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
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
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
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.
HMO set to be a popular trend
Investing in HMO properties now is a prudent decision as the demand for co-living will continue to rise as the millennial generation is comfortable with the idea of house sharing. HMOs will ease the pressure on building new homes, as investors can create new rental units by purchasing HMO properties. Understanding the shift in trends and behaviors of the younger generation can help landlords adapt HMOs to suit their tastes. Young professionals prefer upscale fixtures, quality accommodation for remote working, and have an inclination to community living. Addressing the demand of these tenants will help you provide alternatives to HMO properties. One should consider the possibility of stricter licensing and regulations in the HMO sector. The minimum size of accommodation may increase with future regulations.
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.