According to Google, this functionality is no longer available unless you enable group MMS. Unfortunately, MMSs are much more expensive for me and aren't displayed correctly on some older feature phones.
Once again, Google doesn't care about non-Google communication protocols, possibly in an attempt to force people onto Google products or out of sheer ignorance. They did the same with the mail client in Kitkat which is unusable to me because of severe IMAP bugs, so I switched to K9. Seems like I have to find an alternative SMS app as well.
Edit: Google now offers an SMS app called Messenger (yeah, like the Facebook app) that supports group SMS. It looks similar to Textra which I used before, but now this is my default SMS app.
Edit: This feature has been reintroduced in Hangouts version 3.