We need to wake up before we sleepwalk into a housing crisis

It’s now almost a month since the government introduced new rules on Houses in Multiple Occupation (HMO), as part of its drive to crack down on rogue landlords.

October 1 2018 was hailed as a ‘Year Zero’, when safety and security in the residential letting market would improve dramatically.

More than 100,000 cramped and unsafe properties would be forced to meet strict new licensing standards, or they’d be shut down. To date, as far as we’re aware, none have been.

We know this because we commissioned a survey ahead of the introduction of the new rules and, of the 326 local authorities in England with responsibility for housing, only a handful said they had any idea where these properties were located in their areas.

Of the 238 authorities that responded to a Freedom of Information request, sent by Touchstone Education at the start of September, asking how prepared they were for the changes, only 93 said they had carried out any research to establish how many properties in their area required a new HMO license.

Just 16 said they had conducted research to establish how many of those properties were in a condition where they could expect to be granted a license.

Several large metropolitan authorities including in London, Manchester, Leeds, Newcastle, Bristol and Norwich said they were unaware of how many properties in their areas were operating in breach of the regulations.

The National Landlords Association (NLA) reported it had been contacted by several members who tried to apply for licenses, but their local authority purported not to know anything about the changes or didn’t have a system in place to process their applications.

So why should this be a concern beyond the huge waste of money spent by the government administering and promoting the changes?

Well, because from now on, every time a local authority becomes aware of an unlicensed property with five or more occupants in two or more households in its area, it will demand that a series of financially punitive measures are put in place to allow it to continue operating.

Any such property that does not have an HMO license is operating illegally and the landlord could face a fine of up to £30,000.

Licensing requirements cover issues such as emergency lighting, soundproofing and fire proofing as well as setting new minimum sizes for bedrooms and it’s estimated they will cost buy-to-let landlords £79 million.

No-one should be expected to live in a cramped or unsafe property – that’s a given in any civilised society – but the problem with these new regulations is that they are arbitrary and ill-researched, and they threaten to exacerbate and already critical housing shortage.

Since the 2008 financial crash, the way in which we live has shifted dramatically. A slump in home buying, the introduction of the Bedroom Tax and many other factors mean far fewer people can afford to rent a whole property than was the case a decade ago.

Millions of people now live in HMOs – most with between five and 10 rooms – and all of them will be affected by the changes.

By introducing these blanket measures, without any clear idea of the scale of the problem, the government risks making potentially tens of thousands of people homeless.

The buy-to-let market is already slowing down dramatically following a series of measures aimed at squeezing more money out of landlords, including introducing a 3% residential property levy on landlords, the ending of mortgage interest tax relief and new stress tests for home loans.

In many cases it will not be possible to modify properties that fall into the new HMO category, for example rooms that cannot be made larger, and in other instances, the cost of modification may be prohibitive. 

Faced with those problems, as well as having to pay an average of £1,027 for an HMO license, many landlords may simply opt to sell-up, putting their tenants out on the street.

We’re aware of one local authority with 1,800 properties now classed as HMOs and, privately, it has told us that only around 40% meet the new regulations. 

That means more than 1,000 properties are at risk of being taken off the market, removing housing capacity for at least 5,000 people – in one small area of the country alone.

If that situation was to be replicated, potentially across hundreds of council areas, we could be looking at a very significant housing crisis. 

The normally moderate NLA has described the situation as an ‘unacceptable failing on the part of the Ministry of Housing, Communities and Local Government’.

With Brexit dominating the news agenda this is an issue that, in normal circumstances, would dominate the headlines and everyone with an interest needs to shout loudly about its potential consequences otherwise we may be sleepwalking into a national housing disaster.

*Paul Smith is the CEO of Touchstone Education, which runs UK-wide courses offering advice and guidance to investors in property