HOW COULD THE GOVERNMENT CONSULTATION ON CHARGING ONE COUNCIL TAX FOR HMOS IMPACT LANDLORDS?

If these proposals are introduced, they are likely to lead to an immediate increase in rents and a spike in rental inflation—although the overall cost for tenants is unlikely to change as they are responsible for paying the council tax for their room. It will create a more level playing field for tenants to compare the cost of living in different HMOs and reduce a significant amount of administration, particularly for properties which have a high turnover. One consideration for landlords will be how they apportion the cost of council tax across the property if some of the rooms are larger than others. Overall, this seems like a sensible move that will ultimately make it easier for landlords to manage their properties and make the sector more transparent.

Case law and legislation can be applied by the VOA to determine if a unit in an HMO should have its own council tax band, which ultimately passes the responsibility of paying the tax from the landlord to the tenant. If they don’t pay, as long as the council tax is registered in the tenant’s name, the local authority can’t chase the landlord for any outstanding debt. However, the government now wants to pass the collection of the council tax onto the landlord. This means the landlord has more liability, more monthly expenditure and less profit, as they will likely not able to increase the rent—since some tenants are already struggling with paying rents and bills. Thus, this proposed change will cause a further negative impact on the profitability of the property that will ultimately be passed on to the tenant, especially in areas of high rental demand. A balanced approach needs to be taken.

The proposed changes to council tax banding would bring much-needed consistency and fairness for both landlords and tenants. Landlords in disaggregated areas that are unable to absorb rising council tax bills are forced to pass this on to tenants, making rent unaffordable in the process. Landlords are then faced with expensive void periods or the prospect of slashing their yields to have any hopes of remaining competitive. One aggregated council tax band not only makes the most sense in terms of ease and fairness, but it reduces unnecessary additional costs and regulation, and ensures properties remain more affordable for tenants. As residents and landlords face rising costs across the board, this should surely take priority for councils.

I really don’t think this will make much of a difference to either landlords or the PRS, for the simple fact that most professional landlords with HMOs in their portfolios already take control and responsibility for the council tax and utility bills for their properties. Relying on multiple tenants within a property to register, keep gas and electric meter readings and make the correct payments is an administrative headache, which most professional landlords will go to great lengths to avoid. The answer is simply to provide an all-inclusive HMO rental price which covers these costs; it can often be the turnkey solution that HMO tenants are looking for.

The main reason an article 4 is implemented is to protect an area and its residential status. For example, Bournbrook was converted into HMOs to house students for Birmingham University over a very short period of time, with around 90% of the residential property having been converted—thus completely transforming the area forever and having a negative impact on the remaining families. The increased noise and rubbish generated was so impactful that Birmingham placed an article 4 to protect the city from further disruption. Cities like Plymouth are no different to any other in the UK and will welcome landlords who want to provide quality housing for families, while limiting the negative impact of HMOs and stopping families homes from being removed permanently from the long-term rental market.

While councils, such as Plymouth, may not like to admit it, the reality is HMOs form a vital part of the wider housing mix in the UK. These landlords provide accommodation for those at the bottom of the property ladder and, without good quality HMOs, lower income tenants, students and young professionals will have far fewer places available to them. This is especially true in a place like Plymouth where the local university has over 18,500 students—while some of these will rely on halls of residence, on-site accommodation, or may still live at home, there would be a clear housing crisis without a strong supply of HMOs. The same can be said for those outside further education where traditional rental or full homeownership is either out of reach or not suitable for their lifestyle or career. As the cost of both of these increases, how will the council cater for those who cannot afford to live on their own?

Many local authorities have already brought an article 4 direction into effect, including Birmingham City Council, which has concluded that too many HMOs were being created, thus putting pressure on the local authority’s infrastructure (hospitals, schools, parking etc). In these areas, article 4 has had a positive impact on those compliant HMOs already operating in the newly regulated zones, as new HMO supply is very limited. It’s actually a good example of regulation being used to raise the bar for landlords and the standards of accommodation for HMO tenants. However, I’ve not seen any evidence that a nationwide implementation of article 4 is desirable or, in fact, being called for.

With the cost of living crisis and increasing prices of mortgages and rental properties, an HMO can provide an affordable and important source of housing. This is particularly so in university towns, near hospitals to key workers, and for other employees who stay during the week and return to their home for the weekend. It’s therefore important that local authorities take a sensible approach to regulate the number of HMOs in their area, avoiding overly onerous rules or restrictive limits on the number of properties allowed. A rational approach to HMOs based on local circumstances may benefit an area, but excessively restricting these properties will limit choice for tenants and may drive up rental costs.