A council policy introducing licences for private landlords to try to drive up housing standards led to many passing the scheme’s administration costs on to tenants by increasing rents, an external auditor’s report says. Nottingham City Council has been running the scheme, called Selective Licensing, since August 2018 in a bid to tackle rogue landlords and make sure rented properties are safer and of a better standard for private housing tenants.
It gives the Labour-run authority the power to make sure rented homes meet certain conditions, by requiring landlords to register and be issued with a licence. Under the current scheme 32,000 properties must have a licence, and those who refuse to apply could be issued with a fine or prosecution.
The scheme is due to legally expire in July this year, and the council has drawn up a new one in its place. A total of 666 improvements were made to 446 properties under the first scheme, which the council described as a success.
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Some landlords argued otherwise, saying the policy was “highly bureaucratic”, prompting them to appoint external auditor Grant Thornton to probe concerns over value for money for tenants and landlords. Under the Local Audit and Accountability Act 2014, electors have a right to make objections to the accounts of local authorities.
This means they can ask an external auditor to either produce a report in the public interest or apply to the High Court for a declaration that there is an unlawful transaction or balance in the council’s accounts. Grant Thornton says it received such an objection to the council’s 2019/20 accounts in relation to the scheme for Selective Licensing.
A report from Grant Thornton states: “Overall, while implementation of Selective Licensing has not gone smoothly, partly because of the significant impact of Covid, we do not consider that any formal audit action is needed at this stage.” While no formal action was taken, the auditor listed a number of recommendations to address certain concerns, which the council will be discussing and noting at an audit committee meeting on February 24.
The recommendations include the addressing of problems in the online application process “which have clearly antagonised some landlords”, the footprint of the scheme and whether it should be better targeted, as well as whether inspection targets can be achieved. The report also says fees had been passed on to tenants in the form of rent rises in some cases.
The original fee for a licence was initially set at £780 for non-accredited landlords and £480 for accredited, before increasing to £670 (accredited) and £890 (non-accredited) in March 2020. Under the new scheme, if approved, the proposed fees for individual properties are £820 for non-accredited landlords and £630 for accredited.
The new scheme anticipates over 28,000 properties being licensed. “From our limited discussions with and document review, it is clear, and unsurprising, that many landlords did pass the licence fees on to tenants, as there was a rise in average rent levels in the city following implementation of the scheme,” the auditor’s report says.
Grant Thornton’s report added many other factors which are impacting on the buoyant private rented sector in the city “have arguably had more significant consequences” when compared with rent rises, however. Another significant issue raised is the number of inspections of properties carried out by the council and a backlog of inspections which still need to be done, largely due to staffing shortages and the Covid pandemic.
No inspections were carried out at all from late March 2020 until July 2020, due to lockdown measures. External inspections then commenced and 2,100 were carried out by February 2022.
Internal inspections only recommenced in July 2021, and 1,800 had been carried out by February 2022. It is expected that 12,780 inspections will have been undertaken by July 2023, exceeding the projected 9,500 inspections anticipated under the first scheme.
The auditor notes these “will still not have been carried out on expiry of the scheme in July 2023”. Responding to the report, Giles Inman, who runs the city’s landlord association EMPO, said: “Every landlord I speak to in the city when asked the question has had to put rents up.
“People say landlords don’t do it as a business, but we do. We trade as a business so any regulatory costs come into rent, because we cannot absorb them. The issues we’ve had with the scheme is the application process. It takes an age to get the draft licence. We’ve had reports that landlords have waited over 12 months.
“In terms of inspections we’ve had Covid, we understand that, but there seems to be a lot of properties that are yet to be inspected. The inspection number is very low. It was six per cent in the last review.
“This is on the back of the scheme being sold on the premise they are trying to make sure properties are safe and safeguard tenants. Now, my view on that is you cannot protect tenants and safeguard with a scheme that does not, and can not, inspect in a timely manner.”
He added he remains “cynical” the council will listen to landlords in finalising the new scheme. Mick Roberts, a landlord of multiple properties in the city, added: “We told licensing officers loads of stuff was wrong, years later, they now say: ‘Officers have clearly identified lessons from the first scheme which are being addressed in the proposals for second’.
“Why didn’t they listen the first time when we told them, then?” Grant Thornton’s report adds: “The council has clearly learned lessons during the implementation of the original scheme.
“What matters now is that the lessons and changing circumstances are reflected in the design of any new scheme.” Portfolio Holder for Housing and HR, Cllr Toby Neal (Lab), said: “Licensing schemes including Selective Licensing are an important mechanism to safeguard private tenants against poor property management, which can result in health and safety impacts for tenants and anti-social behaviour issues for the wider community.
“The first scheme has been successful in achieving that aim, although of course there are areas for improvement. For the new scheme we will look to streamline the application process and increase inspections across a more focused geographical area, helping work to be targeted where it is needed most.
“We don’t believe there is any direct evidence that selective licensing has increased rents, with other factors such as supply and demand being the main drivers for this, as the auditors acknowledge. Our view is that landlords are aware of licensing schemes and should factor the cost into their business plan. The current proposed fee for an accredited licence application is £668, split into two payments. For a licence that lasts up to five years, this works out at around £11 a month.”
A similar selective licensing scheme is run by Ashfield District Council covering areas in and around Sutton-in-Ashfield.
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