Are HMOs still a good market for landlords in Wales?

Stephanie Taylor, Co-Founder of HMO Heaven and Rent 2 Rent Success, considers how 2020 has impacted on HMO landlords.

How is the demand HMOs (Houses of Multiple Occupancy, also known as house shares) responding in the current, challenging environment? Some are forecasting that the combination of Covid-19 and a recession in 2021 will negatively impact the HMO market. However, I don’t believe this is the case,

There is strong evidence that the opposite is true. Let’s examine three myths that you hear talked about and then look at ways that landlords in Wales can make their HMOs successful.

Myth: House sharing during and after Covid-19 will be less popular
In our experience, even during the current pandemic, people are choosing to move into HMOs.

Most of our young professional housemates that I rent to could easily afford a small flat, but they tell me they prefer to live in a house share for several reasons. These include being able to meet new people, make friends and have a ready-made social life, particularly in a new city. Affordability, convenience, and the flexibility of making a short-term commitment are also very important.

This all means that we’re seeing the demand for HMOs increasing rather than decreasing.

Myth: The demand for HMOs will reduce dramatically 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.

For example, 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 growing demand for rental property and especially affordable rental property, such as HMOs.

Myth: The market has no further room to expand
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 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 has done, and yet demand is increasing.

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 in Wales, what do you need to do to be successful?

Here are four little ways that you can make a big difference.

1) Setup an attractive office area
With more people working from home, having a desk, a well-lit, attractive work area and fast broadband is important. If necessary, ask an electrician to add extra sockets so laptops, phones and other work paraphernalia can be plugged in and kept charged.

2) Install plenty of storage in kitchens
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. For small kitchens look at clever ways to maximise the storage space – there are loads of ideas from places like the NRLA and IKEA. Little things that make life easier can make a huge difference to your tenants.

3) Provide as much wardrobe space as you can
By increasing the storage you can make your HMO feel more roomy. 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) Give excellent service from day one
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.

If you think around what your tenants need and provide a comfortable HMO you’ll be on your way to having a profitable, successful HMO business.

About the author

Stephanie Taylor is Co-Founder of HMO Heaven and Rent 2 Rent Success. She started HMO Heaven along with her sister Nicky and has grown the property management business to contracts of over £2m in just three years. Her goal is to inspire others to believe bigger, be bolder and be gamechangers for good through the power of ethical property businesses. Her focus is on using property to do good in our community and in the world.