HMO stock levels continue to fall, down -2.4%

HMO stock levels continue to fall, down -2.4%

Market analysis by debt advisory specialists, Sirius Property Finance, reveals which areas of England are home to the greatest abundance of HMO stock as well as those in which recent changes to HMO regulations have resulted in the most significant decline.

In England today, there are an estimated 489,701 HMO properties, accounting for 2% of the nation’s entire dwelling stock.

London is home to the largest number of HMOs with 145,615 properties accounting for 4% of the capital’s homes, while the South East’s 69,102 HMOs make up 1.7% of the regional total.

The region with the fewest HMOs is the North East where 17,378 properties account for 1.4% of the region’s dwellings, but the region where HMOs account for the smallest percentage of local homes is East Midlands where 21,752 properties account for just 1% of the whole housing market.

The impact of HMO regulation changes
These current stock levels have been recorded after the government’s recently implemented changes to HMO regulation.

In an attempt to improve the safety and living standards for tenants, in October 2018, the UK government extended the mandatory licensing of HMOs to cover the vast majority of properties containing five or more people from two or more separate households. Previously, only properties with three or more storeys containing five or more people from two or more households required an HMO licence.

These new regulations mean that HMO landlords now occupy a more expensive and more complicated corner of the rental sector and, as a result, many have chosen to cut their losses by offloading properties rather than dealing with the added cost.

These 2018 government rules have also kick-started further tightening of HMO rules on a regional level, implemented by local governing bodies such as county and city councils. They are entitled to do this under the original 2004 Housing Act.

These regional changes have continued to be implemented by councils such as Brighton, Sefton, and Brent as recently as Q4 2022.

Annual HMO stock changes
So, what impact have these new regulations had on HMO stock levels in England?

Across the nation as a whole, the number of HMOs has fallen by -2.4% in the past year, but this drop is dwarfed by some incredible regional declines.

The East Midlands has recorded an annual HMO stock decline of -26.1%, the North East has seen HMO stock levels drop by a -15.8% drop, while in the South East numbers are down -6.7%.

Declines, however, are not universal across all regions. Indeed, the likes of the West Midlands (16.9%) and Yorkshire & Humber (11.2%) have recorded impressive annual stock growth over the past year.

Head of Corporate Partnerships at Sirius Property Finance, Kimberley Gates, commented:

“Any legislative change designed to improve tenant welfare is a positive one on the face of it, but much like the regular buy-to-let sector, a perhaps overly heavy handed approach by the government has led to a decline in the number of HMOs available across the nation.

The implications of this decline to tenants are inevitably a higher cost when renting, due to the growing imbalance between HMO supply and demand.

However, as the HMO sector continues to find its feet in the wake of these legislative changes, it presents a great opportunity for investors entering the space who can hit the ground running and capitalise on high tenant demand levels. Providing they have their house in order in terms of licensing and living standards, of course.”