Property licensing – what are the disbenefits?

Large scale property licensing is still relatively new, however over the last 10 years it has developed into one of the main regulatory tools for the private rented sector (PRS) in out large towns and cities. Along the way property licensing has faced its fair share of criticisms and objections, but have these disbenefits of licensing raised by those opposed to licensing actually materialised?

It goes without saying, I believe property licensing has many important benefits and without it housing authorities would be virtually powerless to tackle determined criminal landlords. However, I have always been some who is keen to listen to arguments contrary to my own views, just in case I’ve missed something...

Over the last decade I have had many great conversations with a wide range of landlords, from one property landlords to multi-millionaire with large portfolios. The potential disbenefits of landlord licensing often comes up. Let’s just say, property licensing seems to be an area that generates a lot of strongly held views! Truth be told, most landlords can see with their own eyes that the sector desperately requires regulation, however it’s difficult to reach consensus on how.

I have noticed that landlord licensing concerns generally fall into one of six buckets:

1. Increasing rents
2. Reducing investment and available housing stock to rent
3. Landlords should not be held responsible for bad tenants
4. Enough legislation in place already
5. Costly and bureaucratic
6. Insufficiently targeted and poorly enforced

So looking back, did the disbenefits I was promised materialise? Did the dire predictions become reality?

1) Increasing rents: A common prediction is that licensing will lead to an increase in rents, with the costs of licensing passed on to tenants.

In my view, there is little evidence that this is case. The reality is that the PRS is a competitive market. Rents are set at what the market will bear and can respond quickly to market conditions e.g. if a property is hard to let the rent will be adjusted down, and vice versa. I have seen no evidence that licensing fees increase rents, and with healthy profits in the private rented sector such licensing fees are usually paid for by landlords’ surplus and do not impact on tenants.

Of course, any potential price impacts of licensing are dwarfed by the wider supply and demand issues for housing. Particularly in London, but also in other cities, due to more and more competition for a scarce resource, rents have grown rapidly in a way which far outstrips any licensing fee levied.

That is not to say that licensing fees should be allowed to grow out of control. Will government step in with clearer guidance? I think this would benefit all.

2) Reducing investment and available housing stock to rent: An argument often made by the letting industry is that licensing schemes will result in landlords fleeing the rental market and therefore reducing the dwellings available for rent.

Again, there is little evidence to support this argument. Newham, which has had a licensing scheme in operation since January 2013 and renewed in 2017 saw the PRS increase over that period from 40% to 51%.

Some professional landlords have said to me off the record that they value licensing schemes and believe they are driving criminals out (often quickly followed by, “as long as the fee is kept sensible”). The rationale behind this view is long term professional property investors do not want their investments put at risk by slum landlords who seek to cut every available legal and business corner.

3) Landlords should not be held responsible for bad tenants: Landlords tend to criticise the anti-social behaviour conditions attached to licensing, arguing that they have no way of dealing with their tenants’ anti-social behaviour and often suffer economic loss themselves due to their tenant’s behaviour.

This criticism misses the fact some of the most common types of ASB are caused by poor property management, in particular overcrowding of properties which can lead to: overflowing bins; rubbish in front and rear gardens; domestic arguments sparked by lack of amenities, noise etc. Most of these issues could be resolved through better provision of bins or arrangement of a commercial contract, proper management when tenants move in and out to ensure rubbish is cleared before a new tenancy starts. More complex ASB issues should be managed in partnership with Police and the council to help tackle the problem as early as possible.

If the PRS is to become a sustainable tenure into the future, landlords need to view their rental property as a business. If the business is causing issues for the community, they can’t simply shrug their shoulders and leave the community to suffer and tax payers to pick up the bill.

4) Enough legislation in place already: An argument is often made that the PRS is already over regulated, and that local authorities are not making the most of their existing powers. Therefore, there is no need for more licensing.

I can see how landlords might arrive at this conclusion, however as a housing regulator of nearly 20 years practice, this view is just wrong.

The truth is there are a number of serious flaws in legislation which mean that without licensing, local authorities struggle to act effectively to regulate the sector and hold bad landlords to account. It should be noted that authorities with licensing schemes have a much better record of taking successful enforcement action compared to those only using the traditional Housing Act improvement notice approach.

Maybe the time is coming for a complete review of all legislation relating to the rental sector. Does government have the will to do this though?

5) Costly and bureaucratic: A common criticism is that the licensing regime is overly inflexible and bureaucratic, particularly in relation to the application and setup process.

The legal process is indeed prescriptive and bureaucratic, which can incur significant costs for councils which are often passed on to landlords through fees. Some of the guidance is out of date and, as has been highlighted in a number of recent reports, this area would definitely benefit from a review.

A number of technological solutions have been developed to help make licensing easier for landlords, councils and residents. Metastreet are working hard to develop new technology and software that helps dissolve some of the friction. This is allowing council officers to focus on more complex issues and spend more time regulating bad landlords.

6) Insufficiently targeted and poorly enforced: In my experience we do currently have variation between councils when it comes to PRS enforcement. However, we should not forget that many councils haven’t needed to do housing enforcement for decades, some councils have never had a PRS issue until recently. The rapid growth of the PRS has changed all of this. At the same time councils have been managing very deep cuts to their budgets since 2011. This all impacts on a councils’ ability to ramp up enforcement quickly.

None the less, some councils have been able to adapted quickly. We have seen that where councils focus their resources on robust enforcement, driven by data and in partnership with other enforcers, this criticism holds considerably less weight. Council’s focused on tracking down unlicensed properties and dealing with poor conditions are having significant success. A good example is Newham, but other councils are also having real success, including Waltham Forest, Liverpool and Havering. Enforcement remains varied but the direction of travel in my opinion is positive.

My conclusion is large-scale selective licensing schemes are an important tool for local authorities seeking to tackle rogue landlords, protect tenants and improve standards in the private rented sector, as well as helping to address wider issues such as anti-social behaviour.

Yes, improvements are needed and we must make licensing easier, but, No, the dire predictions about licensing did not come true.

If you would like to read more about property licensing, download a copy of Metastreet’s property licensing report prepared for Core Cities UK in October 2018