BLOG: Why more upmarket HMOs are the big growth opportunity

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HMOs are one of the key areas of the private rental sector experiencing strong growth.

Recent research revealed that 31% of landlords in this sector are looking to acquire more units. And yet they still have a poor public reputation.

The ‘problem’ with HMOs stems from the traditional demand. Tenants choose shared living as an economic decision, not a lifestyle one, and the properties are often in streets that traditionally have large family homes.

These HMOs also tend to be basic to keep them affordable, further reinforcing the idea that they are ‘low-rent’.

This has led to angry neighbours, council objections, and medium-income professionals staying clear.

To exacerbate this problem, HMOs’ higher returns attract some investors who put money ahead of ‘service’.

And a small number of unscrupulous HMO landlords, along with others who naively venture in without understanding the higher management load, also give the sector a bad name.

But this view of HMOs only reflects a small part of the market and is not representative of the post-pandemic world.

Rebirth

COVID has accelerated the trend of shared living – also known as co-living or flatshares, house shares all of which, though there are debates about how they differ, are similar.

And their popularity has been growing, particularly as many single young professionals look for ‘a community’ during their initial years living in a city or town.

Remote working

As more companies allow home working following the recent lockdowns so living in a small flat, alone, looks far less appealing.

Sharing a larger space with like-minded people is no longer just an economic response to housing needs, it is becoming the way to live.

Shared future?

More and more forward-thinking agents are recognising how much money is being left on the table by not grabbing the HMO market with both hands.

HMOs naturally require more services, and at a higher frequency too due to shorter average tenancy length and greater regulation.

But with higher returns, property owners are often less price-sensitive and recognise the specialist nature of the management.

Previously, the lack of management software suitable for HMOs has made their management daunting for many landlords and agents, but the introduction of management software such as ours which specialises in shared living has enabled a larger pool of agencies and self-managing landlords to capitalise on HMOs.

In many cities some of the most fashionable accommodation is, essentially, an HMO and good design and architecture mean the public’s perception of them is now changing, attracting more professionals tenants. The opportunities here, we believe, are endless.

Vann Vogstad is CEO and founder of COHO.

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