A call to convert 66,000 student HMO’s back to family homes?

by Mary Latham

22:19 PM, 26th August 2013
About 6 years ago

A call to convert 66,000 student HMO’s back to family homes?

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A call to convert 66,000 student HMO’s back to family homes?

I have been having a catch up on my on-line reading over this weekend and I have just come across an article which, in my opinion is very ill-informed. A call to convert 66,000 student HMO's back to family homes

Housing supply in many UK cities is being restricted by the conversion of family housing to student lets and local tenants are being prices out, according to new research. International real estate adviser Savills estimates that 66,000 properties or Houses of Multiple Occupation (HMO) now occupied by students could be freed up for conventional family housing through the delivery of more purpose built student accommodation”

The first thing that I would say is that only students want to live near students and the last place I would want to bring up my family is in an area that is highly populated by students.  I love my students tenants but they do not keep regular hours and often return late at night in a happy and noisy mood. There are other issues too but I won’t go into those, most of us who let to students will know what I mean.

For me, the most important point that has been missed is that the cost of converting a family home into a student HMO is colossal and this, coupled with the purchase prices in popular areas, means that landlords have invested a massive amount of money in their properties – will families really want to pay the prices that would cover this investment and also convert the property back to a family home?

In my book “Will You Survive the Mayhem”, I talk about the future of the student market where student numbers are reducing in many areas and there is an oversupply. I have given my predictions of the future of the market and I have warned landlords that we may need a plan “B”.  Plan “B” must, however, take into account that many landlords have big debts on their properties and could not afford to use them for family lets because of the reduced income. There are other markets for which these properties could be used which are realistic and would help to increase supply but Savills are dreaming if they really think that building more purpose built student accommodation is the answer to the shortage of family homes.  They have also overlooked the fact that students can’t wait to get out of “institutional” accommodation and share little houses, at least for their middle year, and there are many empty rooms in purpose build student accommodation in areas where the student population has receded since the increase in University fees.

The article goes on to say

The result is a double whammy for local non student tenants and aspiring home owners. Not only do students price other tenants out of many family housing areas in major UK towns and cities, credit conditions post downturn have favoured landlord investors rather than less equity rich potential owner occupier buyers. ‘Local council coffers would also gain. We calculate that reinstating these student HMOs to homes for non student residents would boost council tax returns by around £1.5 million per town or city, since student only houses are council tax exempt,’ said Savills research analyst, Neal Hudson.”

All local authorities get increased Government funding to cover the cost of Council Tax exemptions for students, the local authority would not be better off if these properties were converted back to family homes, they would in fact be worse off because they would lose the additional “automatic” income and would have to recover it from the families who live there.

The one statement I do agree with in this article is this

“Article 4 of the Town and Country Planning Act proposes restricting new HMO supply which could push students and associated landlord demand into smaller properties, pricing out other occupier and tenant groups.”

I also talked about this in my book because Article 4 Directions are ill-conceived and, in my opinion, will soon sigh and die.

Finally the article says

“For the institutional investor in student housing the UK market offers a mature, counter cyclical investment opportunity”.

Wrong again, I have given a lot of evidence in my book that shows how the student market will continue to recede in all but the Red Brick university areas, many of those are already building campi in the most popular sending countries, and many investors will catch a cold by investing in purpose built student blocks in the next few years.

I am struggling to understand why investors are not being encouraged to put their cash into funds to build more family homes, since we all agree that this is an area of increasing demand and it is very unlikely that the demand will do anything other than grow year on year?

Am I missing something, do Savills know something that I don’t know?

Follow me on Twitter @landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337



Comments

Vanessa Warwick

9:26 AM, 27th August 2013
About 6 years ago

Hi Mary,

I largely agree with you here.

In fact, what Savills say is already happening in Leeds.

Traditional student areas are now in decline as many students have moved into the city centre. This has freed up houses, but do families want to live there?

This local Leeds lettings agent explains the change in the student landscape in Leeds:

http://www.propertytribes.com/pt-tv-changes-lettings-scene-leeds-t-6726.html

Also, it is worth mentioning that many students stay around the area where they were educated, becoming the first time buyers of the future. 🙂

Neil Patterson

10:30 AM, 27th August 2013
About 6 years ago

People need to Stop thinking they can force individual changes on the housing market.

Up until the credit crunch and even mostly now, Housing is one of the most mature markets in the country. What I mean by that is it is governed almost purely by the laws of supply and demand.

Just let this very simple economic model sort out the issue as it is the most efficient method yet devised.

If there is less demand for student houses prices will drop and then so will supply. If there is then more demand for family homes the prices will be higher than for students so supply will increase.

I can only see that forcing the market will be a costly exercise that will not be sustainable long term as you can't buck market forces forever.

Mark Crampton Smith

17:53 PM, 27th August 2013
About 6 years ago

An intelligent set of responses to an unusually poorly researched and generalised Savills spotlight report.  I share your concern about the increase in income for local authorities by charging council tax....... not only is exempt student CT recoverable but in some areas (Oxford for example) the additional income from licensing of HMOs is running at over £1m per annum.  They have failed in their research to take any cognisance of where students actually want to live. of our 170 student HMOs 60% are let to Oxford University students who could live in (halls) but would rather have a year out of halls. We are predicting that some of the purpose built accommodation in Oxford will have to be let to language students in order to maintain occupancy rates;  the S106  agreements in Oxford have made it attractive for student accommodation so developers have gone that way even in the most unlikely of locations.  Now however the CIL has meant that build costs and quality have been impacted and the HMO stock is an even more attractive alternative for students.

If I was being really cynical I might suggest that Savills are routing some of their institutional overseas investors into the purpose built student market through CRM (19000 beds through-out the UK) which they released some years ago through a management buy out.......perhaps they are on commission!?

Jay James

18:59 PM, 27th August 2013
About 6 years ago

Reply to the comment left by "Vanessa Warwick" at "27/08/2013 - 09:26":

aston university is in the centre of birmingham and seems to bear this out.  the university is building its own purpose built blocks and demolishing its cheaper accommodation. erdington is five miles away, and costs 40-75 ish pw, many Aston students stay there.  My guess a couple years ago was that erdington will suffer (or is that benefit from) from the loss of students renters.  Other developers are doing similar to the univerity by developing student rooms by the hundred immediatle around the uni.  Savills seem to want to point investors in this direction. on first read, i thought they must have a vested interest. after seeing the ccomments above, I think this even more.

Jay James

19:03 PM, 27th August 2013
About 6 years ago

Reply to the comment left by "Jay Jay" at "27/08/2013 - 18:59":

as to the accuracy of purpose built accommodation becoming the in thing, i'm not so sure.  if you charge 115 - 135 in birmingham when they are use to 40-75, there will come a point that students will just not pay so much. I also have a theory that universities are recognisng that they are very expensive for students. hence they may target the better off to become their customers. they will thus look abroad more, and those students may just go with whatever accommodation the universoty says is the in thing

Mary Latham

13:07 PM, 28th August 2013
About 6 years ago

Jay Jay Erdington has suffered more because of the loss of students form Birmingham City University than from Aston, BCU has pretty much become the university of local young people as it was in the days when it was a Poly., and landlords have really suffered.  Now that BCU is moving its main campus there will be more properties unlet and Aston students will have the pick of the bunch at very low rents - this will reduce the occupancy if the purpose built blocks where they already have voids this year.

As Mark Crampton Smith has said its all about where students WANT to live and also what they can afford to pay.

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337

Mary Latham

14:16 PM, 29th August 2013
About 6 years ago

'Prison-like' student housing wins Carbuncle Cup for worst building
UCL accommodation with windows facing on to walls reveals a wider problem with the standard of student housing

UCL's New Hall housing, 465 Caledonian Road, has been declared the worst building of 2013.
Cramped rooms with low ceilings and one small window facing directly on to a brick wall. If you crane your neck, you can just about see the outside world. It could be a description of the cells in Pentonville Prison, but these are the conditions enjoyed just down the road from the Victorian jail in a new student accommodation block for University College London – today announced as winner of the Carbuncle Cup by Building Designmagazine, for the worst building of the year
http://www.theguardian.com/artanddesign/2013/aug/29/carbuncle-cup-student-housing-ucl?utm_source=twitterfeed&utm_medium=twitter

Follow me on Twitter@landlordtweets

My book, where I warn about the storm clouds that are gathering for landlords is here >>> http://www.amazon.co.uk/dp/1484855337


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