The HMO market – saturated or buoyant?

Stephanie Taylor - HMO Heaven and Rent 2 Rent Success
20th November 2020
question mark 77

What will happen to HMOs (Houses of Multiple Occupancy, also known as house shares) as the pandemic continues and with a recession in the offing? Some have suggested that this spells the end for HMOs.

I don’t believe that’s the case, to me the evidence we have available suggests a much more positive outcome. This is why:

1st Myth – No one wants to house share after coronavirus

Although this may seem like common sense, it’s not quite that clear-cut. In our experience, even during the current pandemic, people are continuing to choose to move into HMOs.

Most of our young professional housemates that I rent to could easily afford a one-bedroom flat, but they tell me they’d prefer to live in a house share for these main reasons:

a. Social

Often people are moving to a new city for work and don’t know anyone and therefore prefer to live, at least initially, with other likeminded people rather than live alone. House shares are a great way to meet people and make friends and have a ready-made social life.

b. Affordability

Often people are saving to buy their own home and love the affordability of HMOs because they can save more each month than they would if they rented on their own.

c. Convenience

It’s the ease of moving in and having everything set up already; furniture, white goods, all bills included, internet etc., and fast service if anything goes wrong.

d. Flexibility

We live in a much more mobile society than ever before. Many people move around the country for work, whether it’s to find a better job, or within their existing position. So being tied to a place isn’t very appealing. HMOs make it easy for them to commit for short periods only.

All in all, we’re seeing the demand for HMOs increasing, not decreasing.

2nd Myth - HMOs demand will plummet in a recession

If we are heading for the market dip many financial commentators are forecasting, then it’s likely demand for HMOs will grow, as past evidence has shown that residential rental demand increases in recessions. More people prefer to rent rather than buy in recessions.

In 2017 homeownership in England was at a 30 year low according to the English Housing Survey, the lowest since 1935. The private rental sector has doubled in size since 2004 with 4.5 million households renting, including almost 50% of people aged 25-34 renting their homes.

Research by the Royal Institute of Chartered Surveyors (RICS) showed that following the 2008 recession there was a continued rise in tenant demand.

So, although many people state, as though it’s a universally accepted fact, that getting into rental in a recession is bad, they are wrong. Recessions see a growing demand for rental property and especially affordable rental property, such as HMOs.

3rd Myth – The HMO market is at saturation point

There is a shortfall in affordable housing. A National Housing Federation and Crisis report conducted by Heriot-Watt University reveals that the UK needs to build 340,000 new homes every year until 2031 to meet housing demand. And at least 145,000 of those homes need to be what’s termed ‘affordable’.

In the 30 years between 1959 and 1988 7.4million houses were built in England. In the 30 years from 1989 to 2018, only 3.3million houses were built. That’s a shortfall of 3.1million homes – over 104 thousand homes a year over 30 years.

So, there is a strong demand for affordable housing – and house building is not keeping up. Which means HMOs are becoming ever more popular.

In 2018 the UK Government estimated that there are around 4.5 million people in England housed in around 497,000 HMOs in England and Wales. It’s therefore easy to see how HMOs can contribute towards alleviating the housing shortage. However, many councils have introduced Article 4. This means that a planning application has to be submitted to the relevant council to change a house to an HMO, even if it will only house for 3 or 4 people, which under the national legislation wouldn’t require planning permission.

It is therefore is becoming more difficult for landlords to create a new HMO. So, the number of available HMOs is not growing as fast as it used to, and yet demand is on the increase.

In my experience, the people claiming the HMO market is saturated have sub-standard properties in the wrong areas or don’t have any HMOs at all – just unsubstantiated opinion. To me, it is clear that the HMO market is buoyant not saturated.

So, if you have an HMO or are planning to buy one or convert an existing property, what do you need to do to be successful?

Here are some suggestions that can make a big difference to your tenants and your business:

1: An attractive workspace

Now that people are more likely to be working from home, having a desk, an attractive work area and fast broadband are important. If necessary, add extra lights to ensure the workspace is well lit, and ask an electrician to add a few extra sockets if needed so laptops, phones and other work paraphernalia can be plugged in and kept charged.

2: Plenty of kitchen storage

Ensure there are enough kitchen units to provide suitable storage and include a fridge and freezer. It’s surprising how many landlords don’t supply enough kitchen cupboard space. So, if your kitchen is small, look at clever ways to maximise the storage space – there are loads of ideas from places like the NRLA and IKEA. Thinking about the little things that make life easier can make a huge difference to your tenants.

3: Extra wardrobe space

While you can’t change the size of a house without major works, you can increase the storage and make it feel more spacious. Simple fixes like having two wardrobes, or adding shelving (for example, above doorways can be a great way to add a bit of extra storage space) can make a big difference. No one wants all their ‘stuff’ on display, so provide somewhere for them to tidy it away.

4: Outstanding service

This is the one that will make your properties stand out. From the first viewing to moving in, be proactive and attentive. Show your tenants you care about giving them a great place to live. Once they have moved in, don’t think that’s your job done! Look after them, make the experience of living in your property one they will remember and cherish. This helps housemates stay longer and also leads to more referrals.

With just a little effort on your part, you can create an excellent HMO. The time you put in will be well worth it and your tenants will appreciate what’s been done. Given this, it’s highly likely that your HMOs will be more profitable help by fewer voids and longer-term tenants.

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