in 2016 (more than half the average sold price for a home in the capital). However, it remains to be seen whether they offer viable returns on investment to owners.
Especially popular in urban areas such as London, Liverpool, Cambridge and Bristol, many of these properties are just 16 square meters, almost the size of a Tube carriage, and one square meter bigger than a prison cell! According to Which? researchers, while prices are enticing, lenders could be hesitant to grant mortgages on smaller homes, and there could also be limits on how restricted space potential tenants on very low budgets are ready to accept.
Furthermore, smaller homes don’t rise in price as quickly as larger ones. The average price of a micro-home rose 6.9 per cent between 2013 and 2015, while the national average house price rise was 8.7 per cent. Micro homes are cheaper and usually closer to city centres, but often too restricted for bigger families; hence it is no surprise they are mainly bought by first time investors, but they don’t rise in value like regular sized properties.