RealWorth
Topic: Article
Posted on 14th Feb 2024

Could Landlord Licenses Solve the Current Homeownership Crisis?

A report by the Resolution Foundation in 2018 predicted that one in three of Britain’s millennial generation will never own their own home.

Anyone with a remote interest in the property market will have read, at some point in the last few years, that the UK is deep within a home ownership crisis. 2021 Census data recently revealed that the number of households that own their own home has decreased by 1.8% since 2011, to almost two-thirds of households, while 37.3% (9.3 million) households rent their accommodation, an increase of around 3% [1]. A report by the Resolution Foundation in 2018 predicted that one in three of Britain’s millennial generation will never own their own home [2].  

One factor behind this is the expansion of the private rented market. Historic UK policy (such as the 1988 Housing Act, which introduced assured shorthold tenancies), combined with decades of falling interest rates, rising house prices, and consistently strong rental yields (around 4.75% as of 2023) has enticed more and more people to invest in property [3]. In 2022 alone, more than 211,000 buy-to-let mortgages were approved by UK lenders, and with the average price paid by tenants in the UK rising by 6.2% in the 12 months to December 2023, buying a house is off-limits to many due to a limited ability to save and a general lack of affordable housing available [4].

Whilst renting is fine for many, a variety of push and pull factors make owning your own home desirable. Firstly, it can create significant social benefits to your life. The HomeOwners Alliance homeowner survey in 2019 stated that 91% of homeowners feel their home contributes to a positive sense of well-being as compared with 79% of renters [5]. RealWorth’s work with the Level Initiative in Pittsburgh, USA  found that owning a home positively influences peoples social connections, subjective wellbeing and financial management, amongst other outcomes.   

Analysis from the BBC in 2018 on the other hand painted a bleak picture of the rights of UK renters in comparison to countries such as Germany, Italy, Belgium or Ireland [6]. Section 21 ‘no fault’ evictions can remove people from their homes for no reason with only two months’ notice. In England and Wales rent increases are supposed to be “fair and realistic”, however only protect renters for the length of the tenancy [7]. In Germany, pets are generally allowed, whilst in England and Wales it is for each landlord to decide. In 2021, 11% of private rented homes reported a problem with damp, according to the 2021-2022 English Housing Survey [8]

The Government is clear that it “values the private rented sector and wants to see a strong, healthy and vibrant market”, and despite the value in home ownership and weak protections for renters, a strong private sector rental market is important [9]. Demand for rented accommodation comes from the flexibility it provides, whilst maintenance fees often fall under landlords’ responsibilities. However, high rents, weak protections for renters, and limited accessibility to purchasing a home remain significant social problems.  

With this in mind, perhaps it is time to consider innovative solutions to the crisis. The existing (but possibly underutilised) tool of landlord licenses is noteworthy. Selective licensing allows councils to require every privately rented property in a specified area to have a licence. When applied, a landlord must receive a licence if they want to lease. Applicants are required to declare convictions for dishonesty, violence or drug-related offences, or breaches of housing, landlord or tenant laws, allowing authorities to confirm that they are a “fit and proper person”. The scheme also ensures that standards are met in property maintenance and management including health and safety [9].

Currently, local authorities have powers to introduce selective licensing of privately rented homes in order to tackle specific problems in their areas, such as poor housing conditions, high levels of deprivation or high levels of crime. However, local authorities are required to obtain confirmation from the Secretary of State for larger selective licensing schemes, and they can be applied “only where there is no practical and beneficial alternative” [9].  

Where and when applied, the schemes have proved successful. A report commissioned by the Ministry of Housing, Communities & Local Government in 2019, 4 years after they were originally introduced, found selective licensing of private landlords had been effective in tackling problems such as poor housing conditions and crime, but warned schemes have limited success when introduced in small areas [10].

With that in mind, if landlord licenses are considered successful, why not consider a universal rollout across the UK for anyone wishing to let a property? A requirement for every landlord to apply for a license could ensure the quality of rental properties, improving the health, safety, and wellbeing of those living there, and penalise those who fail to uphold a standard. It would also serve to regulate the supply of rental properties, which could be achieved by imposing caps in certain areas to maintain homeownership as a priority and ensure a healthy balance of tenure in a neighbourhood.  

Perhaps a full-scale rollout of landlord licencing sounds controversial. However, Governments are expected to respond to collective risks and limit negative side effects that result from market forces. Planning permission laws were introduced to address rapid urbanization, overcrowding, poor sanitation, and public health issues during the Industrial Revolution [11]. The driving license was created as a system of examinations to ensure that drivers have the necessary skills to control automobiles [12]. The current state of the rental market is having such an effect on society that a similar policy may be needed.  

– James McGowan 

Sources and Links

[1] Office for National Statistics (ONS), 2023, Statistical Bulletin – Housing, England and Wales: Census 2021 [online] available at: Housing, England and Wales – Office for National Statistics (ons.gov.uk

[2] Resolution Foundation, 2018, Home Improvements: Action to address the housing challenges faced by young people [online] available at: Resolution Foundation IC report

[3] Property Data, 2023, Where in the UK have the best Rental Yields [online] available at: Where in the UK will have the best Rental Yields? [Updated 2023] – PropertyData

[4] USwitch, 2023, UK buy-to-let statistics of 2023 [online] available at: UK buy-to-let statistics 2023 Report – BTL Facts and Stats | Uswitch

[5] HomeOwnership Alliance, 2019, The HomeOwner Survey 7th Annual Report [online] available at: https://hoa.org.uk/wp-content/uploads/2019/09/2019_HomeOwner_survey_report.pdf 

[6] BBC News, 2018, Reality Check: How does renting a home in the UK compare [online] available at: Reality Check: How does renting a home in the UK compare? – BBC News

[7] UK Government, 2023, Guidance on Private Renting [online] available at: Private renting: Rent increases – GOV.UK (www.gov.uk)

[8] Department for Levelling Up, Housing & Communities, 2022, English Housing Survey 2021 to 2022: headline report [online] available at: English Housing Survey 2021 to 2022: headline report – GOV.UK (www.gov.uk)

[9] Department for Levelling Up, Housing & Communities, 2022, Selective licensing in the private rented sector: a guide for local authorities [online] available at: Selective licensing in the private rented sector: a guide for local authorities – GOV.UK (www.gov.uk)

[10] Ministry of Housing, Communities & Local Government, 2019 [online] available at: Title (publishing.service.gov.uk)

[11] British Dwelling: A Brief History of Planning Permission, 2024 [online] available at: A Brief History of Planning Permission (2024 Update) (britishdwelling.co.uk)

[12] It Still Runs: What is the History of the Driver’s License?, 2023 [online] available at: What is the History of the Driver’s License? | It Still Runs

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