If anyone tells you that the laws of supply and demand don’t apply to property, be very careful to analyse their motivation! Whilst property prices are much more linked to the supply of mortgage lending rather than the supply of properties, when it comes to rental availability there is a clear correlation between supply and demand.  In any market place, where there is an over-supply of product there will be an impact on the strategies used to sell that product. This might result in lowered prices, or better deals, or an improvement in quality. HMO rooms are no exception to this rule. If you are investing in HMOs you might have seen some changes to local supply. The fact is that in some areas of the UK there are more rooms than demand at present, and landlords are struggling to fill their HMOs. Why is this?

1. The first reason is that investors have realised that the only way to maximise their portfolio income has been to invest in HMOs a) to counteract the pernicious new tax laws that are being introduced b) to benefit from higher monthly cashflow c) to leverage commercial finance and d) to protect against potential voids. With access to better information, training and support, more and more investors are recognising the power of HMOs for long term wealth and immediate profits.
2. Secondly, the introduction of stamp duty on second properties over the price of £40,000 has meant that smaller, single buy to let properties are proportionately more expensive to buy. Coupled with the minimum mortgage or purchase price requirement from lenders where investors are investing via a limited company has lessened the appetite for cheaper properties, and increased the need for a higher return linked to a higher purchase price. HMOs make the perfect foil to these prerequisites.
3. Brexit and immigration. Certain parts of the UK have already felt the negative effects of Brexit, with many Eastern Europeans migrating back to their home countries. According to Migration Watch UK ‘Although we have seen a fall in net migration of EU8 citizens there have been continued increases in immigration from Romania and Bulgaria, so it is too early to say what effect the referendum result has had on long-term international migration’. In other parts of the UK there is a growing immigrant population. Predictions are that immigration will stay steady in terms of net figures, but that certain immigrant communities may change substantially in terms of culture and mix.
4. Student housing impacts. In many traditional University towns, an enterprising landlord could make a good living from students renting rooms in the locality. Recently there has been an explosion of high quality, contemporary purpose-built student accommodation wiping out the demand for individual HMO housing, necessitating a shift in market offering from landlords still wanting a profitable return. In many instances, they have adapted and upgraded their HMOs to attract the professional market, and this has in turn impacted the current professional HMO stock.  

These factors have created excess provision in some areas especially where investors have failed to understand the forces at work in the local economy and the necessity to adapt and change to the marketplace. So what can an investor do who is facing competition and wants to resist the lure of price reductions just to fill rooms?

1. Ensure that you are creating a product that not only offers great value but also has a niche offering. Whether you offer personal service with a smile, have wonderfully designed interiors, or make HMOs great communities, you need to identify what it is you are good at and tell your market place about it. In this day and age, unique and niche brands get people talking and sharing, and your HMO business is no exception.
2. Tell everyone what you do. Use social media like Instagram, Facebook and Pinterest to share your message and learn how to create advertising copy that sells your rooms (linked to the ideas above).
3. Work with local businesses and estate agents to create win-win referral deals that benefit them too. Incentivise your tenants to give you referrals and ensure you get plenty of feedback that you either act upon or share!
4. Respond fast and flexibly. If you cannot respond to a viewing or request quickly, in a competitive market place you will probably wait much longer to fill your rooms.
5. If you are unsure about consistent supply of tenants, always have a plan B. What else might you do with an HMO that you just can’t fill? Might this present another opportunity that you have missed?

The ebb and flow of supply and demand in HMO rooms is constantly shifting. As investors we not only have to adapt to survive but also to thrive. In this changing landscape of rooms and provision, the creative, savvy and determined investor has the edge. Make sure you’re one of them!