Councils, not ministers, should decide whether to restrict the number of student-occupied flats in any single area, the government has said.
Laws passed in April required landlords to get permission to let a property to three or more unrelated people.
It was aimed at tackling concerns about the growth of "student ghettos".
Housing minister Grant Shapps said the rules threatened supply of rented flats and councils knew best if student numbers lead to wider social problems.
Under revised plans, councils will be given discretion to decide if landlords need to secure approval for multiple occupancy lets.
Mr Shapps said the current laws increased costs for landlords and created unnecessary red tape - with an estimated 8,500 landlord applications for houses of multiple occupations (HMOs) this year.
He said problems stemming from HMOs - which critics say lead to higher levels of anti-social behaviour and crime - were not "widespread" and councils were best placed to deal with them.
"Councils know about local issues with shared homes and don't need top-down rules from Whitehall to deal with problems that don't exist," he said.
"Where too many shared homes are causing problems for other residents or changing the character of a neighbourhood, councils should be able to control their spread.
"But I am not going to create unnecessary costs for landlords, which puts the supply of rented homes at risk."