The Independent View: Landlord licensing will not stop the criminals

The National Landlords Association (NLA) is a membership organisation representing over 20,000 individuals and companies, letting privately rented residential property. The NLA provides advice to help landlords run their businesses for themselves and their tenants. Like anyone else, landlords like satisfied customers and repeat business.

The private-rented sector has grown from a low point of eight per cent of households in 1990 to over 17 per cent today, matching the social housing sector. This growth has accelerated in recent years, due to the combined effects of reduced availability of social housing and the inability of many people to obtain a mortgage to purchase their own property, after the credit crunch hit. While many of those who rent would buy if they could, others acknowledge that renting best meets their housing needs and that they can rent better properties than they could afford to buy.

For the majority, private renting works. The NLA’s recent survey of over 2,000 tenants found that 79% were happy with their tenancies. But there is no avoiding the fact that there are those who see the pressure of housing need as an opportunity to exploit the vulnerable. These are the people we see on the news, in the papers and in the court rooms. Anyone who rents out a shed at the bottom of the garden or the garage that has been converted into living space without water or proper sanitation is not a landlord, but a criminal.

The National Landlords Association supports the action taken by the police and councils against these criminals who operate outside the law. No one likes their industry being associated with such reprehensible people. Nevertheless, we believe that the proposed remedy, the introduction of licensing schemes for landlords, will fail to resolve this issue.

These people will not comply with a licence – they currently fail to comply with the law. It is more likely that they will ignore it and continue as before in the expectation that the authorities simply will not find them. In Scotland, where mandatory licensing has been in force for more than five years, as many as 25 per cent of landlords have yet to apply. Targeted, co-ordinated enforcement action would be far more effective. Councils need to tackle the criminality, not introduce licensing which would divert scarce resources towards confirming that those who already comply with legislation actually did so.

Licensing is a reaction to a problem. It is not the solution. It is all too easy to equate introducing regulation with its effective enforcement or assume that it will have certain effects. The result has been bad policy by some local authorities. We are already seeing licensing creating more costs to councils, failing to address the problems in the private-rented sector and driving away investment in housing where it is most needed. With council budgets under ever more pressure and the prospect of the introduction of a benefits cap, councils should not be increasing the costs for people who live in their local area. These additional costs will be passed through to tenants in the form of increased rents and met by the general population in their tax bills.

The NLA has developed an alternative in an accreditation scheme for landlords, which is available to any landlord and local authority. It applies the same standard across the country and focuses on ensuring the landlord has the knowledge and management skills to run a lettings business, and so influences their entire property portfolio, rather than just focussing on prescriptive property conditions, which often vary from area to area. Landlords also have to commit to a minimum level of continuous professional development(CPD), updating their knowledge on new legislation and best practice – something licensing schemes rarely, if ever, require. This approach not only brings a more professional approach to the lettings market, it increases landlords’ awareness of their responsibilities and obligations.

We need to assess any solution on the basis of the probable outcomes. To drive something further underground cannot be a desirable outcome. Criminal letting of property affects the most vulnerable and needs to be addressed. But pernicious legislation, which deters the legitimate operator and fails to stop the criminal, is not the way. The NLA is working with over 120 councils in delivering good quality private-rented housing through our accreditation scheme, thereby reducing the cost to the council taxpayer and the state. We want to see greater engagement with housing providers and a shift of perception from ‘landlords – the problem’ to ‘landlords – the solution’.

* Richard Lambert is Chief Executive Officer of the National Landlords Association

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13 Comments

  • Cllr Greg Stone 17th Sep '12 - 1:31pm

    Landlords are a large part of the problem, and licensing helps to address the problem.

    The satisfied customer and repeat business line is bogus in a market where private landlords know they have a captive market and don’t need to invest to attract tenants. The aggressively anti-regulatory attitude of the NLA and some of their more hot-headed members is in stark contrast to the pro-regulatory attitude of councillors, tenants, and local communities affected by HMO rental saturation.

  • former councillor 17th Sep '12 - 1:50pm

    How disappointing that Lib Dem Voice are accepting articles like this. I was the Liberal Democrat portfolio holder in Oxford who was responsible for Oxford City Council becoming the first council in the country to apply for discretionary licensing.

    This was not some fly-by-night, back-of-the-envelope policy, designed to persecute landlords. It was a response to a specific, and long standing problem with the widespread lack of standards in the private rented sector in Oxford, which numerous other schemes, from voluntary accreditation to registration, over a number of years had failed to address.

    Many landlords did not comply with voluntary codes, registration or accreditation. Whatever NLA wants us to believe there were plenty of landlords happy to ignore basic, decent standards to make a quick buck. Significant numbers of landlords did not want to work with the council to improve the sector.

    We had no choice in order to improve standards. The problem, as Cllr Stone has pointed out, is that you have a captive market. This was particularly true in Oxford with two universities, high housing costs, a young transient population, a massive housing shortage and few areas to build housing on. Added to that was the problem that a lot of newbuild properties were snapped up by buy-to-letters. The only way left was to introduce licensing to ensure that basic standards were met. In the year before we applied there were over 1000 complaints to the council about private housing (26% of the city’s stock) and this was the tip of the iceberg as many people were afraid to come forwards for fear of being evicted.

    We were keen to work with landlords, but with the exception of one letting agency all we got was this sort of nonsense. Why should students and young professionals be exploited? Liberals should not be comfortable with the standards and activities of some landlords.

    I will be clear though – there are many good landlords, which is why the scheme allowed for repeat inspections of the bad properties and lower fees for those who came forwards early.

    This was a carefully thought out, liberal response to a situation that no liberal should be happy with. I am disappointed that the NLA continues to ignore the issues and trash those who attempt to make the situation better.

  • Richard Dean 17th Sep '12 - 2:00pm

    Licensing looks like a good solution. Over time the NLA could develop into a professional body that might be given a Royal Charter, like otherprofessional bodies such as Chartered Surveyors or Civil Engineers.

    Such bodies are good ways cooperating to increase standards and the well-being of people. They can even set syllabusses and exams for different professional standards. In a future in which only NLA members can rent out properties, a strong NLA may enforce minimum standards of ethical conduct through a power to expel.

    The conflict of interest between tenants and landlords would need t be overseen, though. At presenbt the NLA website seems to suggest that the NLA exists to “represent members’ [ie.landlords’] views and interests at local, national and European level”

    The undercover landlord will continue to exploit the undercover teneant, but a system of professional registration and discipline can still prove more effective than a free-for-all.

  • It’s fisk-o-clock. Here are the headlines:

    “Like anyone else, landlords like satisfied customers and repeat business. ” – but more than that, landlords like rent. Lots and lots of big fat juicy rent. From my experience (and the experience of countless fellow tenants I speak to as part of my role with the PricedOut campaign) they’re only interested in repeat custom if it means more rent. We’re fed up of the housing ‘market’ which is being propped up by buy-to-let landlords at our (vast) expense.

    “the inability of many people to obtain a mortgage to purchase their own property, after the credit crunch hit” – there are plenty of mortgages available to first-time buyers. FTBs can get a 80% LTV mortgage with a 4 year fixed rate of around 4% pa. A 90% LTV means a rate of around 5.2% pa. That’s a perfectly reasonable package. The problem is that house prices are ridiculous and rent is sucking up tenants’ income that would otherwise go towards a deposit.

    “These people will not comply with a licence – they currently fail to comply with the law.” – The problems with private landlords extend far beyond what is currently illegal. That’s why there are calls for reform. Isn’t this obvious?

    “In Scotland, where mandatory licensing has been in force for more than five years, as many as 25 per cent of landlords have yet to apply. ” – which gives us a clue about the extent of the bad landlord problem. 1 in 4 don’t want to abide by the regulations. Local Authorities need more power to tackle this,

    “The result has been bad policy by some local authorities. ” – and good policy from some LAs, which other LAs can learn from. Yay for localism.

    “We are already seeing licensing creating more costs to councils” – Most of the schemes I’ve seen rightly pass these costs onto the landlords. Now I’m not surprised that the NLA are opposing this. Indeed it’s kinda your job to. But your comments must be read in this light.

    “driving away investment in housing where it is most needed” – Investment in housing is needed. Handily, where housing is most needed is where there is the biggest opportunities to extract lots of rent. This bogus idea that landlords won’t try and make lots of rent in areas of high housing demand is laughable. The problem is the standard of your product, not the existence of your product (which as your figures at the beginning show is flourishing).

    “councils should not be increasing the costs for people who live in their local area” – totally bogus argument. This is a cost on landlords, not tenants. In the real world, this only impacts if the landlords’ regulatory costs tips the marginal balance so that renting isn’t worth it. This will only happen in the weakest of rental markets.

    “These additional costs will be passed through to tenants in the form of increased rents” Landlords already charge as much as they can get away with (as much as the market will bear). This stuff is Rent Economics 101: Take two identical houses being rented out, one next to the other, but one has a buy-to-let mortgage and the other is owned outright. The rent charged on both houses is the same, even though one landlord has a mortgage to pay and the other doesn’t. Landlords’ costs can’t be passed on. Please don’t try to pull the wool over our eyes.

    “met by the general population in their tax bills” – I repeat, LAs will charge landlords for their licenses to cover the cost. Simple.

    “The NLA has developed an alternative in an accreditation scheme for landlords, which is available to any landlord and local authority.” – Great. If your scheme is so good, giving LAs this option won’t matter, because your super-awesome scheme is good that LAs don’t need to adopt compulsory licensing. So you have nothing to fear, right?

    “a shift of perception from ‘landlords – the problem’ to ‘landlords – the solution’. ” – Here’s another perception for you: If landlords are the solution then we have massive wider problems with our housing.

    I don’t apologise for my snarky tone. Landlords have been taking the mick for too long. Tenants are suffering. The debate should no longer be whether we need to license, but how. I think there is more merit in licensing the houses for private rent rather than the landlords, as landlords can have multiple properties of varying standard. I also worry that licensing could enable LAs to ration the availability of private rented housing, which is disastrous for hard-working struggling tenants. Licensing also isn’t a panacea – we need stability and longer term contracts, and frankly a ban on rip-off ‘admin fees’ charged by most letting agents.

  • Provisions for Local Authority oversight of the Private rented sector are largely in place but are either not being fully used or may only be used under unduly restrictive circumstances.

    The ‘Decent Homes for All’ paper to be debated at conference asks Liberal Democrats to choose from two options that will afford tenants in the Private rented sector more protection and security, while not putting undue burdens on good landlords. Some of the measures are concerned with making more effective use of powers already in place, others are new.

    OPTION A

    3.3.5 Currently, there is a mandatory licensing regime for HMOs with three floors or more, occupied by five or more persons and forming two or more households. Local Authorities can also introduce additional licensing systems, requiring landlords or managing agents and the properties themselves to meet local and national requirements, passing a ‘fit and proper person’ test. Local Authorities may add specific requirements local to their area for landlords or managing agents, for example insisting landlords or managing agents obtain accreditation, have a responsible lettings policy or the properties meet environmental requirements. Failure by landlords or managing agents to meet the requirements can result in fines, repayment of rent to tenants, increased security for tenants and criminal sentences for landlords of managing agents.

    3.3.6 However Local Authorities can only set up these additional licensing schemes in areas of low housing demand or where there is significant anti-social behaviour or other challenging housing problems. The scheme lasts for five-year renewable terms and can only be introduced after a consultation process of at least 10 weeks. The costs of running the system are covered by fees set locally and payable by the landlords, and Local Authorities are required to keep a list of all licensed landlords and properties in their areas.

    3.3.7 Liberal Democrats will instead enable Local Authorities to exercise their own local knowledge and judgment in pin-pointing and tackling areas in need of additional licensing. We would reduce the restrictions on the implementation of licensing systems, giving councils the freedom to introduce licensing in any area, provided the scheme fits in with the local housing strategy. We would also work to reduce the bureaucracy in setting up a licensing regime, giving local authorities full confidence in their ability to monitor and manage the private rented sector in their area.

    3.3.8 We will monitor the effectiveness of these measures over a period of time. Should there be evidence that they do not go far enough we will reconsider the case for a licensing scheme for all landlords in the private rented sector.

    OPTION B

    3.3.5 Currently, mandatory licensing applies only to landlords of HMOs with three floors or more, occupied by five or more persons and forming two or more households. Additional licensing systems only apply in areas of low housing demand or where there is significant anti-social behaviour or other challenging housing problems. The previous Government planned to introduce a national system of landlord licensing; we believe a more local approach is needed to improve standards in the private rented sector.

    3.3.6 Liberal Democrats will require all private landlords to obtain a license from their Local Authority, with certain exemptions, such as landlords who live in the same property as their tenant or lodger. To obtain a license, landlords would need to pass a ‘fit and proper person’ test, ensuring they and their properties meet certain minimum standards, such as full payment of tax or having a safety certificate for gas and electrical installations. If these standards are repeatedly not met, landlords could have their license removed, with protection for their tenants, be liable for fines or repayment of rent to tenants.

    3.3.7 In addition to the minimum standards, we would enable Local Authorities to exercise their own local knowledge and judgment by giving them the freedom to introduce additional licensing requirements, provided they fitted in with their local housing strategy. These ‘bells and whistles’ would be at the Local Authority’s discretion and could, for example, include a voluntary accreditation system or additional requirements on environmental standards.

    3.3.8 The aim of the licensing system is to provide protection for tenants without unduly impacting on the landlords. It would allow tenants to view and compare prospective landlords in a local area and improve information about the quality of service they provide. Crucially, a licensing system would enable Local Authorities to monitor rent increases across the borough, ensure certain standards are met, particularly where a tenant receives housing benefit, and approach specific landlords who own properties in areas important for housing benefit recipients, for example near jobcentres or good public transport links. Local Authorities would be able to charge a small fee for licensing, which must be transparent and designed only to cover the costs of the licensing system. We would also carry out a consultation process at government level, lowering the costs for Local Authorities, who currently need to carry out their own consultation processes in order to introduce additional licensing.

    Option A is the way to go in my opinion: Reduce restrictions on the power of local authorities to set up comprehensive or targeted licensing schemes in any area they deem appropriate; establish a national licensing system for managing agents; and promote longer tenancies.

    See Emily Davey’s article for the rationale Should we regulate all private landlords – over to you, conference

  • I love the idea (in a sarcastic way) that landlords can seemingly pass any costs on to their tenants. Presumably they’re all being benevolent towards tenants at the moment, given that they could be charging more in rent if they wished!

    Back in the real world, the reason potential house-buyers can’t get together a deposit is because (a) house prices are too high because (b) landlords’ costs were slashed by the Bank of England (preventing house prices from falling to where they should be). If landlords’ costs are reduced further then there will be further upward pressure on house prices, thus preventing even more aspiring owner-occupiers from buying. To the landlords shall be given (especially since their money-for-nothing scheme of appreciating land prices came to a halt)!

  • Richard Dean 18th Sep '12 - 4:31pm

    Landlords can and do pass costs on to tenants. Anyone who rents knows that. Come the end of this rental agreement and the need to agree a next one, guess what, the rent goes up!

  • Voluntary accreditation schemes don’t work because in areas of high housing demand landlords don’t see the point of going to the expensive of getting accredited when there are people queuing up to move into their properties. The question is then how do we protect tenants from bad landlords. National licensing or registration schemes for all 1.5M landlords in the country would be very bureaucratic and councils would spend their time processing applications rather than targetting bad landlords. What we need to do is make the current system of licensing of landlords less restrictive on councils. We need to give councils the power to identify and target specific areas or types of housing which attract bad landlords in their area.

  • Richard Swales 19th Sep '12 - 9:11am

    @Former councillor,

    and are rents in Oxford now higher or lower than before the scheme was introduced? Do you now find it more or less attractive to consider making property available for rent?

  • former councillor 19th Sep '12 - 9:28am

    @richard swales

    I am no longer in oxford, and Labour have tweaked the scheme but the cost of the licenses is lower than we originally envisaged at £300/ £400 per year. that is a charge of little more than £2 a week, which the landlord does not have to pass on.

    In terms of making it more or less attractive I do not believe you understand the dynamics of the Oxford market. There are 20,000 students, an essentially captive market, thousands more young professionals unable to buy. There is no shortage whatsoever of demand and landlords can still make an extremely healthy profit. The idea that landlords will depart the market in large numbers over a few hundred pounds is fanciful in the extreme. If some landlords depart as they do not want to comply then that is up to them, and ultimately their loss. The conditions that we envisaged putting in originally were pretty basic. If you want to let out a house in significant disrepair or with unsafe electrics or gas then you are right, you won’t be able to do it in Oxford. I think that’s a good thing. For the record I lived in HMOs and privately leased temporary accomodation over the years so I know what the standard is like. If you want to make money out of housing people you should meet a basic standard. If you don’t want to do that then you shouldn’t be able to. Pretty simple really.

    For the record I have publicly stated that this scheme was good for Oxford, but might not suit everywhere as different housing markets function differently. I made that very clear at the time we applied and subsequently.

  • former councillor 19th Sep '12 - 11:59am

    I should add on the rents question this is something we did consider carefully. We studied closely the impact that mandatory licensing of larger HMOs had on rents and found that it did not have a significant impact on rent levels. The fees for larger houses were bigger, ranging from £750 -£1000. Legally you are not allowed to make a profit from such a scheme (which seems fair to me) so all the money went into admin and inspection costs.

    The real advantage of licensing for a city like Oxford was that you could ensure standards were good by inspecting properties when a license was issued. In the new scheme a house was inspected on application/ renewal every 5 years. If the landlord had failed to comply with previous requests or there were complaints they would be inspected more often. So it is less onerous on the good landlords.

  • @Richard Dean
    “Landlords can and do pass costs on to tenants. Anyone who rents knows that. Come the end of this rental agreement and the need to agree a next one, guess what, the rent goes up!”

    Nice straw man. Yes, rents change in reaction to a changing economy, so, for example, the landlord can annually up the rent if (a) average wages have increased (b) the economy has grown (c) the local area has ‘improved’ with a corresponding increase in land values. However, they have no choice but to lower rents if (a) wages are decreasing (b) the economy is in recession and (c) the local area has gone to the dogs, etc.

    However, the above examples are due to external economic factors beyond the landlord’s influence. The landlord cannot arbitrarily increase the rent in relation to his rising costs. In a competitive investment market, house prices would fall in response to an increase in landlord-borne costs, until yields rise back to where they were – rents would stay the same, as evidenced by former councillor’s comment: “We studied closely the impact that mandatory licensing of larger HMOs had on rents and found that it did not have a significant impact on rent levels. “

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