New Study Claims Housing Licensing Makes £4.62 for Every £1 Invested
A criticism sometimes levelled against housing licensing schemes is that they are about making money. The recent Social Impact and Social Return on Investment report from Nottingham City Council seems to suggest that perhaps they do. It says that over five years from 2020 to 2024 the city invested £24.9 million in licensing and it returned £114.9 million – equivalent to £4.62 for every £1 spent.
In this article we will take a look at this report, and at what it is actually saying.
Should licensing make money?
With many housing licences not leaving much change out of £1,000 – and some costing well over £2,000 – it is easy to see why some people, landlords in particular, often feel they are about making money.
But licensing schemes are not supposed to make a profit. They should operate on a cost recovery basis. Their aim is to drive up housing standards, and the licensing fee only exists to resource the system.
It is not that simple of course. There is often debate about how big or small the costs should be, and about what costs can be recovered from the licensing income.
About Nottingham’s housing licensing schemes
The report says that Nottingham City Council operates the largest housing licensing system in England outside London. As well as mandatory HMO licensing the authority operates additional HMO licensing (since 2014) in the whole city and selective licensing (since 2018) in 40% of the district. These cover 79% of all rented homes. The city has around 16,000 agents and landlords together with around 89,000 tenants.
The report says the licensing department employs 105 staff and operates on a self-funding model using licence fees. Around 75% of their income and expenditure comes from selective licensing. During the five year period of the study, Nottingham issued more than 33,000 licences and carried out over 30,000 inspections and investigations. They identified more than 7,400 unlicensed landlords and properties and took 157 enforcement actions.
About this report
The Social Impact and Social Return on Investment report was commissioned by the authority’s private rented sector licensing department. It is said to be the first time ever a local authority has commissioned a report of this type.
One of the key objectives, according to the report, has been to ‘move the conversation on’ from being just about the cost of housing licensing and onto the value it offers for tenants, landlords and the community as a whole. Then, to use the evidence gathered to maximise the future social impact of licensing schemes.
The report was prepared by Alice Jones Impact Consulting. This is a Nottingham based organisation which says it works to provide independent, expert support to organisations wanting to improve and measure their social value and impact.
The report is a sizable document indeed, running to 129 pages in the full version. It contains a large amount of information about how licensing schemes work, some case histories, data on the local PRS, as well as the social impact study itself.
Key findings
Between 2020 and 2024 an investment of £24.9 million in running the licensing system in Nottingham generated £114.9 million in social value. This was equivalent to £4.62 returned for every £1 invested.
£91 million of social value has been created through improving renters’ health, safety, and wellbeing.
More than 14,500 renters benefitted directly from improvements to their homes. Such as, for example, making them warmer, more secure and safer.
Over 7,400 unlicensed landlords were brought into compliance.
36% of landlords reported that their knowledge of their responsibilities had improved.
There were major reductions in anti-social behaviour (48%) and waste complaints (45%) in licensed areas.
There was reduced pressure on public services, including to the fire and police services and the NHS.
The report also says there were carbon reduction benefits.
Social value and social impact – what are they?
As many people will not know exactly what these are let’s explore a little further. Social impact is about capturing a broad definition of value. It includes the worth or importance that stakeholders, including tenants and other residents, place on changes in their wellbeing. It includes outcomes such as better health, cleaner streets, reduced fire risk and better informed landlords amongst others. These are things that are not covered by traditional financial accounting.
Assessing social impact uses a modelling system. It uses a complex formula that looks at outcomes, tries to assign a financial value to them and weights them appropriately. It takes into account whether an outcome would have happened anyway, the value added by external factors, as well as losses that might have been transferred elsewhere.
More details about the methods used and how social value and social impact relate to housing licensing are provided in the report itself.
In the context of this report it is very important to note that no one invested £1 and had it returned as £4.62 cash profit. Instead the report has tried to show how that £1 produced £4.62 in social value to the community.
Some key recommendations
The report makes many suggestions and recommendations for how licensing could be improved in future. Here we will try to cover a few of the key ones.
Broadly it recommends more licensing. (Perhaps that a report commissioned by a licensing authority recommends more licensing should not really be a surprise.) Specifically it suggests bringing more properties within licensing, and that more effort should be put into finding unlicensed properties. It suggests more property inspections should be carried out.
The report looks at which type of PRS property improvements return the best social value, and so which ones licensing schemes might prioritise. It suggests that action to make homes warmer can offer very high added value.
It also recommends that licensing operations need to be better resourced. (That would, presumably, increase the cost of licensing and impact the returns generated accordingly however.)
The report recommends that a future focus of licensing should be on using data effectively. It specifically recommends more interventions using data-led targeting.
It also stresses the importance of co-operation (and data sharing) between different organisations. This includes other local authority departments, universities (Nottingham being a major university city) and the emergency services amongst others.
Some thoughts on this report
Firstly, this study covered the Nottingham City Council area only. The city shares much in common with other large cities. It has a large PRS, including a sizable student PRS, and high levels of deprivation in some areas. However it is important to note that the findings could be very different in other areas.
Secondly, it is also very important to note that the social return on investment (or SROI) approach used to prepare this report is a modelling system. By definition these rely on many assumptions and, it is perhaps fair to say, a degree of guesswork. As such, as with any modelling system, there must be a margin for error.
It could be argued that the standout claim in this report – that every £1 invested in licensing returned £4.62 – and which is used by Nottingham City Council in their own news story might perhaps be an unfortunate choice of words. It appears to reinforce the worst possible stereotypes about licensing schemes – that they are about making money. It is only closer study that reveals this is not exactly what is being suggested.
As an aside, it would have been interesting to compare the results from a similar study carried out before Nottingham introduced its non-mandatory licensing schemes. Or to see the results from similar studies carried out in areas which have small or light touch licensing schemes. If less money is invested in licensing would the social value (returns minus costs) generated be less, or would it be or more?
Looking ahead, it will also be interesting to see how the provisions of the Renters’ Rights Act – which bring more enforcement responsibilities and opportunities for generating enforcement revenue – impact this kind of study.
In summary, it should be said that any study which tries to identify whether housing licensing works or not should be welcomed. The principle of looking at the value of housing licensing schemes and not just the cost of them is a worthy one indeed. It is a rare thing, in times when many authorities appear keen to press on with more and more licensing schemes regardless. Nottingham City Council are to be commended for their pioneering approach.
The study has both provided some valuable insights and raised some interesting issues for those involved in licensing. It has shown that housing licensing is a costly business and that it is not easy to quantify the results. It has raised questions about what sort of results we would like to see from housing licensing, and whether there are ways of producing better outcomes.
Further information
The full report together with a summary version can be found on the Nottingham City Council website here:
