According to major real estate experts, the UK's HMO regulation patchwork is postponing institutional investors in the rental market.
Astrid Stanley (pictured), partner and co-lead of Howard Kennedy LLP student accommodation group, said standardizing the regulatory regime can unlock important investment possibilities, saying, “There is a growing imbalance between the demand and the commuting of quality rental accommodation in the UK. 
“The student sector provides a clear example. While we expect new dedicated beds below 17,500, which are expected for this academic year, these challenges span the broader HMO market.”
The company says HMO plays a key role in the rental market, serving the needs of diverse tenants, including students, young professionals and key workers, and is an important source of affordable housing.
However, according to Stanley, there is little interest from institutional investors as a result of the regulatory barriers.
She believes that one of the biggest barriers is HMO licensing. This varies widely between local governments, introducing or adopting additional and mandatory HMO licenses with competing requirements in different sectors.
This fragmented approach is particularly problematic for institutional investors managing diverse portfolios. ”
“The complexity of the HMO licensing regime and the fact that they can potentially own HMOs across all sites with a variety of regulatory needs serve as an additional off-putting factor,” Stanley says. “For institutional investors managing diverse portfolios, this fragmented approach is particularly problematic.”
Additionally, the inability to freely assign HMO licenses after sale, the 5-year license restrictions, and running an unlicensed HMO is a crime, even if careless.
Improved complexity
Future tenant rights bills can add even more complexity, especially with regular tenants planning and allowing tenants to close their contracts in a short period of time.
This creates uncertainty for landlords and investors who rely on stable occupancy to maintain revenue, Stanley says.
She says government involvement is important in addressing the issue. “It's very surprising that the central government has not jumped at the opportunity to increase HMO investment, given the clear cracks between supply and demand, and the wider struggle within the current economic landscape.”
She recognizes that “it is in the public interest that there is high level of regulation and enforcement to prevent poor housing conditions,” but says the challenge is to achieve it in a consistent way.
