A future-proofed licensing system for London

Reinstatement of powers to local authorities

We believe that local authorities are best placed to design and implement their own licensing schemes, and that the interface with central government required by the 2015 General Approval is too labour-intensive and uncertain for local authorities. This means that resources are diverted away from the improvement of standards for tenants in the private rented sector.

Prior to 2015, local authorities still had to make a strong case for their schemes, because they were vulnerable to expensive and time-consuming judicial reviews. Since then, however, the resources and time required to implement a large-scale scheme have increased significantly (as described in Chapter 2). We also found that the complications of the process are causing councils to restrict the ambition and scope of their applications in order to avoid rejection by central government – ultimately reducing the efficacy of their schemes.

The time and cost requirements of a scheme also make long-term resource allocation planning difficult. If, as the available evidence and our interviews suggest, a scheme often takes one to two years to run at full capacity – and an application takes a year of an officer’s time – this leaves only two intervening years out of every five-year term during which all staff are able to devote their time to enforcement. ¹ In addition, the possibility of a scheme’s failure to be renewed after five years can make long-term investments in staff training and recruitment a risky and uncertain prospect.

There is a case for simply reverting to the pre-2015 status quo, under which local authorities were free to design and implement their own selective licensing schemes, under their own governance procedures. However, we believe that this can be improved upon. Below, we explore the case for this, alongside potential reforms to improve the consistency and efficacy of licensing.

Systems outside the UK

Below, we look at two successful examples of rental licensing and registration programmes from outside the UK’s institutional context – which we believe is limiting the impact of selective licensing in London.

RentSafeTO: A landlord registration scheme in Toronto, Canada

In 2017, the City of Toronto created RentSafeTO, a landlord registration programme that applies to all privately rented residential buildings above three stories or containing ten or more units.

RentSafeTO requires landlords of applicable properties to register once a year. Every one to three years, each property is audited and scored on a list of property condition requirements. If a property is scored below 50 per cent, it receives a full audit, including staff visits. The programme also responds to service requests from tenants in cases where landlords have failed to respond to complaints.

Officers working on the programme described a marked improvement in compliance over its lifetime and are looking to move their scoring regime to a curve system – where relative underperformers will receive full audits even if absolute property standards continue to increase. Searching for non-compliant properties is facilitated through a municipal database of buildings, but non-registration is reportedly low.

The programme was designed to recover 65 per cent of its costs via user fees, with the remaining 35 per cent funded out of general taxation – though fees have reportedly funded more than the expected percentage. Landlords pay an annual registration fee, which includes a fee per unit; they also pay a fee for each inspection and audit they are subject to.

The City of Toronto was able to create the programme without the need for permission or devolution of competence from either the Province of Ontario or national government, and it was able to tailor its design to the city’s built environment and policy needs. Other cities like Mississauga, Ontario are now designing their own RentSafe programmes with the help of the Toronto team.

Healthy Residential Rentals for All in Denver, USA

The City and County of Denver passed a new ordinance in early 2021 requiring a licence for all residential rental units. Licences are to be renewed every four years, or when a property title is transferred. Unlike in Toronto, the ordinance does not only apply to large buildings. In fact, Denver’s rental housing stock is mostly low- or medium-rise, and is largely owned by small-scale landlords – much like London’s.

The programme is being introduced in stages. In January 2023, licensing became compulsory for privately rented residential properties, including multi-dwelling buildings; in January 2024, it will be compulsory for all rental dwellings. If a property remains unlicensed, its landlord will not be able to rent it out after the current tenancy is completed. To aid enforcement, all adverts for rental properties are required to include their licence number, allowing the City to easily find unlicensed properties.

The city estimates that over 50,000 units will eventually be licensed. Those involved in the programme’s design hope to be able to add to its operational capacities – linking licensing to public funding for home upgrades as well as creating scope to request information on accessibility, climate resilience and appliance types.

As a combined city and county, Denver was able to design and implement its programme (modelled on the city of Boulder’s successful licensing system) without any dependence on state or national officials. The programme came after state legislation created a warrant of habitability for properties – a positive yet limited step, since it placed the onus for complaint resolution on tenants obtaining legal representation. The licensing programme was therefore implemented separately to this state-level legislation, and was designed in consultation with an advisory committee of local residents and landlords.

Lessons learned from Denver and Toronto

Although neither city’s framework is directly transferable to London, both contain valuable lessons for the capital’s policymakers. Toronto’s movement towards a continually upgraded scoring system for rental properties provides a concrete means of quantifying municipal ambitions for housing quality, while Denver’s approach to phasing in the programme has reduced administrative burdens and pushback.

Key to both cities’ programmes was the independent jurisdiction to create schemes tailored to their needs and policy contexts. In Denver’s case, the city was able to build on a state law but alter its provisions to suit its own social policy goals, modelling its programme on that of a comparable Colorado city. In Toronto, RentSafeTO was designed with the city’s built environment in mind, focusing on the large, multi-family blocks that house most private renters. It has now become a model for other Canadian cities. This kind of “urban experimentation” – by which cities are able to test and iteratively develop policy, learning from one another – is a potentially productive dynamic, visible in many policy areas, and which could lead to better outcomes in property licensing. ²

These examples from outside the UK demonstrate some of the shared features of ambitious and successful property licensing and registration schemes: we hope they will provoke discussion about the scope and goals, as well as the operation, of selective licensing in the UK.

Proposals for a reformed system

Levels of control

We recommend that local authorities are granted the authority to design and implement selective licensing schemes of any size – a reinstatement of authority they held until 2015. We also recommend creating an oversight role for the Greater London Authority to promote the good design and harmonisation of schemes.

In theory, the approval process for large-scale selective licensing schemes could occur at three levels, or through a hybrid system. Approval of licensing schemes could be given by:

• UK government (as it is at present).
• Regional government, such as the Greater London Authority.
• Local authorities.

Currently, local authorities don’t need approval for schemes that cover less than 20 per cent of the borough or PRS, but they require the Secretary of State to approve applications larger than this.

We think the expansion in staff that would be needed for central government to itself administer a single licensing scheme covering all privately rented homes makes it a sufficiently unlikely (and inadvisable) prospect to exclude the possibility from this discussion. Below, we discuss the alternatives and make the case for local authorities to be granted the authority to design and implement their own schemes, with those in London receiving advice and support from the GLA.

Pan-London

It would be theoretically possible to create a London-wide system under which the GLA operated a single licensing scheme for single-household private rented properties across the city, thereby replacing existing schemes operated by individual boroughs. This would have some upsides: it would save time for councils, give landlords consistent application requirements and costs, and guarantee tenants a more consistent set of standards. But it would remove councils’ capacity to tailor schemes to their local areas – as well as requiring an enormous expansion of capacity at the GLA, which no policymaker we interviewed at either local or city level expressed a preference for. Therefore, we do not recommend this option.

Borough-level

Boroughs could also have total control, as was the case until 2015, with the ability to design and implement their schemes without any outside guidance or permission, in line with their own governance procedures. This would also have its advantages. Local authorities would no longer have to spend time and money making confirmatory applications to central government. Councils would be able to design schemes with their area in mind, and could plan over the long term to make investments in enforcement using funds from licensing. As of March 2023, individual local authorities in Greater Manchester will be granted this power through the “trailblazer” devolution deal between the Greater Manchester Combined Authority (GMCA) and the UK government. ³The deal states that a general approval will be automatically granted for larger selective licensing schemes from the Secretary of State to the ten local authorities within the GMCA. These local authorities will therefore no longer have to seek the Secretary of State’s confirmatory approval for their schemes through the application process, but instead will be able to individually exercise the power to introduce licensing. ⁴

However, this could potentially increase boroughs’ vulnerability to successful judicial reviews against their schemes. Several boroughs we spoke to mentioned that, when facing judicial review, their cases were helped by having received approval from the Secretary of State, which provided valuable backing that they had followed procedure. There is also the possibility that the differences between schemes’ costs, requirements from landlords, and aims could expand significantly – leading to greater variation in how schemes operate across London (and surrounding areas) than already exists. This could potentially be avoided through the introduction of universal, mandatory licensing, which many of our interviewees supported. However, we concluded that this was both practically and politically unfeasible in the short-term, given the expansion of capacity in many councils it would require.

Hybrid: Borough/GLA

We therefore believe that the GLA should play a role in providing advice to promote the good design and harmonisation of schemes in London. This would be a purely advisory role: the GLA would not have the right to reject schemes. ⁵ Beyond setting out the national framework for selective licensing in the Housing Act and related legislation, central government would not be involved in its implementation within local areas.

However, a strategic pan-London body – the GLA – could give consistent guidance on scheme design as well as advice on how to set up and operate licensing schemes. Many council officers told us this would be very valuable to them. Guidance could range from IT requirements to workforce development, helping local authorities learn from successful schemes in designing their own. The benchmarking of licensing scheme fees by the GLA could also avoid what one officer called a “race to the bottom”. Local authorities often worry that charging fees sufficient to cover the scheme’s running costs and an expansion in enforcement could lead to landlords leaving their boroughs for others that charge lower fees – or increase the likelihood of non-compliance. In order to ensure landlords’ compliance, some councils have reported feeling pressured to charge lower fees than they felt would be optimal, thereby reducing the scope of their scheme. A shift towards harmonisation over time could improve the user experience for landlords with multiple properties across borough boundaries. Tenants would also be assured that standards were being policed more equally across the city, though this would also depend on the resources of individual boroughs.

Outside London, combined authorities could play this oversight role. In areas without combined authorities or the GLA, we believe that central government should consult with councils as to their preferred advisory body. This could be run through the Local Government Association or another such organisation.

This would achieve the right balance between giving local authorities the ability to design and manage their own schemes using their unique local knowledge, and the movement towards a more standardised and consistent system of rental regulation in London. It would also save time and money for both local and central government by ensuring local authorities meet high standards, freeing up resources for councils to enforce those standards, and reducing the likelihood of judicial review.

With increased attention being paid to the tragic consequences of damp and mould on vulnerable people after the death of a two-year-old boy, Awaab Ishak, now is the moment for change. ⁶ London’s private rented sector is failing renters and creating an uneven playing field for law-abiding landlords. A harmonised, strategic approach to licensing, complemented by a comprehensive Property Portal, can begin to address this. London’s growing number of privately renting households need reform urgently.