Single Room Rate Changes and HMOs Houses in Multiple Occupation

The thirst from “property investors” for supposedly great returns from houses in multi occupation will make for a harder job for town halls housing departments. Often the returns from HMOs are illusory says David Lawrenson of

Every day at the town halls, junior front-line housing staffers spend a lot of their time dealing with single adults who “present” as homeless.

These single people often have little or no chance of getting social housing, so the only solution is housing in the private rented sector.

In the old days, these benefit dependent people would have got enough Local Housing Allowance (LHA) for their own one bed flat, but following coalition government changes to housing benefit, they now will only get enough for a room in a shared house or flat.

Single Room Rate

This is because of one of the key changes to housing benefit was to extend what is called the Single Room Rate (or SRR) for all single people up to age 35, meaning they would now only get enough for a room in a house share. (Previously everyone from age 25 got enough LHA for a one bed flat.)

The thinking behind the change makes some sense given that there are now lots of working non-benefit dependent people living in house shares who are up to 35 years of age.

Many would agree with the argument which says, “If non-benefit-dependent people can ‘make do’ in house shares, then why not those on benefits too?”

But the problem is that some of the benefit-dependent who “present as homeless” can also have some “issues.” Indeed these “issues” may sometimes explain why they are homeless in first place.

And putting people who may lack social skills, together with others in a house share, may lead to problems. The junior front line housing officers know this. They are also the people in the town halls who perhaps best understand private landlords’ needs. (We have said before that a huge issue for local government is that senior managements understanding of the PRS is often weak – which is not surprising as the people who are now at the top in local government housing will have learnt their “trade” when the private rented sector was tiny and more or less irrelevant.)

Good and Bad Private Landlords

The junior local government housing staff who have to work with private landlords to find homes for the homeless will know that there are many good private landlords who do their job well and try to do the best for their tenants.

But one thing they always struggle with is the kind of armchair “property investor” type of amateur landlord who has perhaps been persuaded to get into property to achieve “financial freedom” in just a few years. These types of investor often make lousy landlords.

One of the latest and supposedly great ways to make lots of money fast in property is to buy and then let room by room – this is one way to do “HMOs” or “house in multi occupation”.

A big selling point of some of the “financial freedom” courses focusing on this HMO route to fast millions, is that the extra demand from the change to the Shared Room Rate will lead to more demand and hence higher rents from HMOs. This argument has some logic.

HMO Investment is Not for the Faint Hearted

However, investing in and managing large shared houses has major drawbacks and is risky for the untrained amateur.

I have had HMOs in inner central London for 15 years and I know that the true net yield, once one takes account of all the additional management costs and in particular the costs of the extra personal time input involved, is at best only a very little more (and for some types of property in some locales, often a good deal less) than if the house had been let as a whole unit.

The housing officers at the local authorities ought to be very worried indeed that an army of new “investors” seeking to get rich fast through HMOs and who know little about the real nuts and bolts of being a landlord are being persuaded into buying HMOs, often with the intention of letting rooms to people dependent on LHA.

These “investors” may well end up disappointed by their investments and the poor junior staff at the towns halls will have an even harder job to do as they deal with the mess.

Not all courses advocating HMOs are poor. We are aware of some good ones. But property investors and landlords who want to know the real facts about HMOs and where and in what circs they can actually work well, should find out more through my consulting service for landlords.

A half days one to one consulting with us will be sufficient for most people to learn the real facts and the truth about investing in HMOs. Please see the links below.

ABOUT LETTINGFOCUS AND WHAT WE DO is the home of Private Rented Sector Consultancy and advice.

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