Housing Allowance Change Will Create New Trend

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In another round of changes to HMO ( House Of Multiple Occupation) rules there are new things happening to the “shared room rate allowance.”

The New Rules

The change is coming next year. The current allowance only applies to singletons who are under 25 years old. If you are not aware of the rules, basically it limits them to receive benefits that only cover the cost of a room in shared accommodation. The change concerns the age range of up to 35 years old that this rule will now apply to. On the surface this looks like they are helping more people by allowing the age group to be higher, but in practice it could mean big drops in housing allowance for thousands more single people across a much broader age range.

To be clear, we are talking about non self contained accommodation only, where the tenant shares all facilities such as a bathroom or kitchen with others. I am left wondering if this might also apply to lodgers too, for which nothing has yet been mentioned. There are current exemptions which will still apply after the change such as those in receipt of severe disability premium and some types of supported accommodation. It’s estimated that about 88,000 claimants will be affected, which will create a whole new investment market demand.

Homelessness Will Rise

Figures suggest that there are plenty of regions where this type of accommodation is not available at all and where studio or one bedroom homes are unaffordable to this age group. This can only mean that young people will be left facing possible homelessness.

Those effected by the new rules will have to find alternative accommodation as their benefit allowance drops. The logical conclusion is that there is likely to be a rush of demand for HMOs from people in the age bracket mentioned above. We do not have enough HMO’s in existence for a big rise in demand such as this.

Now, if we add this to the previous news about Selective Licensing which has local councils enforcing harsher planning regulations on the building and conversion of HMO properties, then we have a major problem about to occur. Much of this could lead to even more anti-social behaviour in HMO areas with private landlords dealing with the issues locally.

Entering The New Market

Renting to these types of tenants could be a very harsh game, but nevertheless is a valid new trend that is worth looking at as an investment. You would have to be careful of the mix of tenants allowed to live together in one property. Better to allow similar ages and backgrounds for greater harmony within the properties.

It’s very likely that more management issues will also arise on such properties, so the landlord will need to be more vigilant. I would think that experienced investors are better placed to handle this form of investment, particularly those with prior knowledge of benefit tenants.

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