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How To Create A Portsmouth HMO

SuperHMO

 With Portsmouth creating a self-induced homelessness crisis and threatening to remove over 1,000 HMO rooms (see our HMO Standards article) and demand for shared accommodation higher than it has ever been, we are predicting HMO median rents to rise 45%. (See our 'Economics of HMO's' paper for full explanation).

The trouble is, if you want to cash in on this you will find it hard to create an HMO which meets the city's rules – so this article explains 4 simple ways to completely legally create an HMO to ensure you can benefit from this growing market.

Solution 1 – Buy a house in Portchester

By Matthew Folley from UK - Portchester Castle, CC BY 2.0, 

It sounds daft, but if you buy a house in Cosham you will need planning permission to turn it into an HMO which you will only get if the local HMO density is less than 10% and you can convince the planning committee that you have parking, cycle storage, rubbish storage, copious space, washing machines well away from sleeping quarters and a multitude of other petty concerns plus you will need to meet Portsmouth's stringent space and amenity standards which are getting much, much tougher (see our analysis of that here (document 2 again)).

We have previously explained why a 3 or 4 bed HMO in the city is not viable (details here) – so your Cosham house will either need to be large or you will need to enlarge it.

If you want to save £150,000 on the total cost of setup, buy a house 100m away in Portchester.

There you can do what you like – there is no 10% density rule so you can have as many HMO's as you like in a road, there are no ridiculous space or amenity standards so you don't need to spend thousands removing showers or parts of kitchens to bring the property into line with Portsmouth's fairly prescriptive interpretation of how people must live, there are no communal space requirements so it is up to you and your prospective tenants how the property is laid out and used.

You are probably saying there are no rules on HMO's in Portchester and there are very few there due to the low demand. Historically that is true, but if our prediction that Portsmouth will lose over 1,000 rooms in the next 18 months is accurate and that median rents will rise 45%, then anyone offering rooms in shared homes in Portchester at something in line with our predicted increase in small HMO rent levels is going to have their arm bitten off by prospective tenants.

Being a landlord is a long game and you have to plan for the market as you see it in 3-5 years' time, not as it is today. 

Solution 2 – Buy a small Southsea HMO and create a Super HMO

This is probably the simplest and most reliable solution and the one already taken by many developers as it is the only way to meet all the current Portsmouth rules and cannot be stopped by local regulators as it can be done while conforming to all of the local restrictions.

First, you need to buy a small 3-5 bed Southsea HMO. Fortunately with fuel bills, the threat of Additional Licensing and the high level of rent available as a family let, there are going to be many more of these available (See our 'Economics of HMO's' paper for full explanation).

Next you need to plan to spend £150,000 extending the property up and back using 'permitted development rights' to get the maximum occupancy of the highest standard allowed in the footprint available. What you should end up with is a property with very low utility bills due to the high level of insulation and maximum rents for near twice as many rooms as the property you started with. (A typical 3 bed terrace being let as a 4 bed HMO can often be extended to 8 rooms - see the picture at the top of this article).

As detailed in our 'Economics of HMO's' analysis, you can expect to go from £400-500 per room (£1600-£2000 per month from the house) to £600-700 per room for twice as many rooms (so let's say £5,000/month) – this is before factoring in the predicted 10% increase in rents due to the supply issues Portsmouth's new regulations will create.

This gives you a 5 year pay-back on the extra investment which can be shortened by releasing some of the increase in equity value and using that to purchase your next small HMO ready for conversion.

Solution 3 – Thank Michael Gove

This one is counter-intuitive but what you need to do is buy a non-HMO in an area that already has lots of HMO's, say in Hudson or Montgomerie Road in Southsea.

You should be able to get a family house in this area for 15-20% less than a similar property elsewhere in Southsea as it is surrounded by HMO's and thus not seen as 'ideal' for a family purchaser.

The 'secret sauce' here are Michael Gove's proposed changes to the Planning rules announced in the Queens Speech. The Minister, in an interview with the Sunday Telegraph, confirmed the new levelling up bill will include a proposal for 'street votes' aimed at ensuring local support for 'gentle densification' of housing.

Gove said: "We will make sure that through local democratic ballots, sometimes street by street, we can have the enhancement that we need to see the additional homes being built. In a way that leads to what the experts call 'gentle densification', but what you or I would just recognise as simply building in tune with what's already there"

So having bought your 3 bed family home, you talk to the HMO landlords in the street and collectively you have a street vote to allow the 'trapped' family homes to be converted to HMO's and hey presto, problem solved. You get a dirt cheap HMO and local planners can only rubber stamp its creation.

Solution 4 – Get The Rules Changed

This is probably the most sensible approach for landlords, for councillors and council staff and most importantly for the residents of the city. Sadly though, it is probably the least likely to succeed.

In Leeds, Lambeth and elsewhere, there is a more nuanced approach to HMO's. Instead of blanket density limits (like Portsmouths 'no more than 10% within 50m of the front doorstep') which are hard to enforce and always end up in debates about what is in and what is out, what is an HMO and what isn't, other places have identified areas which are not ideal for families and stated that these are areas where HMOs should be encouraged and elsewhere, if a family home is trapped between HMOs and does not sell within a certain time, then it can override local rules and be converted to an HMO. Thus Portsmouth might deem Commercial Road or Kingston Rd unsuited to families due to the lack of parking, the traffic, noise and fumes and designate instead, that the preferred housing here should be HMO's whereas there are probably other roads where something akin to the 10% maximum to ensure mixed and balanced communities.

Looking at the Leeds example, they are not prescriptive on communal space or amenities – they simply state that should an HMO cease to be an HMO, then its layout and configuration should be suitable for family use without major alteration. Such a rule would probably allow local councillors to rule out 'super HMOs' which they so despise without impacting or restricting the local housing market in the way that current rules do.

As stated, this option offers the best solution for everyone in the city, but sadly, if we were to offer odds – this would be the option with the longest odds of success as local councillors appear to turn a blind eye to the needs of so many people within the city who need a home but for whatever reason, cannot afford or do not want a house.

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