The South East of England is the most populated region of the UK with around 9.3m residents. It’s also the third most densely populated after London and the North West. There are large urban areas such as Southampton, Portsmouth, Brighton & Hove, Reading and Oxford, as well as major towns like Crawley, Slough, Basingstoke, Worthing, Eastbourne and Gillingham.
With so many people living here, housing is in constant demand. London and the South East have the highest average property prices in the UK, and this is also reflected in the rental market. As a result, co-living and houses of multiple occupancy (HMOs) are common.
But what does this mean for property developers? This post explores the future of these in the South East, and whether they make an attractive investment for property developers.
What are HMOs and Co-Living Spaces?
Although slightly different, HMOs and co-living spaces are similar in that they combine multiple units or multiple tenants into the same building(s).
Co-Living Spaces
Co-living spaces don’t have a defined definition but they tend to be large developments where tenants rent private rooms or apartments and have shared access to other facilities. For example, some have private bedrooms with shared kitchens, living spaces and outdoor areas.
Others may have self-contained apartments but have shared facilities like gyms, communal areas, work and event spaces and other community-focused areas. They may also have services like WiFi, housekeeping, maintenance and concierge desks.
Some examples could be student living spaces, retirement communities or housing for young professionals.
Houses of Multiple Occupancy (HMOs)
Although fundamentally the same as co-living spaces, HMOs differ in their target market, the services they may (or may not offer) and the types of buildings typically used. Whereas co-living spaces offer a high standard of living with plenty of extras, HMOs tend to be more practical and focus on providing the basics.
In an HMO, multiple tenants have separate tenancy agreements that cover their room(s) and also give access to shared spaces like the kitchen, living areas and bathrooms. Depending on the property, some may offer ensuite facilities, but it is not a given.
HMOs often look like normal family homes from the outside, and they may have been converted from one, or built from the outset to fit into the local area. Consequently, they’re often found in suburbs and other residential areas.
Building or converting an HMO will need approval from the Local Authority, the landlord will need an HMO license and the building will need to meet various regulations. Also, some communities view HMOs negatively which can make getting the licenses and planning permission more difficult.
What Are the Pros and Cons of HMOs and Co-Living Spaces for Developers?
HMOs and co-living spaces can make attractive property development projects, especially in the South East where demand is high. For example, if they’re to be kept or sold as a buy-to-let, these properties can often make more rental income than if the same property was under a single tenancy.
They also offer plenty of flexibility and are desirable in places with more transient populations such as university cities or those with lots of young people. The ability to connect with like-minded people and have access to various facilities in the same place often justifies the higher rent.
However, Co-living spaces in particular are often significant projects that require large amounts of funding and management. For small-to-medium-sized developers, an HMO is often a much more realistic prospect. Apart from the additional planning permission and licensing, converting or building an HMO is not radically different from developing a normal, family home.
The Future of HMOs
While HMOs are not always popular with local residents and tenants, they appear to be rising in popularity as an investment. Demand for HMOs continues to rise, and as long as potential developers factor in future legislation and market demands, there’s no reason why the South East is not a fantastic place to build them.
In particular, safety standards, licensing requirements and tenants’ rights are only expected to get stricter in the future. Similarly, future tenants will demand features such as high-speed internet, high EPC ratings, smart technology and enhanced security. HMOs built with green tech from the outset, such as solar panels, heat pumps, triple-glazed windows and even EV chargers may be especially desirable.
Although land or conversion properties in popular cities may be expensive, developing an HMO could be your next successful project. At Hunter Finance, we’re always looking for talented developers to work with, and our range of property development finance can help turn your idea into reality. Contact us today to find out more.
