Whole streets of family homes are being converted into HMOs: Where is the statutory oversight?

 

Prospect Housing, a former registered provider that specialised in exempt accommodation, used Freedom of Information requests to ascertain that £1 billion had been paid out to exempt accommodation providers in 2020. 

“There is certainly cash in the system,” says Commonweal chief executive Ashley Horsey, adding that easy profits have attracted institutional investors as well as private individuals and property owners.

 

“Sadly it has also attracted elements of criminality and exploitation. If it is indeed £1 billion, surely that should be enough to support the necessary services, ensure good quality accommodation and housing management and allow a reasonable return to property developers and investors.”

 

Accessing some of the £1 billion is relatively easy for anyone with the cash to buy and develop properties like Alan’s. An individual or corporate landlord doesn’t need permission to turn a family home into an HMO as it’s covered by “permitted development” unless there are more than six residents.

 

There is, says Commonweal’s policy and communications manager Harry Williams, “astonishing opportunism”. He adds that he’d heard of a three-bed family home being turned into 15 units, each of which can be as small as 6.51m2. “It’s a scandal,” he says. 

 

An individual or corporate landlord doesn’t need permission to turn a family home into an HMO as it’s covered by “permitted development” unless there are more than six residents

 

There’s certainly a striking difference at work: access to housing benefit has been tightened considerably with the shift to universal credit and the bedroom tax. At the same time it has become extremely easy for wealthy people to suck up huge amounts of benefits through exempt HMOs. It’s like the bedroom tax in reverse, where investors can accrue masses of spare rooms, bankrolled by taxpayers.

 

The lack of regulation stems from exemptions that were made to housing benefit in 1996, removing certain types of accommodation from the usual rent caps. The changes were based on the assumption that participants in this sector would be largely charitable or philanthropic and needed the additional money to support their residents back into stable, mainstream life.

 

Writing in Unherd last November, Niamh Mulvey reported that 150,000 people across the UK are now being housed in exempt accommodation, a 62 per cent increase since 2016. These properties are rarely owned by charities or housing associations; instead they lease them from private landlords or property investors, often through a management company, making accountability even more remote. 

 

 

This is a national issue, with Birmingham at the sharp end. Whole streets have been taken over by exempt accommodation HMOs, which were not commissioned by the council and which the council cannot easily regulate. The sector was static between 2016 and 2019 at around 11,000 units, according to Birmingham City Council senior manager of housing strategy Guy Chaundy. By autumn 2021 this had increased to 21,000 units. 

 

The council was one of five areas in the UK awarded over £1.75 million of funding to run a pilot programme aimed at addressing the many problems this type of housing was causing. They’ve now run 500 inspections with social workers and West Midlands Police, leading to over 200 investigations. The council created various governance and consumer structures alongside a voluntary accreditation scheme, with key referral agencies agreeing to only use accredited properties.

 

The funding also allowed them to improve scrutiny of benefit claims. This particular intervention led to a large number of claims being rejected or stopped, clawing back an estimated £2.5 million, which meant the pilot funding more than paid for itself. They’ve had a good response from the majority of providers, says Chaundy, and now have “considerable data” on what’s being provided and where. The pilot continues and extension funding has been announced for four of the five areas.

 

“If six people are renting a room, for let’s say £600 a month, that’s £3,600. The same house you could rent to a family for probably £1,200. That’s the extent of the problem”

 

Back in Lewisham, Bell describes a problem in the south of the borough where a company was buying up “loads of family homes and converting them to HMOs”. He gives an example of a two-bed flat that was converted into six separate households.

 

There’s an issue of exploitation of people who live in HMOs, he says, and of residents who suddenly find many more people living in single properties with the practical issues this can bring. These include more refuse or recycling than the existing bins can handle; noise complaints that can’t be answered because the council no longer has enough staff to cover non-statutory activity; and occasions of antisocial behaviour.

 

There’s also exploitation of the state in terms of public funds being redistributed to private individuals who are protected from regulation or oversight by exempt accommodation loopholes. Many of those newly arrived in the sector, he says, are “rogue landlords who are just making as much money as possible”.

 

 

It’s strong stuff from a local politician but it’s even stronger coming from England’s Regulator of Social Housing. Deputy chief executive Jonathan Walters outlined the situation during a series of Commonweal webinars on exempt accommodation last autumn. “We have found organisations that were effectively set up as a conduit for others to exploit the rules,” he said after the session. “Some housing providers [are] effectively gaming the system.” 

 

He said that neither the sector nor the public purse were being well served by the current situation. Things are so bad that the regulator is no longer handing out registered provider status to organisations, in an attempt to cut supply off at the source – although there have been attempts from some landlords to effectively take over existing registered providers as a workaround for some private investors. This is something they are “clamping down on”. Commonweal has heard of other workarounds: providers and managing agents of exempt properties shifting away from registered provider status to become community interest companies (CICs).

 

There is an appetite for change at a national level, believes Commonweal’s Williams. He cites the select committee of MPs looking at exempt accommodation, the five national pilot schemes, and an opportunity for necessary legislation via the Social Housing White Paper, which came out in 2019 but has yet to generate any new laws.

 

“To have those people in an exploited situation, where the landlord doesn’t care, is so cruel it’s unimaginable. It shouldn’t happen”

 

It’s a complicated issue, made more complicated by the fact that it’s a multi-departmental problem that requires buy-in from the Department for Levelling Up and the Department for Work and Pensions. Commonweal believes the best course would be to offer greater support to local authorities to run accreditation systems and that all local authorities should have an exempt accommodation strategy, which the government should support and fund. It also wants consumer regulation that includes specific standards for exempt accommodation. 

 

Over in Lewisham they’re doing what they can. The council introduced an additional licensing scheme for HMOs above commercial premises in 2017 and, from April 2022, will be introducing a new licensing requirement for all HMOs not covered by the existing national scheme. This will set standards for room sizes, health and safety and property management. Landlords will also be required to have clear plans in place to tackle anti-social behaviour.

 

“We plan to visit every property at least once during the five-year licence period,” says Bell, “which is a huge undertaking given the amount of money that’s been stripped from local government.” As well as assessing a new Article 4 Direction which would require HMOs to gain planning permission (but which can be overturned by the secretary of state) they’re also consulting on proposals for a new selective licensing scheme covering all privately rented properties in 16 of the borough’s 18 wards – although this will also be subject to approval from the secretary of state. 

 

Bell knows the human cost of profit-hungry, unaccountable landlords through casework over nearly 12 years. He also knows it on a personal level, with a family member having to flee domestic violence. “To have those people in an exploited situation, where the landlord doesn’t care, is so cruel it’s unimaginable,” he says. “It shouldn’t happen. There are real people on the receiving end of this … It’s appalling.”

 

---

Emma Warren is an author, editor, journalist and broadcaster with experience in lecturing, workshops and youth work. Her book on the history of a London industrial space and music venue, Make Some Space: Tuning into Total Refreshment Centre, published in 2019, was named one of MOJO magazine’s top 10 books of the year