Why restricting HMOs could make the UK’s rental supply crisis worse

There’s no shortage of discussion about how we solve the UK’s rental supply crisis. We need more homes, landlords need to keep investing, and renters need access to properties they can actually afford.

At the same time, one of the most important sources of rental accommodation is facing increasing restrictions.

Houses of multiple occupation (HMOs) are becoming harder to create in many parts of the country, with councils using planning powers, Article 4 Directions and additional licensing schemes to control their growth. Article 4 Directions can remove permitted development rights for certain HMO conversions, meaning landlords may need to apply for planning permission, while additional licensing schemes can require smaller HMOs that fall outside the national mandatory licensing rules to obtain a licence.

There are good reasons for regulating HMOs. Poorly managed properties, overcrowding and poor housing standards should not be tolerated. But if we take a step back, there is a bigger question we need to ask: what happens when we restrict a form of housing at exactly the point when rental supply is already under pressure?

We can already see what this looks like in practice. In June, Harrow Council introduced a borough-wide Article 4 Direction covering smaller HMOs. Just weeks later, the council refused an application to increase an existing five-bedroom HMO in Harrow Weald to six bedrooms, after concluding that the proposal fell within the scope of the new direction and could no longer be treated as permitted development.

Councils may take this action, but the demand doesn’t disappear.

The supply problem is getting harder to ignore

The latest figures from Zoopla’s Rental Market Report show just how competitive the rental market remains. Rental stock is 3% lower than a year ago, while the number of new homes coming onto the market has fallen by 6%. There are now more than five enquiries for every available rental property, and Zoopla expects rents to rise by 4-5% by the end of 2026.

That tells us something important. The pressure on renters is not simply about the cost of individual properties. It is also about how many properties are available in the first place.

Yet landlords are being asked to operate in an increasingly complicated environment. Mortgage costs and operating expenses remain significant, while the regulatory framework around the private rented sector continues to change.

The Renters’ Rights Act has already brought major changes to how private tenancies operate. From May 2026, Section 21 ‘no-fault’ evictions were abolished and assured shorthold tenancies moved to a new system of assured periodic tenancies, meaning most private tenancies now run on a rolling basis rather than having a fixed end date.

For HMO landlords, these changes sit alongside the existing responsibilities of managing shared properties and meeting licensing and safety requirements. The next phase will also introduce a new Private Rented Sector Database – effectively a national register of landlords and rental properties in England – with landlords required to register each rental property and provide information about it. Registration will cost £65 per property per year, adding another cost and compliance requirement for landlords alongside existing licensing and safety obligations.

None of these measures are inherently unreasonable. The issue is the cumulative effect.

Landlords don’t experience regulation individually. They experience all of it at once.

For some, the additional cost, administration and uncertainty may simply make property investment less attractive. If that leads HMO landlords to sell or reduce the number of people willing to invest in new rental properties, it matters because the supply of homes is already under pressure.

HMOs are part of the solution

HMOs are sometimes discussed as though they are primarily a problem to be managed. But for a significant number of renters, shared accommodation is an important part of the housing market.

For someone who cannot afford to rent an entire property alone, an HMO can provide access to a home at a lower individual cost. But shared living is not just for students or younger renters. In COHO’s 2025 State of Shared Living report, 24.5% of respondents were aged 30-39.

There is also a social benefit. Nearly half of those surveyed described shared homes as a sociable way to live, helping people meet others, share everyday experiences and avoid the isolation that can come with living alone.

That doesn’t mean every HMO is a good one. Poor management can have a real impact on tenants and local communities, and councils need the powers to deal with properties that fall below acceptable standards.

But there is an important difference between regulating poor-quality HMOs and making it harder to create good ones.

That distinction matters.

If the answer to concerns about poor HMOs is simply to restrict the overall number of HMOs in an area, there is a risk that responsible landlords are caught by the same restrictions as those who are failing to meet the required standards.

The squeeze on HMO supply

There are already signs that the planning environment around HMOs is becoming more restrictive.

Research from PlanningLens, covering 144 English councils, found that the number of HMO applications decided increased from 1,848 in 2021 to 3,454 in 2025. Over the same period, the number of applications refused more than doubled, from 590 to 1,203, while the approval rate fell from 68.1% to 65.2%.

That doesn’t mean councils are simply refusing twice as many applications, as more applications were being decided overall. But it does point to a tightening planning environment for HMOs, with the proportion of applications being refused increasing over the period. Councils using Article 4 Directions is an important part of this problem.

People still need somewhere to live. If fewer HMOs are available, that demand just moves elsewhere, potentially towards an already stretched supply of other rental properties.

Regulation should improve the market, not shrink it

The answer isn’t less regulation. It’s better regulation.

We should want a private rented sector where HMOs are safe, well maintained and professionally managed. Where landlords who consistently fail to meet those standards face meaningful enforcement. And where tenants have confidence in the properties they are renting.

Technology can also play a role here. Good property management systems can help landlords keep on top of maintenance, compliance, communication and tenant relationships, making it easier to demonstrate that properties are being managed properly.

Professionalisation should not simply mean more paperwork. It should mean better outcomes.

That also means thinking carefully about where regulation is targeted. Councils should have the tools to act against overcrowding, poor management and persistent breaches, but responsible landlords who are meeting the rules should not necessarily face the same barriers as those who are not.

There is a difference between raising standards and restricting supply.

So where does this leave us?

The choice should not be between regulation and rental supply. We need both.

We need strong standards, proper enforcement and professional landlords. But we also need enough homes for people to rent.

At a time when rental supply is already falling and competition for available properties remains high, any policy that makes it harder to provide accommodation deserves careful consideration.

HMOs are not the whole answer to the UK’s housing shortage. But they are part of the rental supply, and for many people they provide an important and relatively affordable option.

The focus should therefore be on creating more good HMOs, rather than simply creating fewer HMOs.

The real test of housing policy isn’t simply how effectively we can restrict bad landlords. It is whether we can raise standards while still creating enough homes for the people who need them.

That’s the balance we need to get right.