Licensing Private Rented Homes – A Look At A New Report

A recent new report titled ‘Licensing Private Rented Homes, Insights and Experiences from Five London Boroughs’ looks at the ever-controversial issue of licensing in the PRS. In this article we will look at what the report says and aim to draw a few conclusions from it.

What is this report about?

The report looks at the operation of property licensing, including mandatory and additional HMO and selective licensing, using five London boroughs as case studies. It looks at the PRS in each borough, and at the different ways each local authority operates their licensing regime.

The report makes some recommendations on measures different stakeholders could take to help improve property licensing in the PRS.

Who published the report?

The report has been published by Safer Renting, a service delivered by Cambridge House – a social action charity. It was funded by the Trust for London.

The report was authored by Roz Spencer, Safer Renting’s Head of Service, and Dr. Julie Rugg, Reader in Social Policy in the School for Business and Society at the University of York.

Reasons for publishing the report

Karin Woodley, Chief Executive at Cambridge House, explains that the PRS is now larger than the social rented sector and houses more families with young children. She says that households renting privately are more likely to be living in homes that are non-compliant with the Decent Homes Standard (which pertains to the social sector).

Woodley expresses concern that there is as yet no national system (in England) for licensing privately rented homes. She also expresses concern that the Renters (Reform) Bill proposes only one significant change in this area – the introduction of a property portal requiring all private housing providers and their properties to be publicly registered. She believes this could be a ‘moment of peril’ for renters if it replaces the existing licensing regime.

The report says that since its establishment in 2004 (and its earliest adoption in London, in the borough of Newham, in 2013) property licensing has become increasingly accepted as the ‘go-to’ tool for London local authorities to regulate the PRS.

Methodology behind the report

This report focusses on the London boroughs of Camden, Ealing, Enfield, Waltham Forest and Westminster and uses them as case studies. It says that some of the reasons these five boroughs were chosen was to ‘capture diversity in demographics, geography, infrastructure, PRS size, property licensing history and approach, local politics, and council wealth.’

In each borough senior property licensing leaders were identified through Safer Renting’s London-wide professional network. Leaders were individually interviewed and questioned on a number of themes including the Department for Levelling Up, Housing and Communities’ (DLUHC) licensing scheme designation conditions; the experience and measurement of improvement; the experience of scheme renewal, and financial viability and sustainability.

For each borough the report collates data on the size of the PRS and what licensing schemes operate there plus enforcement regimes and activity levels. Also considered are the extent of engagement with landlords, inspection regimes, compliance rates and licensing fees. Additional further research and the findings of other, national studies was incorporated.

Some key findings from the report

• Where a local authority needs consent from the Secretary of State to bring in a licensing scheme (ie. selective schemes above the 20% threshold) the report suggests the process of seeking consent is unduly complex. Also, local authorities lack resources to collect the data that is needed to support an application for consent.

• There is a lack of comprehensive data on PRS numbers and property conditions to support the introduction of licensing regimes. For example, local authorities often do not know a property is a PRS property until a tenant makes a complaint about it.

• The law allows considerable local discretion on how licensing schemes are operated and enforced and this leads to disparity. This particularly relates to how often licensed properties are inspected. It says that the local authorities in their study use a ‘blend’ of different approaches.

• The report highlights that there are different types of non-compliance by landlords as regards licensing – ranging from unintentional ignorance to wilful non-compliance. It suggests this complicates the operation and enforcement of licensing.

• Licensing schemes are impacted by resource constraints, including financial and the availability of qualified/experienced officers.

• There are difficulties in measuring the success (or otherwise) of a licensing scheme. And this often has an impact on whether a selective licensing scheme can be renewed or not.

Other issues mentioned in the report included the difficulties of securing tenant engagement. It also mentioned legislative issues, eg. difficulties in defining HMOs, the applicability of Article 4 HMO directions and issues with exemptions from licensing, such as for short term lets. The ‘inadequacies’ of the Housing Health and Safety Rating System (HHSRS) are also mentioned.

Recommendations made by the report

The report makes a number of recommendations. It aims them at stakeholders including local authorities and government (especially departments responsible for housing and local government). Also the Tribunal Procedure Committee (which makes rules governing practice and procedure in the First-tier Tribunal and the Upper Tribunal where property cases are heard).

Local authorities should:

1. Consider making resources available for annual compliance inspections rather than the current five year default. (While still maintaining a risk-based system).

2. Allow for a 10 year period before expecting a comprehensive understanding of the local landlord population and before implementing the full range of enforcement measures.

3. Collaborate with other local authorities when acquiring IT systems to support licensing and enforcement.

Government should:

4. Allow licensing schemes to continue indefinitely unless there is evidence to suggest they are no longer needed. (Something of a reversal of the current system.)

5. Lengthen the minimum initial term of licensing schemes to 10 years to allow more time for them to be set up, outcomes assessed and costs recovered.

6. Provide extra funding to local authorities when introducing new schemes.

7. Reform the HHSRS to make it easier to understand and administer, and to give equal priority to long term health risks alongside immediate ones.

8. Make the minimum property standards for which enforcement powers and procedures in Part 1 of the Housing Act 2004 apply part of the core licence requirements of Parts 2 and 3. This would end the need for Part 1 notices and enforcement procedures to be followed in the case of licensable property whether or not it is licensed.

9. Clarify the definitions of a property licence so that in the case of Section 257 HMOs (broadly properties which have been converted into HMOs, with mixed ownership or control, and typically substandard) to determine who the responsible person is in law. Also allow licence types to be inter-operable when there is a minor change in use/occupation.

10. Remove the licensing exemption for short term lets and temporary accommodation.

11. Create a mandatory national database for PRS properties, owners and managers.

12. Develop a National Workforce Plan for the nationwide expansion of property licensing.

13. Give licensing good practice guidance to local authorities.

The Tribunal Procedure Committee should:

14. Amend First Tier Property Tribunal procedures to protect councils from landlords’ ‘frivolous and vexatious appeals’ to financial penalties.

The Ministry of Justice Sentencing Council should:

15. Introduce sentencing guidelines in the prosecution of licensing offences

Some thoughts on the report

Firstly as the title suggests and, although it does refer to some national research, this report is underpinned by the experiences of just five London boroughs. To a great extent that limits its relevance to a national audience – although it does collate some very useful information about these particular boroughs.

The report makes this clear but does say: ‘In examining the experience of local authorities in high housing stress areas and their challenges, the study shines a light on system change which is suggested, to create a robust regime that might work across the country.’

Many will want to consider how any argument for changes to national licensing policy can be underpinned by a fairly narrow geographical analysis. Of course, it probably wasn’t feasible to study all 317 local authority areas in England. But perhaps a broader sample would have helped to illustrate the national situation better.

The licensing situation is likely to be (in fact is) very different in other parts of the country. Indeed, despite their proliferation in recent years many places appear to manage without additional HMO licensing or selective licensing at all.

Of relevance here is this: London has the largest PRS market in the country by far – just over 30% of households compared to 19% nationally – as the report itself points out. The report also says that one thing these areas have in common is that they have pressured markets, ie. demand for rented property is high but supply is limited. Therefore landlords may be able to secure high rents for poor quality accommodation. The report also says that it is concerned with HMOs that serve the lower end of the market. So perhaps an approach which, whilst pursuing worst case scenarios, also tried to learn from best practice would have been beneficial.

What this report does illustrate is that different local authority areas are very different. Therefore, could a unified national licensing approach ever work? The current system, although imperfect in many ways, at least does allow local authorities to customise their licensing regime to local circumstances.

Moving on, the report highlights a number of issues with the current licensing system. Many of these are well known by those involved with licensing on all sides of the fence, while others are not.

Local authorities generally are short on resources to operate licensing schemes. This applies not only to financial resources but to their ability to employ and retain experienced housing officers. There is a difficult relationship between what a scheme costs to run and the fees it generates. In particular, new licensing schemes involve a high front end cost which fee income is unlikely to cover in the early years.

A related issue, which the report draws attention to, is that new licensing schemes are in some ways destined to founder: When PRS properties initially become licensed a high level of property defects frequently becomes apparent. The compliance inspections and enforcement action subsequently needed tend to swamp councils’ limited resources.

One issue, which hasn’t been widely publicised before, is the development of IT systems and digital processes in property licensing. The report suggests that these are often inefficient, and local authorities are having issues in procuring modern systems.

As many in the industry will agree, licensing does work in some but not all areas. Councils already have powers to deal with poor properties and rogue landlords. But they just do not know either how to appropriately utilise these powers (which is shown in this report), lack the understanding around the appropriate legislation or lack training. It could be said that some are just too lazy to enforce under the Housing Act 2004. It could be argued that some local authorities consider licensing to be a ‘magic pill’ that they feel will do the job instead.

Summary

Despite the fact that the report draws on a limited range of case histories, it does make some quite interesting observations on how the licensing system could be streamlined and improved. Some of these certainly have some merit. Being realistic it seems very unlikely right now that many of these will be adopted anytime soon. But, hopefully at least, they will contribute to the continuing debate on property licensing.

As the report reminds us, although it sometimes seems as though it has been around for ever, licensing on a large scale is still a relatively immature intervention. (Newham brought borough-wide selective licensing to London in 2013.) As such, any further study on the subject which might aid its evolution and improvement can only be beneficial.

The full report can be read here: Licensing Private Rented Homes, Insights and Experiences from Five London Boroughs