My Lords, I wish to raise a number of points about what is, in essence, an important initiative from the Government for improving conditions in the private rented sector. I declare interests as president of the Local Government Association and as chairman of the Council of the Property Ombudsman. I am grateful to Shelter and Crisis for their briefings, and am also drawing on some years of chairing the Private Rented Sector Policy Forum for representatives of both tenants and landlords.
The positive intention of this statutory instrument is to make it easier for local authorities to designate areas for selective licensing. Once designated, through the requirement for landlords to obtain a licence, the local authority can exercise some regulatory controls through advice and accreditation of landlords and a weeding out of those who are not “fit and proper persons”. With the extraordinary growth of the sector—which has increasingly meant replacing the purchase of properties by first-time buyers with purchase by buy-to-let landlords—it follows that some regulation of the PRS is needed.
Any of your Lordships who watched the recent “Panorama” programme about Britain’s acute housing problems will have witnessed the scenes of overcrowding, “beds in sheds”, high rents and abysmal conditions in parts of the private rented sector. Some intervention seems overdue to introduce proper standards and to weed out the exploitation to be found in what is obviously a minority of cases, but a minority that is truly terrible for the tenants involved and can ruin the credibility and reputation of the whole sector.
The problem has been that local authorities, even where existing powers should lead to intervention, have not had the resources to act. Selective licensing can buttress existing powers and, through the charging of a fee, can raise the money needed to pay for enforcement of the necessary measures. This statutory instrument helps councils wishing to go for selective licensing by sanctioning this regulatory route not just in places where there is low demand for housing and where anti-social behaviour is rife but where there are high levels of properties in poor condition or high levels of inward migration, social deprivation or crime.
I commend this policy of broadening the reach of selective licensing. However, at the same time, the Government are introducing a new restriction on the use of licensing: only in exceptional circumstances, it seems, where the Secretary of State permits it, will the local authority be able to use selective licensing to embrace more than a fifth of its area or more than a fifth of its rented properties. This would prevent the use of licensing to cover at least four-fifths of privately rented properties. The purpose of this restriction, as I understand it, is to save decent landlords the burden of form-filling and, in particular, of paying a licence
fee, which could be £100 per property per annum. I want to explore whether this “one-fifth only” rule is sensible.
The CLG Select Committee did indeed find in 2013 that the process of licensing could be bureaucratic and tedious. It is hoped that a simplification of procedures is now to be expected. However, the committee also concluded that local authorities should be given more discretion over decisions on when and where licensing should be implemented.
My objections to the 20% limit are as follows. First, should it not be for councils themselves to decide on the extent of the licensing that they need? I am not sure how, in this age of devolution and localism, central government can decide which places—which streets—most need the extra protection that licensing can bring.
Secondly, councils that want to implement an authority-wide regime and not one covering just a fifth of their territory argue that unsatisfactory—indeed, unsavoury—landlords may be operating in any part of their area. The new restriction would deny councils the tools to sort out the rogues, wherever they are. After all, houses in multiple occupation—HMOs—are subject to licensing anywhere in a local authority’s area, not just in a specified one-fifth thereof.
Thirdly, economies of scale are important for a project such as this. If enforcement is to be effective, and it is not cheap, the more landlords involved the better. The Newham success story shows what can be done—I joined that borough’s enforcement team on one of its dawn raids recently at the invitation of the mayor, Sir Robin Wales—if licensing covers a whole borough, and therefore a large number of landlords. At £100 a property, significant resources can then be raised. If only a fifth of properties were to be involved, the cost to landlords would have to be much higher and/or the service would be much less effective. I note that Newham has completed well over 2,000 enforcement visits, taken dozens of landlords to court and refused licences for some notorious landlords with scores of properties, all because it has had the resources to do so.
Fourthly, I note that the DCLG’s impact assessment stresses the financial burden on landlords of this annual fee but, of course, other industries pay for their own regulation. Set against a rent of perhaps £15,000 a year in Newham, a £100 fee does not sound excessive. The suggestion that landlords will simply pass on the cost to tenants does not sound like good economic sense. It assumes that these landlords are not currently charging the maximum rent the market will bear and that they have the scope for increasing rents further. There seems to be no evidence that where councils are using selective licensing, rents have been raised accordingly. The local housing allowance would certainly not be increased for this purpose. Moreover, I presume that landlords are able to offset licence fees against tax, just like the costs of gas safety inspections or agents’ fees.
Fifthly and finally, the real impact is surely not the relatively modest annual fee but the effects of licensing on raising standards in the PRS. The fee is not money down the drain. It pays for a service, making the worst landlords fulfil their obligations. Not only do tenants benefit from the improved performance but other
landlords benefit because licensing helps to drive out unfair competition from those who do not play by the rules. The Newham experience shows how the police, Home Office and Her Majesty’s Revenue & Customs can all be helped, thereby saving the taxpayer money under a number of other headings.
So I congratulate the Government on opening up more opportunities for selective licensing, strengthening the hand of local authorities to exercise greater regulatory influence over the private rented sector in their areas. However, I see the somewhat arbitrary restriction of licensing to just a fifth of areas or properties as a mistake that will unnecessarily undermine this opportunity to enhance the standards and reputation of the sector. A fallback power for the Secretary of State to intervene if a maverick local authority behaves in an eccentric way is understandable, but not a blanket blocking of local authority plans to improve tenants’ lives in this way. I am glad to hear that an impact assessment will take place in 18 months but, in the mean time, can the Minister reassure us that the Government will use their powers only to curb the autonomy of local government in extreme cases? The net effect of this statutory instrument is otherwise one good step forward but two steps back.