How Co-Living Can Increase Rental Yields

With UK landlords facing challenges such as increased stamp duty surcharges for buying second homes plus further potential costs expected when the Renters’ Rights Bill comes into force, some are considering leaving the property business behind.

However, many other landlords are assessing their options and looking at ways to adapt their property strategy. For example, some are exploring the idea of moving to HMO rentals and another option is offering co-living rental properties.

There has been a long-standing housing shortage in the UK with backlogs in housebuilding, a waiting list of over 1 million for social housing and a decrease in available rental properties over the last five years.

For landlords, there is an opportunity to help provide a solution to the housing crisis, while potentially generating higher rental income by letting out co-living properties instead of one-household properties.

From a tenant’s perspective, average rents in the UK have been increasing year-on-year, with a recorded average increase of 7.7% in the 12 months leading up to March 2025. With the cost of living crisis to contend with, including increased energy and food bills, plus council tax hikes, many people can’t simply afford to rent a property.

How more co-living properties could help people in Somerset

In Somerset, the average salary in 2024 was £34,112, lower than the UK average of £37,430 (data from the Office of National Statistics). The average monthly rent in Somerset is £948, so for many people, the cost of rent, bills, food and transport is unaffordable. For single people and co-living couples on lower incomes, renting a room in a co-living property offers a more affordable option.

What are co-living properties?

Co-living properties are similar to HMOs, where there are multiple occupants of a property. The key differences are that HMOs tend to be more segregated with less communal spaces and co-living properties tend to be more modern.

Typically, co-living rentals offer a higher spec of facilities than HMOs and may only have 2 or 3 tenants forming separate households, whereas HMOs are usually accommodating 5 or more tenants.

Rent prices are usually a bit more expensive in co-living properties compared to HMOs but are considerably cheaper than renting an entire house. Co-living is designed for community living and is popular with young professionals who enjoy sharing social spaces with other tenants.

What are the regulations for co-living rentals?

The regulations for co-living properties will depend on whether the property is defined as an HMO. Under Somerset Council, an HMO licence is required for properties occupied by 5 or more people from more than one household.

Some councils require an additional HMO licence for properties with 3 or 4 occupants forming separate households, but this is not currently a requirement for Somerset.

For landlords of HMOs, there are some additional safety responsibilities compared to standard rental properties, including provision of fire safety equipment and minimum room sizes. You can check the Somerset Council website for details on requirements and to see the current fees and application process.

How landlords can generate higher income from co-living properties

The starting point for landlords considering renting out co-living spaces to tenants is to ensure that the property is suitable. The bedroom sizes will need to meet the minimum size requirements and there should be at least one bathroom per 3 tenants. There should also be adequate space for shared areas such as the kitchen, dining and living room.

If a landlord rents 3 bedrooms out under a co-living arrangement, a landlord could charge in the region of £500 to £700 pcm per room, generating £1,500 to £2,100 in rent each month. This would be considerably more than the average rent for a single house at around £950 pcm. Obviously, if there is space for 4 rooms, the rental income would be even higher, and you can choose whether to include bills in the rental, but it is more common to do so.

If you are considering the idea of renting out a co-living property, we can help. We offer a fully managed letting service and have many years of experience managing property rentals in Somerset and surrounding areas.

Please get in touch if you would like to find out more.