Should ‘revenue raising licensing schemes’ reinvest in the PRS?

Revenue raised by landlord licensing schemes should be used to enforce rental sector regulation, according to PayProp.

It says that the money raised by licensing could improve standards in the private rental sector if reinvested effectively, with potential long-term benefits for letting agents, landlords and tenants.

Estimated figures suggest around 16% of English councils operate a selective licensing scheme, covering approximately 500,000 properties. It is also now a mandatory requirement for all Houses in Multiple Occupation (HMO) to have a licence.

Despite the high number of licensing schemes and revenue raised by these initiatives, local authorities are not currently obliged to invest money made by licensing back into the housing sector.

PayProp cites a recent Direct Line study which revealed the average landlord licence costs £591. The research also found that the average local authority with a licensing scheme raises £144,629 annually, with Liverpool City Council earning a high of around £4 million from its scheme each year.

"Licensing schemes are sometimes criticised for being ‘revenue raisers’ for local councils," says Neil Cobbold, chief operating officer of PayProp.

"However, if authorities are more open about where the money is going and more focused on reinvesting it into housing, licensing schemes could be more effective with higher rates of compliance."

He adds that landlords might be happier to pay for licences if they know the money will be used to identify criminal operators and raise standards in the rental sector.

The Ministry of Housing, Communities and Local Government is currently holding a review of the selective licensing scheme system, the results of which are expected to be made public very soon.

PayProp argues that a uniform selective licensing system could be more effective.

"A standard approach to licensing could make projects easier to enforce, while making things less confusing and creating a level playing field for landlords," Cobbold explains.

Research shows that under the current system, the costs, terms and exceptions of licensing schemes vary depending on which local authority is operating the initiative.

For example, the cost of some licences is based on the property type, while others are charged based on the number of occupants or number of rooms in a property.

"We await the results of the government’s review of selective licensing with interest." 

"Effective enforcement and details on what licensing revenue is used for are two of the key topics that could be addressed," concludes Cobbold.