HMOs likely to grow in number and importance in the future

A leading banking and wealth management company says a growth area for the rental sector in the years to come will be Houses in Multiple Occupation.

The Arbuthnot Latham company says over the past 10 to 15 years, HMOs specifically and renting generally have proliferated - largely because high house prices has deterred prospective first time buyers, because mortgage availability has in some cases been limited, and because some younger people are less keen on the prospect of home ownership than older generations.

At the most recent official ‘count’, in 2018, the government estimated that there were around 4.7m people within the private rented sector in England alone, and around 497,000 HMOs in England and Wales combined.

Arbuthnot Latham says HMOs have also been rapidly growing in popularity among investors because despite more significant management overheads and growing numbers of regulations and legislation, the yields are normally high. 

The company says: “Local authorities are also keen on HMOs because they are a tool through which councils can control HMO density and housing stock in a certain area. Councils can – and almost always do – require property owners to seek permission to convert a single dwelling house into a small HMO.”

Now it suggests that with the government usually missing its own target of requiring 345,000 new homes annually to meet demand, there is an essential need for more HMOs - a need exacerbated by councils themselves losing their own housing stock and relying increasingly on private landlords.

“As a consequence, licensed HMOs are required to comply with tighter regulations to ensure they meet minimum safety and quality standards, thereby improving the quality of rental housing stock” says the firm.

And it concludes: “It would seem that the changing reputation of HMOs for renters, and the potential increased gains for investors mean that it’s a growing sector which looks set to develop further while there remains a shortfall of properties at affordable prices for first-time buyers.”