HMO Planning Refusals Have Doubled: Why Smart Landlords Are Switching to Serviced Accommodation

The Numbers Are In, and They're Not Good for HMO Landlords

If you've been following the London property market closely, you may have already sensed the shift. But now the data confirms it: planning refusals for Houses in Multiple Occupation (HMOs) have more than doubled since 2021, according to recent reporting from Mortgage Strategy. Borough after borough is tightening the screws on HMO conversions and expansions, making a once-reliable investment model increasingly difficult to pursue.

What makes this particularly striking is the paradox sitting right at the centre of it. Landlords across London are still committing £10,000 or more to HMO improvements and conversions, pouring capital and energy into a model that local authorities are actively working to block. Meanwhile, falling mortgage rates and seemingly attractive headline yields continue to lure investors into the HMO pipeline.

So let's talk honestly about what's happening, what HMO landlords really need to know, and whether there's a smarter path forward for your property and your returns.

How the HMO Model Works (And Why It Attracted So Many Landlords)

The appeal of HMOs has always been straightforward. Instead of letting a property to a single household on one tenancy, you rent individual rooms to multiple tenants under separate agreements. A four-bedroom house that might generate £2,200 per month as a single let could bring in £3,600 or more as an HMO, with each tenant paying £900.

That room-by-room income model creates higher gross yields, often in the range of 8 to 12 percent in certain London postcodes. For investors focused purely on cash flow, HMOs looked like the clear winner for years.

But gross yield only tells part of the story.

The Real Costs Most Landlords Underestimate

Running a compliant HMO in London involves layers of cost and complexity that single lets simply don't carry:

• Licensing fees vary by borough but typically run between £500 and £1,500 per licence period, with renewals every five years.
• Fire safety upgrades including fire doors, alarm systems, and emergency lighting can easily cost £3,000 to £7,000 depending on the property.
• Planning permission is now required in many boroughs for conversion from C3 (dwelling house) to C4 (HMO) use, and as we've seen, refusal rates are climbing sharply.
• Room size regulations under the 2018 rules mean that any room below 6.51 square metres for a single adult is non-compliant, potentially requiring costly reconfiguration.
• Ongoing management is significantly more hands-on. More tenants means more turnover, more maintenance requests, more deposits to manage, and more disputes to resolve.

When you add it all up, that attractive 10 percent gross yield can shrink to 5 or 6 percent net, sometimes even less. And that's before factoring in void periods between tenants or the cost of a failed planning application.

The Planning Problem Is Getting Worse, Not Better

Here's where things get genuinely difficult for landlords who are mid-conversion or considering one. Many London boroughs have introduced Article 4 Directions, which remove permitted development rights for C3 to C4 conversions. This means you need full planning permission, and councils are saying no at record rates.

The doubling of refusals since 2021 isn't a blip. It reflects a policy direction. Councils are concerned about the impact of HMOs on local communities, parking pressures, waste management, and neighbourhood character. Some boroughs are even implementing HMO concentration thresholds, blocking new applications if more than 10 percent of properties in a given area are already HMOs.

For landlords who have already committed thousands of pounds to architectural plans, building work, or compliance upgrades, a planning refusal is devastating. You're left with a property that has been partially converted, capital tied up, and no clear route to the returns you were expecting.

At Airhosts, we speak with landlords in exactly this situation on a regular basis. The frustration is understandable, but it also opens the door to a conversation about alternatives.

There's a Model That Doesn't Require Planning Permission (And Pays Better)

Short-term lets and serviced accommodation in London operate under a completely different framework. Under the existing 90-night rule for entire properties (or with appropriate planning consent for dedicated short-term lets), landlords can generate significantly higher returns without the planning headaches that now define the HMO landscape.

Consider the comparison. A well-located two-bedroom flat in Zone 2 might achieve £1,800 per month on a long-term tenancy, or perhaps £2,400 if converted to an HMO with a box room added. That same property, professionally managed as a serviced accommodation unit, can generate £3,500 to £5,000 per month depending on location, seasonality, and how well it's optimised.

Why Serviced Accommodation Outperforms

The economics are compelling for several reasons:

• Nightly rates capture the premium that business travellers, relocators, and tourists are willing to pay for flexibility and quality.
• No licensing maze to navigate, no HMO-specific fire safety retrofit, and no room size regulations to worry about.
• Professional furnishing and staging typically costs less than HMO compliance work while adding genuine value to the property.
• Dynamic pricing allows rates to flex with demand, capturing peak-season surges that fixed rents simply cannot.
• Wear and tear is actually more manageable with professional housekeeping between guests, compared to the gradual deterioration that multi-tenant properties often experience.

The catch, of course, is that serviced accommodation requires active, expert management. Listing optimisation, guest communications, pricing strategy, cleaning coordination, and review management all need to be handled consistently and professionally. This is exactly where a specialist management company makes the difference between strong returns and a stressful side project.

Why London Landlords Are Choosing Airhosts

At Airhosts, we manage the entire serviced accommodation process for London landlords, from listing creation and professional photography through to guest vetting, 24/7 communication, dynamic pricing, and housekeeping coordination. Our clients enjoy genuinely hands-off income while their properties consistently outperform both single lets and HMOs on a net yield basis.

The contrast with HMO ownership could not be sharper. Instead of battling planning committees, chasing licensing renewals, managing five separate tenants, and absorbing compliance costs, our landlords receive a single monthly statement showing their earnings, occupancy rates, and property performance.

We handle everything. You keep the returns.

The Window Is Open, But It Won't Stay Open Forever

London's short-term let market continues to offer exceptional returns for well-managed properties, particularly as international travel demand remains strong and corporate relocation activity picks up heading into the autumn. The regulatory environment for serviced accommodation is far more stable and navigable than the increasingly hostile landscape facing HMO landlords.

If you're a London landlord sitting on a property that's underperforming as a long-term let, or if you've been considering an HMO conversion and the planning outlook has given you pause, now is the time to explore what professional short-term let management could deliver for you.

Get in touch with Airhosts today for a free property assessment. We'll show you exactly what your property could earn, with zero hassle and zero guesswork. Your property deserves to work harder for you, and we know how to make that happen.