PBSAs are usually the go-to option, especially for first-year university students, due to their social opportunities, convenient locations, and modern amenities like study areas and gyms.

However, several factors are leading students to consider HMOs as an alternative. So, what are these factors, and what should investors know before entering this part of the student accommodation sector?

Navigating financial challenges

For both investors and students, cost is crucial. From a student’s perspective, the current cost of living in a PBSA often exceeds their loan amounts, making HMOs, which are typically cheaper, a more viable option.

For developers and investors, building a PBSA in the current climate can feel risky. While material costs may be gradually decreasing, rising labour costs pose a new challenge. According to a report by Arcadis in September, labour costs are expected to drive inflationary pressures in the upcoming construction cycle due to increased workloads and tighter competence requirements, with fewer opportunities to source labour from overseas.

As a result, there is a possibility that less PBSA developments will be coming to market, and demand for HMOs may grow. Naturally, HMOs may then become more expensive for students to rent, but their improving quality of living should, by default, encourage students to shift from typical PBSA.

Investors should therefore consider the upfront costs of refurbishment and maintenance needed to bring converted properties up to the standards of today’s HMOs. It’s critical to remember that properties with multiple bedrooms and bathrooms can attract more tenants, increasing income. However, larger communal areas, such as kitchens and living rooms, should not be sacrificed. The overall offering must be of a good standard to attract students, and to maximise income.

•   The Finance Professional Show 2023: The Video
•   Secure Trust Bank lending balance hits £3.3bn
•   Empiric secures £56m fundraise

Restrictions and regulations

Developers and investors should be aware of Local Authorities’ Article 4 Direction (A4DS), which can restrict development rights, including the conversion of properties into HMOs.

Before applying for planning permission, investors should consult a local planning consultant to increase their chances of a successful application. It’s crucial to ensure the property is not in an area that restricts HMO construction.

Other regulations include shared house living standards, ensuring that a house isn’t overcrowded and is kept clean and safe.

Location matters

Location is another top factor for students when choosing a place to live. Demand for tenancy won’t be high if the house is an hour away from university, so a short travel time with accessible public transport is key. If an HMO is close to a university, it will likely also be a short walk away from shops and nightlife.

Location is equally important for investors with multiple HMOs. Keeping a portfolio of HMOs in proximity ensures that maintenance and cleaning between tenancy contracts are easier to manage. If overlooked, operating costs and time for property management can quickly add up.

The mindset of students

Students consider many factors when choosing their home for the next year or beyond, such as safety, wellbeing, noise pollution, and the ease of the journey from home to the lecture theatre.

Providing ample space for students is important, and investors should keep this in mind when taking on new HMO projects and re-apportioning available space.

Securing funding

Investors who consider the convenience, cost and regulations associated with these properties are more likely to succeed in accessing HMO finance.

When it comes to schemes targeted specifically at students, these properties and portfolios should be viewed differently from other schemes. There are many considerations beyond just yield.