Why the UK's booming student population could lead to a HMO revival
Andrew Ferguson, Managing Director of Buy-to-Let Mortgages
Houses in multiple occupation (HMO) have formed a vital part of the private rented sector for decades.
However, over the past five years they have been on the decline. In fact, the number of HMOs on the market has shrunk by more than 300,000 since 2017, according to Savills, which blames stricter regulation and higher taxes.
But there is one thing that could potentially arrest - and even reverse - that decline: the UK's booming student population.
According to the Higher Education Statistics Agency, a record high 2.8 million students were in higher education in the UK in the 2021/22 financial year.
That number is set to grow exponentially, with the Universities and Colleges Administration Service - or UCAS, as it is known - forecasting a million new applications a year by 2030.
That is great for our world-class higher education sector, but the obvious question is: where are they all going to live?
Typically, first year undergraduates spend the first year of their studies in university halls before moving to private rented accommodation for the rest of their course.
However, the issue is the there is a severe lack of purpose-built student accommodation (PBSA) here in the UK. According to UCAS, there are currently three students per bed available in PBSA.
With student numbers set to soar in the coming years, that situation is set to become worse unless there is a concerted effort to build more PBSA. But the issue is that construction is unlikely to keep pace with the uplift in student numbers.
Therefore, it means many more students will have to go straight into private rented accommodation earlier.
According to a poll by student accommodation provider Here!, roughly seven in 10 of students live in a HMO when studying in the UK.
The trouble, of course, is that if demand among students for HMOs boom as the number of HMOs on the market is in decline, that can only mean one thing in the short-term: higher rents.
But over time I expect to see landlords grasp the opportunity that comes with a higher student population and invest in new HMOs. Of course, running an HOM is not easy. There are licensing issues and the cost of refurbishing an existing property to consider.
Another issue that is that many landlords refuse to let their properties to students - almost half, according to the English Private Landlords Survey. This is typically because of the horror stories you hear from landlords about their homes being left in a less-than-desirable state come the of the year.
But let's not forget that achieving a yield is arguably more important now than ever in an environment when higher taxes and interest rates are eroding landlord's profits.
HMO yields can be as much as twice as high as standard properties. Add into the mix soaring demand for rented property among students and it makes for an attractive combination.
Letting to students isn't for everybody. But for those willing to make the plunge, the rewards could be enormous in the coming years.
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