Houses in Multiple Occupation (HMOs) have, to a large degree, shaken off the unwelcomed reputation of poor-quality dwellings to become an important component of the private rented sector (PRS).

With increasing demand for rented housing not matched by supply, many landlords have expanded their portfolios to include HMOs, hoping to benefit from the higher yields associated with letting out properties on a per room basis.

The comparatively labour intensive and highly regulated nature of HMOs means that despite the attractive yields on offer, they are not for everyone and are more suited to professional landlords.

As a result, the English Housing Survey found that HMOs accounted for only 8% of property types let by landlords or agents, making them less popular than all but bedsits, rooms or flatlets which are let by 6% of landlords.

Social distancing and shared living

With data supporting early predictions that Covid-19 would cause people’s property priorities to shift, we may also consider how the pandemic will affect HMOs.

Now that terms like ‘social distancing’ and ‘support bubbles’ are part of our everyday language, will our need to consider our contact with others result in an even smaller proportion of properties being classified by the sharing of toilet, bathrooms or kitchen facilities?

It would seem that the government have also considered the implications of shared living because they have provided guidelines specific to HMOs and Covid-19.

They state that residents should follow the general guidance on staying at home and social distancing and behave in the same way as a single household if someone has symptoms of coronavirus, suggesting that they don’t deem HMOs as particularly high risk.

Reports from Paragon’s Regional Surveyors suggest that renters are also undeterred by any perceived risk of multiple occupant housing because in the main demand is strong, some citing the HMO market as an area of growth and part of emerging trends.

Students

Students moving out of the family home to study at university make up one of the biggest tenant groups for HMOs.

Despite earlier concerns that the pandemic would force students to miss out on campus life, instead studying from home or even worse, deferring until next year, demand for student HMOs has been central to buy-to-let’s bounce-back.

More students secured the results required to land a place at their university of choice following the A-level grading u-turn. This was a significant outcome because it led to some disparity in how demand for HMOs was concentrated across student towns and cities.

Many students, armed with better grades than those first awarded, were able to opt for the more highly rated universities which left the institutions lower down the league tables, and any associated student accommodation, with places to fill.

Using the South West as an example, Exeter has seen an increase in demand which is not mirrored in Plymouth due to falling numbers of students.

I highlight this because it shows how one isolated event can have a significant knock-on effect on the market, increasing demand in some areas and reducing it in others. Although not immune to the most serious of shocks to the macro environment, the diverse and extensive portfolios of some professional landlords are best placed to mitigate such risk.

The total number of students in university towns and cities is not the only driver of current HMO demand. Of those students, more seem to be opting for HMOs as their choice of accommodation.

While there is no doubt that many want to be in the thick of the action, there is a feeling that HMOs are quieter, more like home and less institutionalised while offering better value with more space when compared to halls.

Flexibility and affordability

As well as the short-term accommodation required by students and other groups such as seasonal workers, the flexibility and affordability offered by HMOs enables people to live in areas possibly out of reach for home buyers, especially during such uncertain times.

This is evidenced in our recent research into attitudes to renting where 35% of tenants said that what they like about renting is the flexibility to move easily and 31% said it enables them to live in an area where they couldn’t afford to buy property.

This effect is often more pronounced in cities like Bristol with high price variation. Here, surveyors are seeing strong demand for HMOs, refurbished to a high standard and well located in established residential suburbs popular with young professionals.

Further evidence of a shift towards areas not considered typical HMO locations is demonstrated by the trend in recently constructed family homes being converted into properties that can accommodate five or six households.

These are typically on three floors so have some adaptions already in place but are generally located on modern estates.

Another example of landlords responding to the changing profile and needs of tenants are adaptations made to HMOs to provide home offices.

Solution to isolation

So, it is becoming apparent that Covid-19 isn’t causing people to shun shared living and, looking forward, we may see HMOs actually become more prominent.

We know that significant numbers of people have felt isolated during periods of lockdown so it is possible that the pandemic may actually encourage renters to seek shared housing to tackle this problem.

Another key factor is the effect of job losses on housing tenure. History has shown that there is a correlation between levels of unemployment and those in higher education. With the Office of Budget Responsibility (OBR) forecasting rising levels of people seeking work, it is possible that the number of students will increase in the coming years and demand for HMOs will reflect this.

It is thought that the extra regulation and time required to successfully manage HMOs is a barrier for smaller landlords, many of whom also have other occupations. The professionalisation of the PRS, accelerated by Covid-19, may well see some of these landlords exit the market which would leave a higher proportion of professional landlords who have a greater propensity to own HMOs.

In addition to the impact of coronavirus, policy changes could also see more people opt for HMOs. Confirmation that the Government will not be extending the Help to Buy scheme will likely lead to would be first-time buyers, many of whom are young professionals or families, looking for accommodation that is flexible, affordable and located close to shops, schools, bars and restaurants.

Here, HMOs are proof that the current housing shortage means that even with events out of our control, demand for good quality and affordable homes is here to stay. If we’re to meet it, it’s up to us in the industry to sometimes do things a little differently to meet the changing needs of our diverse customers.

Richard Rowntree is managing director for mortgages at Paragon Bank