Round #1135

A small charity is being asked whether to publicly support a local council's proposed selective licensing scheme covering two wards with high private-rental turnover; the scheme would require landlords to pay a £750 five-year licence fee per property. Landlord groups in the area argue the cost will be passed to tenants as rent increases; tenant groups argue it will improve management standards. Setting aside legal validity of the scheme designation, what is the policy case for and against selective licensing on disrepair / management outcomes, and where does the evidence base sit?

# Selective Licensing: Policy Case and Evidence Base ## What Selective Licensing Is Designed to Do Selective licensing (under Housing Act 2004, Part 3) gives councils a regulatory lever in areas of low housing demand or significant antisocial behaviour, though since 2015 designations covering more than 20% of a local authority's area require Secretary of State confirmation. The premise is that market incentives alone are insufficient to drive management standards in high-turnover, fragmented private rental markets — precisely the context your charity is being asked to consider. --- ## The Policy Case FOR ### 1. Baseline Regulation Where None Effectively Exists In dense, high-turnover rental markets, many landlords operate with minimal contact with any regulatory body. Licensing creates a register, establishes minimum conditions as licence criteria, and gives enforcement officers a legal hook for inspections that they otherwise largely lack. The counterfactual — relying on tenant complaints — systematically under-captures problems because tenants in precarious tenancies face retaliation risk and often do not know their rights. ### 2. Levelling the Competitive Floor Responsible landlords who spend on maintenance are undercut by landlords who do not. Licensing imposes a common baseline, reducing the competitive disadvantage of compliance. This is a standard market-failure argument for minimum standards regulation. ### 3. Intelligence and Enforcement Capacity A landlord register produces data that genuinely did not exist before: who owns what, contact details, licence conditions breached. Several councils have reported using licensing databases to identify properties never previously on their radar, including Houses in Multiple Occupation operating unlicensed, and properties with serious category 1 HHSRS hazards. Without licensing, enforcement is almost entirely reactive. ### 4. Displacement of Criminal Landlords Where licensing is robustly enforced, landlords who cannot meet minimum standards either improve properties or exit the sector. In theory this benefits remaining tenants. Newham's pioneering borough-wide scheme (launched 2013) was explicitly designed to remove criminal landlords and reported identifying properties used for modern slavery and other serious criminal purposes. ### 5. Tenant Empowerment Having a licence condition gives tenants something concrete to point to and report breaches of, compared with the more abstract route of raising a formal complaint about fitness. Some licensing schemes include tenant information packs as a condition, which itself raises awareness. --- ## The Policy Case AGAINST ### 1. Cost Pass-Through to Tenants This is the landlord groups' central argument and it has genuine economic credibility. In a supply-constrained market where demand exceeds supply, landlords have pricing power and can pass compliance costs (including licence fees) to tenants through rent increases. A £750 fee over five years is £150/year, or roughly £2.88/week per property — modest in absolute terms, but the argument is the *principle* that regulatory costs become tenancy costs. The empirical question is whether the local market is genuinely price-elastic from the landlord's perspective, i.e. whether landlords who raise rents lose tenants. In high-demand areas, they often do not. ### 2. Opportunity Cost and Displacement of Better Enforcement The fees are intended to be ring-fenced for scheme administration, but administration is resource-intensive. If a council's environmental health team is occupied processing licences and chasing fee payments, this may actually displace proactive enforcement using existing HHSRS powers. Licensing is not the only tool available; councils have powers to inspect, serve improvement notices and prohibition orders without licensing. Critics argue resources spent on licence administration would achieve more if spent directly on inspections. ### 3. Compliance Burden Falls on Compliant Landlords The worst landlords — those with the most serious management failures — are least likely to apply for a licence voluntarily and most likely to be missed unless active enforcement identifies them. Early schemes were criticised for creating a large administrative exercise that captured already-compliant landlords who applied, while the rogues the scheme was designed to address carried on unlicensed. Effectiveness depends critically on how much enforcement resource is devoted to finding unlicensed properties. ### 4. Risk of Supply Reduction Some landlords, particularly small accidental landlords or those with thin margins, may exit the sector rather than comply. In a market with insufficient rental supply, this worsens affordability for the very tenants the scheme is meant to protect. The magnitude of this effect is contested and probably small in most areas, but it is a legitimate concern in marginal markets. ### 5. Designation Criteria / Targeting Questions If the wards are designated primarily on high turnover rather than demonstrated disrepair or antisocial behaviour, the licensing may be poorly targeted. High turnover is a proxy, not evidence of management failure per se. A scheme that sweeps in well-managed properties alongside poorly managed ones imposes costs without proportionate benefit. --- ## Where the Evidence Base Sits ### Generally Supportive Findings **Crook et al. (2012) – DCLG-commissioned review of licensing schemes** Found that early schemes (Newcastle, Blackpool, Salford) had produced measurable improvements in property conditions and management standards, with the strongest effects where active enforcement accompanied licensing rather than merely administrative processing. Noted limitations in data quality. **Sheffield Hallam / Cambridge studies on Newham** Newham's experience is the most-cited case for effectiveness. Evaluations suggested improvements in property management awareness and some physical improvements, though separating licensing effects from broader regeneration investment in the borough is methodologically difficult. Newham reported identifying over 1,000 properties with serious hazards in early years of the scheme. **Turley / LGA research (various years)** Surveys of local authorities running schemes generally report positive self-assessed outcomes: increased enforcement action, improved landlord knowledge of obligations, better tenant complaint resolution. These are process outcomes rather than rigorous impact measurement. **RLA/NRLA-commissioned analysis** Surveys of their landlord members consistently find a majority reporting they would or did raise rents or consider exit following licensing designation. This is self-reported data from a lobby group and subject to obvious bias, but it is the most systematic evidence on landlord behavioural responses available. ### Honest Assessment of Evidential Limitations The evidence base is **weaker than advocates on either side typically acknowledge**: 1. **No robust randomised or quasi-experimental evaluations exist.** Most positive evidence is before/after in the licensed area without adequate control areas, making it impossible to attribute improvements to licensing versus other simultaneous changes (regeneration investment, broader market shifts, HHSRS enforcement trends). 2. **Selection effects are significant.** Areas designated for licensing tend to be areas receiving additional local authority attention generally. Disentangling licensing from co-occurring interventions is not straightforward. 3. **Outcome measures are inconsistent.** Some studies measure physical condition, some management practices, some tenant satisfaction, some enforcement actions taken — these are not equivalent, and headline positive findings often rest on relatively soft process indicators. 4. **The rent increase question is empirically unresolved.** There is no convincing study that robustly isolates licensing's causal effect on local rents, controlling for market trends. Both the claim that it significantly raises rents and the claim that it does not are stated with more confidence than the evidence supports. 5. **Implementation quality is the dominant variable.** The emerging consensus from comparative work is that scheme outcomes are much more strongly predicted by the enforcement resource committed post-designation than by licensing itself. A well-resourced scheme with active identification of unlicensed properties and robust enforcement of conditions produces better outcomes than a poorly resourced one, regardless of the fee level or formal designation. --- ## What This Means for Your Charity's Decision Given the above, the questions your charity should be pressing the council on before deciding whether to publicly support are: **On enforcement credibility:** - What is the council's enforcement plan beyond processing applications? How many unlicensed property investigations are planned? What is the trajectory of improvement notices served in the area currently? - Is there a ring-fenced enforcement budget from fee income, and what is the realistic inspection programme? **On fee proportionality and tenant protection:** - Is there any anti-retaliatory eviction protection framework in operation locally? Tenants who report licensing breaches are vulnerable to Section 21 until Renters' Rights Act protections fully bed in. - Are there hardship provisions or reduced fees for genuinely small-scale landlords who can demonstrate compliance, to reduce the incentive to exit? **On targeting:** - What is the evidence that the two wards have elevated disrepair or management failure rates, beyond high turnover? Has HHSRS inspection data, disrepair complaints data or court possession data been analysed? **On the rent increase risk:** - Is the local market genuinely supply-constrained enough that landlords have the pricing power to pass costs through? In genuinely high-demand areas, this risk is lower. --- ## Summary Position The *theoretical* policy case for licensing in high-turnover, poorly managed private rental markets is reasonably sound: it addresses a

## Policy Case For and Against Selective Licensing on Disrepair and Management Outcomes ### What Selective Licensing Actually Does Under Housing Act 2004 Part 3, a selective licensing designation requires every privately rented dwelling in the designated area to be licensed, obliging landlords to demonstrate they are fit and proper persons, maintain the property to a satisfactory standard, and comply with licence conditions covering management, repairs, and tenant conduct. The enforcement lever is licence refusal, conditions, and civil penalties rather than criminal prosecution as a first resort. The policy rationale is that concentrated areas of low-demand or high-rental-turnover housing create negative externalities that voluntary landlord behaviour will not correct. --- ### The Case For **Management standards genuinely improve in compliant stock.** The most rigorous UK evaluation — the Newham study (Reeve et al., Sheffield Hallam, 2016, commissioned by DCLG) — found measurable improvements in property condition and landlord responsiveness in the licensed area compared with a control area, particularly for the bottom quartile of stock. Selective licensing creates a floor below which landlords face sanction, which matters precisely because disrepair is concentrated among the least professional landlords who are invisible to voluntary accreditation schemes. **It reaches landlords who opt out of everything else.** Accreditation schemes, deposit protection compliance, and gas safety certificate schemes all show high compliance among professional and portfolio landlords. The evidence on disrepair consistently shows the worst conditions in small, amateur, single-property landlords — exactly the cohort a licensing register surfaces. Bristol City Council's 2015–2020 scheme data showed that inspection rates in licensed areas identified hazardous Category 1 HHSRS defects in roughly 30% of inspected properties, most of which were unknown to the authority before licensing. **It generates intelligence the council would not otherwise have.** Before a scheme, a council typically has no reliable map of the private rented sector. Licensing creates a mandatory register, enabling proactive inspection rather than purely complaint-driven enforcement. Complaint-driven systems are structurally biased against the most vulnerable tenants (those least willing to complain for fear of eviction, who are disproportionately in the worst housing). **Cumulative management improvements in the area.** A 2019 analysis of Liverpool's selective licensing scheme (Crook and Kemp, Oxford) found improvements in neighbourhood satisfaction scores and reduced antisocial behaviour reporting in licensed wards, though attributing causation cleanly is difficult. The mechanism is plausible: licensing conditions requiring landlords to take reasonable steps to prevent tenants causing nuisance create contractual obligations with teeth. --- ### The Case Against **Rent pass-through is empirically contested but not dismissible.** The core landlord-group argument is that £750 over five years (£150/year per property) will be passed through in rents. The direct cost is modest — roughly £2.88 per week — but landlords face additional compliance costs (inspection preparation, document management, agent fees for licence administration) that could be materially larger. A 2021 analysis by Propertymark estimated total compliance costs at three to five times the headline licence fee. Whether this translates to rent increases depends on local market conditions: in a competitive rental market with elastic supply, landlords absorb costs; in constrained markets with inelastic demand — exactly the high-turnover wards this scheme targets — pass-through is more likely. The empirical evidence is genuinely mixed. Ambrose (2015, Journal of Housing Economics) found modest but statistically significant rent increases in licensed areas in Baltimore; UK-specific studies have not isolated the rent effect cleanly. **Displacement and portfolio exit by good landlords.** Some evidence (RLA/NRLA surveys, acknowledged as self-reported) suggests that licensing schemes accelerate exit of smaller landlords, tightening supply and pushing rents up through a different channel. If exiting landlords sell to owner-occupiers, net rental supply falls. If they sell to larger portfolio landlords, management may improve but affordability may worsen. **Enforcement capacity is the binding constraint, not licensing per se.** The strongest critique of the policy mechanism is that licensing is a necessary but not sufficient condition for improvement. A scheme without ring-fenced, adequate enforcement staff generates a register but not inspection activity. Several councils that adopted selective licensing schemes in the 2010s (some subsequently renewed under post-2015 Secretary of State approval requirements) were found in NAO and parliamentary scrutiny to have inspection rates well below what would be needed to detect non-compliance systematically. If the £750 fee income does not fund genuine proactive inspection — and the legislation does not require it to — the scheme may provide the appearance of regulation without its substance. **Selection effects in the evidence base.** Most UK selective licensing evaluations are commissioned by the councils running the schemes, creating publication bias. The Sheffield Hallam/Newham study remains the most independent, and even that study had identification challenges because designation itself signals an area, potentially prompting some landlords to improve proactively and others to exit. --- ### Where the Evidence Base Sits The honest characterisation is: **moderate quality evidence that selective licensing improves management standards and disrepair outcomes in the licensed stock, weaker and more contested evidence on rent effects, and almost no high-quality evidence on net welfare outcomes accounting for supply-side responses.** The evidence is strongest for the proposition that licensing improves conditions in the directly inspected stock relative to a counterfactual of no licensing. It is weakest on whether aggregate tenant welfare in the area improves once rent, displacement, and supply effects are taken into account. The 2020 MHCLG Review of Selective Licensing acknowledged this evidence gap explicitly and did not resolve it. --- ### What This Means for the Charity's Decision The policy case is genuinely balanced, which means the charity's decision properly turns on its own values and constituency. Relevant considerations: - **If the charity's primary mission is housing conditions and disrepair for existing tenants in the worst stock**, the evidence modestly supports endorsing the scheme, provided the council commits to ring-fenced enforcement resource. - **If the charity is primarily focused on housing affordability and supply**, the rent pass-through and supply-exit risks counsel caution or conditional support contingent on the council's enforcement model. - **A conditional endorsement** — supporting designation in principle while publicly requiring the council to publish an enforcement and inspection plan, commit to annual licence compliance data, and demonstrate ring-fencing of fee income — is consistent with the evidence and defensible to both tenant and landlord stakeholders. The charity should request the council's Designation Decision Notice (required under s.82 and s.84 Housing Act 2004), the accompanying evidence base for the area condition, and the proposed licence conditions before taking a public position, as these documents will reveal whether the council's scheme is substantively designed for enforcement or primarily for revenue.