Identifying Opportunities in the Shrinking HMO Market

A significant drop in the number of HMO properties in England over the last two years underlines the shrinking HMO market. The total number of HMOs across England has declined by over 21,000 to 489,701 across the last two years. The yearly rate of decline was the highest in the East Midlands as the stock HMOs dropped by 26.1 percent, followed by North East, London, and North West. The reduction in the HMO market size is despite a considerable demand for affordable rental properties.

Causes of the decline in HMO

Causes of the decline in HMO

Eviction problems, nuisance by tenants, and strict regulations are a few causes of the shrinking HMO market. The new regulation requires all HMO properties accommodating five and more persons to apply for a license. The regulation also mandated the size and number of occupants of the House of Multiple Occupancy. The constant increasing HMO regulations aim to improve the living standard of occupants. It prompted many HMO landlords to exit the HMO sector, fearing the red tape. It resulted in a shortage of affordable accommodation and hiked the rent because of the gap between demand and supply.

Demand is outstripping supply across PRS

Demand is outstripping supply across PRS

The widening gap between demand and supply in the Private Rental Sector echoes in the HMO market. A recent survey by Octane Capital showed a growing trend of shrinking HMO stock across England. The resumption of regular university terms generates the demand for student accommodation, which forms the main chunk of HMO properties. Many groups of bachelors staying in England as working professionals prefer HMO accommodation because of the convenience and affordability especially with the rising costs of living affecting affordability..

Benefiting from the need for more housing

Benefiting from the need for more housing

The UK government is struggling to reach closer to achieving targets to build homes, as the supply of new homes is far below the actual requirement. The situation will probably persist through the current decade. We must identify new avenues to address the demand-supply gap. We can develop new rental units by repurposing the HMO properties. The rise of co-living can address the lack of affordable housing.

The takeaway

The takeaway

The HMO sector provides an excellent investment opportunity, as the rental yield is higher than a regular buy-to-let. HMOs are suitable for flexible housing options and can effectively address the problem of affordable housing. Shrinking of the HMO market can be a boon in disguise for investors as it opens a new investment avenue with the rising demand for co-living accommodations.