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The outlook for houses of multiple occupation

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Just as we thought the UK economy was about to recover from the COVID pandemic, 2022 arrived bringing us the Ukraine war and rocketing energy prices with the price cap now over 70 per cent higher than it was two years ago.

During the same period, petrol/diesel prices have increased in price by 48 per cent. Adding to the pinch of purses, average rents in the South West have increased by 9.5 per cent year on year, which is above the national average of 8.3 per cent. Annual pay growth of 5.4 per cent (ONS) is doing little to counter these increases. It’s no wonder that the Resolution Foundation is warning that we are now seeing the greatest fall in net disposable incomes in nearly 50 years.

Against this gloomy outlook, how will residential investment property fare?

The increase of the provision of House of Multiple Occupation (HMOs) over the last ten years has seen a trend for single adults and couples to remain in shared accommodation longer. Large portfolio landlords saw a healthy growth in values overall in 2021 but the value of one bedroom accommodation has decreased. Single people are not finding the cost of living alone attractive and buying alone is impossible for many. Couples are remaining in rented accommodation longer and then, with the leverage of two incomes, are leap-frogging smaller flats in favour buying two or three bedroomed houses.

Demand for homes remains strong but with squeezed net disposable income, lower loan to value ratios for mortgages and rising interest rates, it remains to be seen if house prices merely level off or if the five per cent downward adjustment forecast by Capital Economics will be proved right. Similarly there may be little scope for rents to increase, but the value of flats and houses will remain dictated by owner-occupier demand.

However, whilst future demand for HMO accommodation appears to be sustained, net rental income returns are starting to vary considerably. Whilst being in a HMO with one bathroom between three occupiers may be acceptable for many students, the thrust of demand is for en-suite accommodation from young professionals, and providers in this sub-sector are seeing better returns than those providing poorer quality accommodation. Good, virtually self-contained, HMO accommodation can now command comparable rent to one bedroomed flats. The opportunity for such landlords, is separate electricity metering for such accommodation whilst the shared HMO landlord is stuck with "bills included" rents.

Energy is at the heart of issues facing HMO landlords.

HMO developer/investors have tended to snap up older, cheaper, housing stock with the potential of greater investment returns. Conversion costs for HMOs have frequently been within the context of significant repairs and improvements being necessary anyway, therefore purchase prices have been low. In many conversions, however, the only attention to energy efficiency has been to ensure that Energy Performance Certificate (EPC) Band E was achieved.

As reported in the Colliers blog “Will a new home solve the household energy crisis?”, the median EPC for properties built pre-1900 falls within E, 1900-1982 falls within D and 1983 to 2011 falls within C. Given the premium paid for new build properties, HMO investors tend not to purchase these properties, despite having a median energy efficiency score falling within band B.

Blog Will a new home solve the household energy crisis 1

Co-living, on the other hand, is more akin to student accommodation, with greater shared amenity space for co-working, games rooms, dining rooms, launderettes, and arranged regular events. This provides a great opportunity for people moving to a new city or who want to live in an established community. Tenancies can be from three months, but many tenants stay for one or two years.

Both BTR and Co-living give developers an opportunity to provide accommodation which is fit for purpose and alleviates the pressure on traditional housing stock. Often built as towers or high rise buildings, both options can occupy development sites which might otherwise be used for offices, student accommodation or hotels. Developers of such schemes seek city centre locations, close to transport links, as evidenced by Temple Place in Redcliff Quarter, Hawkins & George at Finzels Reach and Castle Park View, all schemes within the heart of Bristol.

In June 2019, the UK Government committed the UK to reduce its greenhouse gas emissions to net zero by 2050 – a very ambitious target, especially given the EPC performance of the UK’s housing stock. According to the ONS, as at September 2020, the median energy efficiency of the private rented sector for both houses and flats was D.

The Minimum Energy Performance Bill, which has government support, awaits its second reading in the House of Commons. This Bill proposes ambitious energy saving measures including a requirement that all new tenancies of private rented property must have an EPC rating of at least C by December 2025.

Whilst ‘bills included’ tenants have been focussed on location and historically have paid little or no attention to the energy efficiency of HMOs, increased pressure will come when landlords seek to pass on energy costs. 

The value of rental property with C EPC ratings are already attracting a ‘green premium’ as is being seen with commercial property generally. Climate/energy aware Millennials and Gen-Z tenants are likely to become increasingly more discerning by preferring to rent low energy accommodation, even if ‘bills included’ tenants are cushioned against high energy costs by landlords absorbing extra costs.

The inevitability of mandatory low energy ratings and tenant push-back against higher ‘bills included’ rents mean that values of EPC Band D and E properties is already being depressed. Upgrading to C is essential to retain capital value... and the sooner the better.

This article originally featured in our Bristol Spotlight 2022.

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About the author

Deborah Bryant-Pearson is an associate director in our Valuation & Advisory Services team and undertakes a range of valuation work from secured lending and accounts valuations, to providing local authority annual asset valuations and valuing assets on a cash flow basis. Whilst she undertakes valuation of core commercial assets, she has a particular interest in residential investment asset valuation, be it PBSA, HMOs, PRS or BtR.

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Debs Bryant-Pearson

Associate Director

Valuation and Advisory Services


I started my career at JLL and upon qualification I worked within the Industrial and Logistics Team, becoming the Trade Counter specialist for the south west.  I then  transferred to the Student Housing Valuation Team where my role included valuing exisiting schemes as well as development schemes across the UK and Ireland. 

In 2020, I moved to Avison Young to the commercial valuation team where I specalised in undertaking local authority annual asset valuations.

In August 2020 I joined Colliers in the Valuation team in Bristol as an Associate Director, working alongside Gemma Daly-Gunn.  

My experience has lead me to relish the challenge of valuing complex properties or scenarios, seeking the best  solution to determine value.  I undertake a range of valuation work from secured lending and accounts valuations, to providing Local Authority annual asset valuations using DRC metholodgy where required, and valuing assets on a cash flow basis.  Whilst I undertake valuation of core commercial assets, I have a particular interest in residential investment asset valuation, be it PBSA, HMOs, PRS or BtR.

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