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A REVIEW OF THE FIRST YEAR OF THE MANDATORY LICENSING OF HOUSES IN MULTIPLE OCCUPATION IN SCOTLAND

CHAPTER TWELVE ISSUES, QUESTIONS AND RECOMMENDATIONS

12.1 Two themes underpin this final chapter: integration and change. The preceding chapters addressed a wide range of issues related to the introduction and operation of the licensing scheme in its first year. Here, the issues considered most relevant to explaining the relatively poor progress of the scheme are brought together. It is argued that it was not one issue but the cumulative effect of different issues that produced the outcomes described in Chapters 4 and 6.

12.2 Looking forward, the second theme promotes a more optimistic view of the future of the mandatory licensing scheme provided certain changes are made. Two questions are posed: How can the scheme be made more efficient and effective in the future? In what ways can the Guidance be improved? The chapter offers a series of options and recommendations for change to the operational framework of the scheme and to its accompanying Guidance.

12.3 The views offered are those of the author. They are presented as a contribution to the debate about the future shape of the mandatory licensing scheme. They are open to critical comment but hopefully they will help to clarify some of the options available that will secure a workable and effective scheme of regulation of HMOs that provides tenants with an acceptable standard of accommodation and management without creating a potentially damaging impact on the size of the private HMO sector.

WHY WERE SO FEW HMOS LICENSED IN THE FIRST YEAR OF THE MANDATORY LICENSING SCHEME?

12.4 As reported (Chapter 6), just over 200 HMOs of six persons and above, were licensed within the first year of the scheme. If authorities were correct in their estimates, this represented about half of the number of HMOs that should have been licensed. Progress was poor for numerous reasons. Knowledge of the HMO sector was poor. There were factors at local authority level related to prioritisation, resourcing, joint working and officer experience but there were also factors related to the licensing Order and framework of the Civic Government (Scotland) Act 1982 Act. There were inter-professional conflicts about the appropriate standards to use and significantly, the behaviour of owners was a factor, not those who applied for a licence, but those who ignored their legal obligation to licence their HMOs. A further delaying factor could also have been the decision of the Social Justice Committee to hold an early inquiry into the operation of the scheme. Certain owners may have held back from applying in anticipation of a favourable outcome about exemptions. These issues are elaborated below.

12.5 Lack of knowledge about the private rented HMO sector adversely affected investigative work. The scheme was predicated on an expectation that HMO owners would come forward to apply for licences and that if were was any evasion, local authorities would take action. Unfortunately there was a degree of evasion but too many authorities lacked the geographical knowledge of where HMOs were located and therefore were handicapped in taking targeted action. Added to this, few authorities adopted a proactive interventionist approach in response to a lack of applications. This in turn reflected a fundamental problem about resources and priorities.

12.6 In too many authorities, mandatory licensing did not have a high enough political priority. Despite their commitment to HMO licensing, local authorities, with some exceptions, did not make available sufficient resources in terms of staffing and information technology necessary to deliver efficiently, this complex licensing scheme. With exceptions, in most authorities, one HMO officer with other duties operated the scheme, liaising informally with other professional officers who also had other duties. Resources in the major fire brigades in Central Scotland were no less stretched than those of local authorities. Too often, the result was a reactive approach with the lead officer processing only those applications received but lacking the capacity or additional staffing necessary to adopt a proactive, interventionist method of working based on identifying and threatening prosecution of recalcitrant owners. This weakness in how schemes were, in many cases, resourced, interacted with the licensing programme set out in the Order. HMOs with five occupants were to be brought into the scheme from October 2001. Therefore, in the latter part of the first year, authorities were expected to start to contact HMO owners and institute some form of publicity about the forthcoming inclusion of the five person HMOs while processing the first year's applications continued. With adequate staffing this would not have been an issue but in the circumstances, promotion and investigative work to identify and pursue licence evaders suffered.

12.7 The 'all tenure' coverage of the scheme added additional pressures. The 'equality of treatment' argument produced a scheme encompassing both private sector HMOs and many types of shared accommodation in the public and voluntary sectors. While the inclusive nature of this policy had its logic in not assuming that public and voluntary sector HMOs were perfect, the unintended effect was to deflect the original political aspiration that the priority should be to tackle the known problems of poor conditions in parts of the private rented sector. A number of authorities became enmeshed in disputes and protracted negotiations over standards and fees with universities, housing associations, charities and Abbeyfield Societies. In addition, the high 'visibility' of shared accommodation owned by such organisations, made their larger accommodation legitimate but rather obvious early targets for licensing.

12.8 The limited use of joint working groups was counter-productive to efficient working. HMO licensing is well understood to be a complex issue as the standards encompass environmental health, building control, fire safety, housing and planning matters. Although inter-departmental working groups appear to have performed a useful function in planning for the scheme's introduction they were often wound up, or infrequently convened, after the start of the scheme. Given the problems that unfolded as the year progressed, this seemed inexplicable. For those authorities that wound up their working groups, this could be considered a miscalculation of the continuing value of such groups. The real issues with licensing arise from joint working at HMO case level when property inspections and the applications of standards begin. Maintaining a forum for inter-departmental and inter-agency working would have allowed problems to be formally addressed and possibly resolved more quickly than they were.

12.9 A related factor was inter-professional disagreements. They inhibited efficient progress in a number of local authorities and effectively suspended progress until they were resolved. A difference of opinion on fire safety standards between building control and environmental health officers on the one hand and fire brigade officers on the other hand, was a significant factor for a number of authorities. The underlying problem was the unwillingness of fire brigades to accept the recommended fire safety standards in the Guidance for HMOs of up to six occupants and their preference to have higher safety standards for smaller HMOs. Why this was not identified and resolved before the Guidance was finalised, is not clear.

12.10 Finally, there was the attitude and behaviour of owners towards licensing. While authorities can be challenged over under-resourcing and operating the scheme, the fundamental obstacle they faced was wilful evasion of the licensing scheme by too many HMO owners. Non-compliance, a criminal offence, damaged the credibility of the scheme in the eyes of owners who had applied for a licence and spent several thousands of pounds meeting licence conditions. Understandably, they question the point of renewing their licences in the future. In the few authorities that pursued investigative action, additional effort, time and costs were diverted from inspections and administrative processing. Licence evasion is not unique to HMO licensing. All licensing schemes have to deal with evasion - consider TV licensing and car licensing. Lacking from HMO licensing was an understanding of how best to respond to evasion and a supportive criminal justice system to publically underscore the serious consequences of failure to licence.

HOW CAN THE SCHEME BE MADE MORE EFFICIENT AND EFFECTIVE IN THE FUTURE?

12.11 The official statistics on progress in the first half of year two of the scheme shows a strong pickup in the rate of processing of applications by local authorities (Chapter 6). There are probably a number of reasons for this increased efficiency: applications that were in the processing pipeline in year one gaining approval after September 2001; the resolution of the dispute over fire safety standards, and the increased confidence and proficiency of officers in discharging their duties. This improved progress should continue through the second half of year two of the scheme as more pipeline applications are determined and new applications enter the system, possibly including some from the universities since their negotiations over fees and work programmes have largely been resolved. However, this does not necessarily mean the scheme will become more effective. Effectiveness relates to the objectives of ensuring the incorporation within the scheme of all HMOs that fall within the terms of the licensing Order, ensuring they meet minimum approved standards and avoiding a negative impact on supply.

12.12 Unless addressed, continued under-resourcing and lack of knowledge about the number and location of HMOs will constrain increased effectiveness of the scheme, as will evasion of licensing. As the occupancy threshold for licensing reduces to five, four and finally three persons, the number of HMOs requiring a licence will increase significantly and with it, the probability of increased non-compliance due to evasion and lack of awareness. Various contributors to the research anticipated resistance to licensing from owners of smaller, three person and possibly four person HMOs when the scheme moves to incorporate them. In the two major cities in particular, successfully addressing the licensing of three person HMOs will be a massive task.

12.13 The proficiency, skills and motivation of the officers involved in licensing will be essential to counterbalance these negative factors but the outcome may be that while licence approval numbers increase each year as more HMOs enter the scheme than in the first year, this may not translate to increased effectiveness as the proportion of HMOs licensed may remain static or decline.

12.14 The principle behind mandatory licensing is essentially that where satisfactory standards, safety and management of HMOs is not being achieved (e.g. due to market failures), regulatory intervention is justified to ensure the comfort and security of those otherwise unable to exercise or defend their rights. However, principles need to be translated into workable practice. For mandatory licensing to be fully effective, it may have to be better targeted, more manageable and more flexible. The defence of the status quo made by most local authorities (Chapter 11) that argued against any changes to the minimum occupancy threshold, the exemption categories or the inclusion of three person HMOs, is not sustainable. Altering the rules may not be an attractive but making the scheme work better is a more important priority. The impact of changes to the scheme on fee income and staffing levels for HMO work is a live issue for some authorities. The problem facing two or three of the city authorities should there be any restrictions to the scope of the scheme, is that they have already invested resources in their operations on the presumption that the large number of smaller HMOs and possibly the university accommodation will provide the revenue flow to offset the high initial costs (i.e. deficits) of the first and possibly second year of the scheme. There is not an incentive to restrict eligibility to the scheme.

12.15 In what ways could the effectiveness of scheme be improved? This remit for the research did not include consideration of alternatives to licensing nor has the research concluded that a replacement to mandatory licensing is required. However, a conclusion of the analysis indicates there could be practical benefits from considering possible modifications to the mandatory scheme. Two major areas should be looked. First, the framework for the scheme's implementation. Second, the Guidance on the scheme, including the standards adopted and their relationship to risk assessment. Sketched out below is an outline of issues and arguments on these two topics. It should be noted however, that more detailed analysis than is appropriate for the remit of this report is necessary before any final conclusions could be reached.

REVIEWING THE IMPLEMENTATION FRAMEWORK FOR MANDATORY HMO LICENSING

12.16 To make the implementation framework for mandatory licensing more workable, the Executive could consider any of a number of amendments:

1. An extension in the implementation timescale by two years. This would require an amendment to the licensing Order. In 2002-03, five person HMOs are currently being licensed and applications for 4 person HMOs are being requested with a view to their processing between October 2002 and September 2003. Three person HMO will have to be approved between October 2003 and September 2004 (authorities have up to 12 months to approve an application).

2. Given the greater numbers that will be expected to come into the scheme, the time period for processing the 4s (and dealing with non-compliance by owners of 4s and 5s) could be extended a year to October 2004. The requirement for applications for three person HMOs to be submitted could be within the October 2003 - September 2005 timeframe with approvals commencing at October 2004 but running for 2 years to September 2006. A scheme for how this might work is set out in Annex 4.

3. Suspension of the occupancy threshold at four. If authorities are not able to apply additional resources to boost the delivery of the scheme, it may be appropriate to apply the cautionary principle and decide to suspend the occupancy threshold at four (i.e. include the four person HMOs) and reserve a decision on the date for incorporation of three person HMOs until local authorities provide evidence that all four person and larger HMOs have been licensed.
4. Exemption from licensing of HMOs that are family homes with resident owners and two tenants or two lodgers. The argument in support of this exemption is that management of the HMO resides with the home owner, is located within the property and has a low level of risk comparable to a single family home. A criterion that could be applied is that exemption would not be allowed if either the tenants or lodgers were defined as vulnerable, dependant adults in need of greater protection than afforded by the safety features or management of the family home. Any concerns about fire safety could be addressed using the Housing (Scotland) Act 1987.
5. Exemption of three person HMOs that are shared flats or houses lived in by independent, non-vulnerable adults. These will normally be small properties with short escape routes, sharing cooking facilities in a kitchen, unaltered bedrooms and occupied in a manner akin to a family unit. Any concerns about fire safety could be addressed using the Housing (Scotland) Act 1987. Not excluded from licensing exemption would be bedsitter arrangement that included cooking facilities in each bedsitter unit, regardless of the type of occupancy group.
6. Exemption or suspension from licensing of HMOs owned by non-profit organisations. This would include local authorities, registered social landlords, Abbeyfields, universities and charities. Exemption is more tricky than suspension as a number of the properties concerned will accommodate large numbers of persons and in some, the residents could be deemed vulnerable (though not covered by the Regulation of Care (Scotland) Act 2001). If full exemption were to be allowed without any caveat, there would be legitimate concern that in certain cases, such a broad exemption would inappropriately exclude HMOs that did not have satisfactory safety or management standards. However, full exemption based on the confirmation that alternative safety or management regulations and good practice apply should suffice for full exemption. This needs direction by the Executive but local authorities need to have a more goal-based approach with less adherence to the detailed standards in the Guidance which, it has been argued, appear far too prescriptive and inhibit flexibility.

7. The argument in support of suspension as opposed to exemption is based on relative priorities. Some local authorities have devoted time and effort dealing with highly regulated, very sheltered housing schemes or recently constructed student accommodation blocks when private sector owners have been ignoring their duty to apply for a licence. It is an issue of where the priorities ought to lie. The original aim of licensing was to address problems in the private rented sector:

   "We value a revived private rented sector. We will provide protection where most needed: for tenants in houses in multiple occupation. There will be a full system of licensing by local authorities which will benefit tenants and responsible landlords alike" (Scottish Labour Party, 1997)

   To return to this objective as the first priority would be a sensible reflection of the importance of the political direction underpinning the introduction of mandatory licensing but if so, a form of undertaking should be provided by all those organisations (including local authorities themselves) that they have, or will carry out a risk assessment of any of their HMOs that have been exempted or suspended from the scheme.

8. An injection of more financial resources for staffing and I.T. to HMO licensing until at least 2003 or 2004 (to deal with volume and backlogs). This may not strictly be considered an Executive responsibility but is a crucial factor even if the scheme is amended along any of the lines above (and particularly if it is not). The question is, where would more resources come from? For authorities with low licence fees (see Chapter 8) an increase in fees would be viable, but increasing the licence fees may only exacerbate the problems of non-compliance in high fee authorities especially in Glasgow and Edinburgh where current initial fees are already amongst the highest in Scotland. Would time-limited financial support to those authorities with the greatest numbers of HMOs or most serious problems with HMOs (e.g. some rural authorities) be permissible if it meant the objectives of licensing would be more comprehensively achieved? Alternatively, if authorities consider HMO licensing sufficiently important should they not provide more resources via their general services budget at least until the first cycle of implementation is completed?

IN WHAT WAYS COULD THE GUIDANCE BE IMPROVED?

12.17 The Guidance provides the operational framework for the development and implementation of local licensing schemes. It seeks to promote national consistency in standards and at the same time, allow local diversity to respond to local circumstances - a difficult balancing act. Does the Guidance need to be developed further in the light of the research? Overall, local authorities had a very positive view of the guidance but from the research findings, a number of ways in which it could be improved can be identified. These are summarised below but it is recognised that each would require further research and evaluation before incorporation in any revised guidance (should it be considered). Engaging experienced local authority HMO officers in the development of any revised guidance is recommended.

• Do smaller HMOs pose a lesser risk from fire compared to larger HMOs? Has the Guidance set appropriate standards for small HMOs, particularly 3 person HMOs and are fire brigades justified in requiring fire detection and alarm standards higher than the Guidance? Do the fire statistics for HMOs in Scotland reflect the standards recommended? These questions raise sensitive and technical issues about whether the fire safety standards in the Guidance are correctly proportionate to the estimated risk from fire in certain smaller sized HMOs. Clearly, three person HMOs are themselves varied and any argument about different fire safety standards cannot be over-generalised. The risk from a three person shared flat or house should be lower than for the same property converted to three bedsitters. Similarly, a shared flat or house occupied by 3 independent, able-bodied adults would be expected to be at less risk from fire than the same HMO occupied by 3 dependent or vulnerable adults.

The fire safety standards in the Guidance indicate that HMOs with between three and six residents require the same standard of fire detection and alarm system (Type L3 or Annex D) and where all else is equal, are subject to the same requirements for means of escape, self closing fire doors, etc. Yet fire risk is partly a function of occupancy numbers. Is the Guidance correct in presuming the same fire risk arises with a three person HMO and a six person HMO where the type of building, type of residents and type of sharing arrangements are identical? A similar, if not stronger argument about level of fire risk arises with the resident landlord/landlady with two tenants or lodgers. It is beyond the scope of the research to consider specific standards and differentials but from the uncertainties and disputes that the research came across about HMO fire safety standards, arguably, there are questions that any revised Guidance (and local authorities and fire brigades) should answer. More transparency in providing the rationale for particular fire safety standards would also be desirable.

• In applying the benchmark standards, there has been a tension between reducing the risk from fire and ensuring adequate personal safety and security of possessions. The research found that achieving fire safety standards was the pre-eminent feature of the whole licensing process. Arguably, at times, this was to the detriment of other factors. For example, the location of an HMO may result in a higher risk of burglary or personal attack than the risk of fire and fatality. A new section should be added to any revised Guidance about the importance of balancing the need for adequate home security and home safety on the one hand with the removal of locks and security controls on windows and doors.
• The relationship between planning and licensing has proved contentious. The Guidance refers to owners obtaining planning consent, where required, before the local authority grants an HMO licence. It would be more helpful if revised Guidance acknowledged that planning is a stand-alone function and that enforcement on planning matters should be pursued by planning services. It should also be made clear that HMO licence approval should not be dependent on planning consent being first obtained.
• Access to the housing benefit data of HMO tenants has also proved contentious with authorities holding different understandings of the entitlement of HMO officers to gain HMO addresses from benefit files. It would be helpful for any revised Guidance to clarify what grounds, if any, there are for officers engaged in HMO licensing to access housing benefit records without infringing the Data Protection Act 1998.
• As it stands, there are some gaps in the protection afforded by the licensing scheme to certain categories of temporary shared accommodation that can be of a very poor standard. The question is whether it would be legitimate to view them as licensable HMOs on the same basis as student term-time accommodation and revise the Guidance accordingly. The HMO Benchmark Group meetings discussed the uncertainty of whether licensing powers can be extended to various forms of shared accommodation for unrelated adults, often from overseas, while working in Scotland on fixed term contracts (eg in the oil fields) or attending professional training courses at Scottish universities or colleges or working in seasonal fruit picking. A related example is the 'backpacker's hostel' which can be used not just as a budget priced hotel but as a medium stay cheap hostel for overseas students and young people on working holidays. Any revised Guidance, or possibly, the definitions in the Order, could clarify how, if at all, such types of multiple occupancy should be included in the scheme.
• In Annex A, of the Guidance, Occupancy Agreements Checklist, there is a mixture of statutory tenancy requirements and good practice issues. Some good practice issues are more relevant to the relationship between the local authority and the owner, not the tenant and landlord (e.g. maintaining occupancy records, providing summary translations in ethnic minority languages). The Checklist is also very lengthy and while it is recognised that not all items need feature in all leases, it can result in a very long, written lease. One owner said that by adopting the council's model lease, her lease ran to eight pages. Notwithstanding the exhaustive coverage of rights and agreements, it is questionable it this level of detail is really in a tenant's best interests. Any revised Guidance could look at creating a short, succinct statement of key clauses that may be much more understandable and readable for many tenants. The Guidance does not refer to short assured tenancies - the most common form of lease in the private rented sector. Inclusion of advice to officers about how to recognise and assess short assured tenancy agreements would also be desirable.
• HMO mandatory licensing has developed as a regulatory regime for individual properties. At local authority level, it should incorporate a more strategic dimension that considers the role of HMOs in the housing market and the broader market impact of regulatory intervention. The Guidance makes brief acknowledgement to the link between licensing and a wider private rented sector strategy but offers no details of how such a link should be expressed. With the introduction of Local Housing Strategies in the Housing (Scotland) Act 2001 and the increasing acceptance of the important role of the private rented sector, revised Guidance could expand on how local authorities could better integrate HMO licensing into Local Housing Strategies.
• A related issue to Local Housing Strategies is the confused role that 'housing' has played in HMO licensing work. There has been no consistency across local authorities in the contribution of their housing officers, despite the acceptance that tenancy management standards are central to the consideration of licence applications. The Guidance emphasises that " the role of housing in particular should be considered" (Scottish Executive, 2000b: 12) but it would be helpful for any revision to spell out in more specific terms what that role should usefully be with particular emphasis on communication with HMO tenants.
• The research highlighted the general poverty of knowledge in local authorities about numbers, growth, decline, location and rent levels in the private rented HMO sector. Unarguably, the HMO sector is a very difficult sector about which to collect information and the Guidance does state the importance of identifying information about HMOs and lists a number of possible sources. Any revised Guidance could consider providing more detail about how to use sources and how authorities could best use the future release of the results of the 2001 Census. However, the root of the problem may be that it is inappropriate to allocate the responsibility for intelligence gathering to the lead HMO department (normally environmental health or licensing sections). It may be more helpful if the Guidance charged the responsibility for information gathering to a housing or planning department or to a central research section in an authority.
• The research found most local authorities were unable to demonstrate stronger financial management over the costs of implementing mandatory licensing. Few authorities were able to provide cost information for the research and there was no consistency in how authorities assessed their costs and therefore their licence fees. This is undoubtedly a complex area because of the multi departmental inputs to the licensing process but more effort should be made to develop a much clearer picture of the cost of licensing work. The Guidance does not address cost centre management. Any revised Guidance should strongly recommend that authorities address the financial control of HMO licensing and provide advice on developing appropriate accounting procedures, drawing on good practice where available.
• The research found performance monitoring and review of the HMO licensing scheme to be very underdeveloped despite the recommendation in the Guidance that local authorities should establish such a system. Any revision of the Guidance could expand this to emphasise to local authorities the importance of programming an early Best Value review of the operation of their schemes.

CONCLUDING POINTS

12.18 In its first year of operation, the mandatory HMO licensing scheme experienced a combination of problems that make a case for some amendments to ensure the scheme can better deliver its original objectives and reflect the original political concern with the problems in the private rented sector. There is no instant solution to dealing with entrenched attitudes and poor housing standards in parts of the private rented HMO sector as it is such an individualist, fragmented and dynamic market. It would be over-optimistic to presume that other approaches such as accreditation or registration would fare significantly better in establishing their credibility or in achieving long-term success. The licensing scheme has potential to deliver real improvements in the condition, safety and management of HMOs but change is desirable on both practical and principled grounds.

12.19 If greater success is to be achieved, local authorities will have to address the problem of the inadequate financial resources that are currently applied to HMO licensing by most authorities. An increase in fees may be viable for the low charging authorities but fee increases generally are not the answer and may make matters more difficult. HMO licensing is much more complex and demanding than traditional types of Civic Government Act licensing. Even if some of the options outlined for changing the framework of the scheme are implemented, operational costs will not reduce if the authorities accept they have to put much more effort into issues such as publicity, communication with tenants, improved assessment of tenancy management standards, identifying HMOs, performance monitoring and Best Value review.

12.20 Finally, whether modified or not, the scheme should be the subject of further evaluative research into the second and third year of its operation.

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