The patchwork of HMO regulations within the UK is putting off institutional investors in the rental market, according to a leading property expert.
Astrid Stanley (pictured), Partner and co-lead of the student accommodation group at Howard Kennedy LLP says that standardising the regulatory regime could unlock significant investment potential, adding: “There is an ever-growing imbalance between supply and demand for quality rental accommodation in the UK.
“The student sector provides a clear example, with less than 17,500 new purpose-built beds expected this academic year, but these challenges extend throughout the broader HMO market.”
HMOs play an important role in the rental market, serving the needs of a diverse range of tenants including students, young professionals and key workers and are a vital source of affordable housing, the firm says.
But according to Stanley, as a result of regulatory barriers, there is little interest inHMOs from institutional investors.
She believes that one of the biggest barriers is the licensing of HMOs, which varies significantly between local authorities, with different areas introducing or employing Additional and Mandatory HMO licensing with conflicting requirements.
For institutional investors managing diverse portfolios, this fragmented approach is particularly problematic.”
“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,” Stanley says. “For institutional investors managing diverse portfolios, this fragmented approach is particularly problematic.”
There is also the inability to freely assign HMO licences after a sale, the five-year licensing limit and the risk that operating an unlicensed HMO, even if it’s inadvertent, is a criminal offence.
Increasing complexity
The upcoming Renters’ Rights Bill could add even more complexities, particularly with plans for periodic tenancies and allowing tenants to terminate contracts at short notice.
This creates uncertainty for landlords and investors who rely on stable occupancy to maintain their returns, says Stanley.
She says that Government involvement is crucial in tackling the issue. “Given the clear chasm between supply and demand, and the wider struggles within our economic landscape presently, it is immensely surprising that central Government are not jumping at the chance to boost HMO investment.”
She recognises that it is “in the public interest that there is a high degree of regulation and enforcement to prevent poor housing conditions” but says the challenge is to achieve that in a consistent manner.
