Introduction and evidence base

London’s private rented sector

The role of the private rented sector (PRS) in London has changed radically in the last few decades. After declining in size since the 1970s, private rented accommodation was typically seen as an option for those looking for flexibility through short-term tenancies, often housing students and young professionals. ¹ Increasingly, however, the PRS is becoming a long-term home for many low- and middle-income families with no other tenure available to them. This is due to both an acute shortage of social housing, and steep, long-term house price increases in the capital.

Londoners are disproportionately likely to live in private rented accommodation. In 2011, 26 per cent of Londoners lived in privately rented homes, but in 2021, census data show that the proportion has risen to 30 per cent – far in excess of the 21 per cent who live in private rented homes across England as a whole. ²

As the demand for rented accommodation in the city has grown, so too has the prevalence of unmanageable rent increases, and the number of Londoners living in poorly maintained rental homes. Nearly 20 per cent of private rented accommodation in London does not meet basic housing standards, ³ and more than half the city’s renters have experienced their landlord failing to make essential repairs. ⁴

Across England, the private rented sector has long had the highest proportion of homes failing the Decent Homes Standard – 23 per cent in 2020/21, as opposed to 13 per cent of owner occupier homes – meaning that they do not meet basic standards of repair, modern facilities and thermal comfort. ⁵The private rented sector also has the worst energy efficiency of any sector: in 2022, 2.7 million households in England were thought to be living in cold, damp or mouldy homes, including 1.6 million children. ⁶

What is selective licensing?

Amid these crises, selective licensing is one form of regulation that local authorities can use to improve conditions in the private rented sector. It sits alongside a range of other legislation governing councils’ private rented sector enforcement practices – including the Housing and Planning Act 2016, which introduced civil penalties as well as extending the use of banning orders and rent repayment orders. ⁷

Selective licensing is a form of property licensing, whereby landlords must obtain a licence to let out a home. It allows a local authority to introduce certain conditions that properties and the landlords who manage them must meet, with the aim of improving both housing conditions and management. Currently, in most parts of England, local authorities do not employ selective licensing: this means that most rented properties are operated without the need for a licence.

Types of property licensing

Selective licensing sits alongside two other types of property licensing in England – mandatory, and additional licensing. Both of these relate to houses in multiple occupation (HMOs).

Mandatory licensing applies to most HMOs occupied by five or more people who make up more than one household and share facilities in a property that is their only or main residence. Additional licensing, on the other hand, applies to most smaller HMOs not covered by mandatory licensing: like selective licensing, it only applies to specific areas designated by a local authority where it is believed that HMOs are causing problems for the public.

This report focuses on selective licensing, which applies to properties rented out to a single household or no more than two unrelated people.

In areas where the percentage of properties in the private rented sector is higher than the national average, since 2004, local authorities have had the power to implement selective licensing schemes to tackle problems caused by low housing demand and/or significant anti-social behaviour. ⁸ In 2015, additional criteria for implementing a scheme came into force, allowing local authorities to also implement schemes in areas that display: ⁹

• Poor property conditions.
• High levels of migration.
• High levels of deprivation.
• High levels of crime.

The conditions for a licence are set by each local authority and can vary according to the reasons given for designating the scheme. However, they must at a minimum include details of smoke and carbon monoxide detectors, as well as safety documents (such as a gas safety certificate).

For a landlord to be given a selective licence, they need to prove that they are a “fit and proper person” to let property. This can involve sharing details of a criminal record, though this varies locally. If they are not found to be a fit and proper person, a licence will not be granted, and they will have to nominate an independent, third-party manager as a license-holder. Some councils vary the length of the licence if there are concerns about the landlord’s management of the property: one-year licences are granted to properties that require some changes, and five-year licences are granted when issues are resolved.

Landlords are required to pay a fee to get a licence in order to fund the scheme. ¹⁰ Fees vary among local authorities, with an approximate range of £350 to £900 for a licence, calculated to fund the expansion in capacity necessary to fulfil the aims of the scheme. ¹¹ Selective licensing schemes are in place in more than 40 different local authorities across England ¹², including 17 London boroughs. ¹³

Does selective licensing improve housing conditions and management?

There are currently only a limited number of studies that have evaluated the efficacy of selective licensing, though several pieces of research are being conducted at the time of writing that will add to this evidence base. Further analysis would be valuable in improving understanding of the impacts of licensing, as well as refining its implementation – and there may be a role for the Department of Levelling Up, Housing and Communities (DLUHC) to coordinate a comprehensive England-wide quantitative review using both administrative and survey data. This could include the use of damp and mould data from local authorities to ascertain the effect of licensing schemes on property conditions.

The existing studies have broadly shown selective licensing schemes to be effective as part of a wider housing strategy, with evidence of higher property standards and lower anti-social behaviour in areas where licensing schemes have been implemented. An independent review of the use and effectiveness of selective licensing – commissioned in 2019 by the then Ministry of Housing, Communities and Local Government – found that with a single exception, all local authorities with licensing schemes described their schemes as at least “fairly effective” in tackling the issues licensing was introduced to address, with 41 per cent finding them “very effective”. ¹⁴

The review also concluded that licensing was most effective as part of a “coherent”, comprehensive policy framework. However, it found that several factors were limiting its efficacy. These included the excessively bureaucratic application process, resource constraints, and the inability of local authorities to impose works conditions directly related to property conditions on a licence. These concerns reflect many issues also discussed in the present report. ⁹

The campaigning organisation, Generation Rent found that, in 2019-2020, councils with selective licensing were able to identify a much greater number of homes with issues – and resolve a higher percentage of cases – compared with councils that did not have schemes in place. ¹⁶ A 2019 study by the Chartered Institute of Housing and the Chartered Institute of Environmental Health found that across the 20 councils and 27 schemes investigated, property standards were significantly improved after the first year of implementation. ¹⁷

A quantitative evaluation of licensing schemes across London undertaken by researchers at the London School of Hygiene and Tropical Medicine found associations between selective licensing and improvements in both mental health outcomes and anti-social behaviour. However, the study’s authors also noted an increase in population turnover in areas where licensing was introduced, which may suggest that changes in residents, not just changes in the management of those properties, played a role. ¹⁸ Nonetheless, the results of the study indicate the potential benefits of selective licensing schemes after their five-year cycles, particularly in terms of reduction in ASB. ⁹ The authors also noted that some of the changes in outcomes occurred before the end of the scheme, suggesting that selective licensing schemes could have significant impacts prior to the end of a scheme’s five-year term. ²⁰

However, recent research from LSE London found that administering a selective licensing scheme alone does not address poor conditions, poor landlord practice, and anti-social behaviour by tenants. Meaningfully delivering the scheme, through enforcement and inspections, is integral to its success. ²¹ This indicates that licensing is not a silver bullet, but should instead be seen as part of a wider strategy of private rented sector improvement – providing local authorities with resources to operate their schemes, data, and the foundations for a proactive approach. Based on our interviews with local authorities, we recommend that councils strengthen working relationships between different disciplines in housing enforcement, bringing together teams working on council tax, homelessness, licensing and other areas to share data and expertise. ²²