The latest census shows that more people are living in larger households in the most unaffordable areas of England and Wales. The higher cost of housing means that people must remain as sharers or living with wider family for longer than they would otherwise choose. This in turn may exacerbate affordability issues, as larger groups have increased spending power with which to bid up rents.

There are 24.8 million households in England and Wales, according to the 2021 Census, 5.9 per cent more than in 2011. More than a third – 36 per cent – comprise three or more people, which we have termed ‘larger households’. Since the last census in 2011, larger households have grown nationally at a rate of 6.6 per cent. But this growth is far from uniform. London saw a 9.8 per cent growth in larger households, while the North East saw a -1.5 per cent fall. Conversely, the number of people living alone fell by -2.8 per cent in London and rose by 9.8 per cent in the North East, against a national average of 5.6 per cent.

The rate of growth in larger households tends to be higher in more expensive areas, as shown in the chart below:

The same effect can be seen as a consequence of higher rents as well as higher house prices. In the 20 per cent of local authorities with the highest rents, larger households made up 41 per cent of the total, compared with just 33 per cent for the 20 per cent with the lowest rents.

The number of larger households in these local authorities has grown by 10.1 per cent since 2011, significantly above the national average. The higher cost of renting in these areas is likely to have encouraged people into larger households where rent and bills are split across more earners. Among the top 20 per cent of local authorities for rental growth between 2011 and 2021, the number of larger households grew by 9.8 per cent, again well above the national average.

A vicious cycle?

In the short term, letting a friend move into the spare bedroom or looking to rent with a larger group may help alleviate some financial pressure on renters. But this conceals other long-term challenges. Rents have grown by 26.6 per cent across the UK between 2011 and 2021, according to Zoopla. But in the 20 per cent of local authorities where larger household formation has been most significant, rental growth has been 30.4 per cent. Adding an extra earner into a household increases spending power, meaning larger households are able to bid more to secure a rental property. Across a market this will drive further rental growth, decreasing affordability.

Larger households also mean there is less space available per household member. Research carried out for the GLA found in 2021 that the average floor space per person in the PRS has been falling since 1995, while it has risen for owner occupiers. Across England, around half of this decrease in the rented sector is due to larger households forming. The other half is due to renters choosing smaller homes. In London, however, the decrease is a result of larger household formation alone. The average size of a rented property has been constant, but properties are now being used more intensively.

14 London boroughs appear in the top quintile of local authorities for larger household formation, along with 33 local authorities from the South East and East of England. As house prices and rents in the capital have pushed up against an affordability ceiling, the wider South East has seen greater demand from commuters. This has driven a convergence with London, with rental growth of 30.8 per cent in the South East and 34.9 per cent in the East of England between 2011 and 2021, compared to 16.5 per cent in London.

The formation of larger households is likely to be seen across more areas of the country over the next year and possibly beyond, as rental growth continues to outpace earnings growth and stretch household finances. Perhaps more worrying is that the move towards larger households must have a ceiling, as homes can only appropriately house as many people as they have bedrooms. Without the provision of more stock, the most hotly contested rental markets will become inaccessible for more and more people.

Further information

Contact Emily Williams or Dan Hill

Savills Residential Research