Standardising HMO regulation
Astrid Stanley looks at how standardisation of the regulatory regime for houses in multiple occupation could encourage investment in the sector.
There is an ever-growing imbalance between supply and demand for student accommodation in the UK. In fact, it is estimated that less than 17,500 new purpose-built student beds will be added to our supply this academic year, continuing the somewhat limping efforts we have seen in this space since 2012.
However, it is not just the purpose-built student accommodation (PBSA) that we need to make waves with. We also need to utilise a currently overlooked asset within the sector: Houses in Multiple Occupation (HMOs).
HMO popularity is especially tangible in student towns and cities; the leases are competitive, with the next years’ tenants often signing not long after the current cohort move in, adding surety to their annual projections and increasing confidence with their returns.
Considering this, it may seem surprising that institutional investment interest remains relatively low – but what is really driving this?
Barriers to investment
In addition to planning requirements for HMOs, the licensing regime involves numerous complexities, including various tests and the possibility of the extension of HMO licensing by local authorities. Different local authorities might introduce Additional and/or Selective HMO licensing, so these requirements can differ depending upon the area in which the property is located.
Given investors often manage multiple sites, it makes the most sense in terms of finance and time to follow the same process for each one, avoiding confusion and ensuring consistency across all offerings. The complexity of the HMO licensing regime, and the fact that they could potentially own HMOs across multiple sites, all with different regulatory needs serves as a further off-putting factor, and one cannot blame them for being disinterested.
A further issue for an institutional investor is the inability to freely assign the HMO licence – which cannot be transferred to a new owner on the acquisition of a property. What’s more, an HMO licence cannot be granted for more than 5 years meaning that there is no long-term guarantee for an investor. Perhaps more daunting for an institutional investor is that it is a criminal offence not to have an HMO licence when required.
If the landscape wasn’t tangled enough, the upcoming Renters' Rights Bill could add further complexities – namely its plans to make all tenancies periodic, as well as allowing tenants to terminate their contracts at short notice. As it stands, The Bill does allow landlords to seek possession of HMO properties let to students, but only where the agreement was entered into less than six-months in advance of the commencement date.
This is particularly a concern for institutional student landlords who look to have certainty on returns and as such, often have lettings agreed well in advance of the academic year - something the Bill is seeking to stop. Though some level of exemption around PBSA is anticipated to be incorporated into the Bill or secondary legislation, for now it remains a stressful waiting game for those invested in HMOs.
Local authorities recognise that HMOs play an important part in housing provision, but it is also in public interest that there is a high degree of regulation and enforcement to prevent poor housing conditions. Cohesion is especially important given the current frictions in communities, which are becoming more opposed to HMOs where it drives up the affordability of houses for local residents.
Central government involvement
Given the clear chasm between supply and demand, and the wider struggles within our economic landscape presently (not least our strained construction sector and business financials), it is immensely surprising that central government are not jumping at the chance to boost HMO investment and alleviate some of this overwhelming pressure that ultimately sits on their shoulders.
More institutional investment into HMOs could equate to an increase in safe, high-quality homes for students, offering peace of mind to both individuals and their families that there are set regulations in place and ending the ‘lottery’ of whether a home will be up to standard; in turn contributing towards a closure of the student housing gap.
Astrid Stanley is a Partner and co-lead of the student accommodation group at Howard Kennedy LLP.
