Trevor Bargh

Could new HMO regulations mean a rise in PBSA?

A licensing extension for HMOs – due to come into effect this October – will mean landlords now need to seek a licence for their property if it is occupied by five or more people living in two or more separate households, regardless of the number of storeys the property spans.

The scheme is expected to impact 177,000 additional HMOs in England alone. As a result of this, we are anticipating further growth in purpose-built student accommodation (PBSA) as these regulations make investing in HMOs more difficult.  

As a fast-growing sector, investment into student accommodation should provide good returns on investment, as long as developments are built and managed correctly. Last year, Savills revealed that investment into student accommodation had risen by 17%, much of this attributed to foreign investors looking to increase their market share.

We also know that there aren’t enough beds in PBSA to satisfy demand. According to the latest Cushman & Wakefield student accommodation report, there are currently 602,000 purpose-built bed spaces available to students for the current academic year, yet the UK currently has 1.04 million students that attend university and don’t live at home. This is a deficit that we believe cannot be filled by HMOs currently and will become more of an issue when new regulations are put in place. In addition, with the number of people being accepted on to university courses growing year-on-year, and a rise in international students, it’s clear that something needs to change.

So, with lots of property investment options out there, why should investors select PBSA over the residential buy-to-let market? While buy-to-let has been profitable for a number of decades now, this has slowed down in recent years due to restricted liquidity, affordability and changes to tax measures, which will mean higher tax payments in the next two years.

Of course, while all investments carry some degree of risk, investment into PBSA will remain a clever choice for investors, if they recognise the importance of managing developments proactively. While location is important when it comes to developments, building with students front of mind should be the number one priority. At CityBlock, we spend a lot of time investing in feedback from our students on what they value when it comes to accommodation, and equally, what they don’t. Only by doing this can we ensure that our properties are fully let each year.  

It’s no longer conducive for developers to build a property and wait for the rent to roll in; it needs to be approached in a much more sustainable way. It’s not enough to offer students plush facilities – welfare is becoming increasingly important, so accommodation providers must be equipped to provide the support, facilities and experiences students need to have a happy and healthy time while at university. Investors should look to partner with a developer that holds a similar vision and values to them to ensure the partnership runs smoothly.

Having 16 years of experience in developing and managing PBSA, we like to think we have a good eye for these trends. We can confidently say we expect to see another growth period in PBSA and would encourage anyone with a stake in property to consider the possible financial gains from investing in this type of accommodation.  

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