CORPORATE HMO WORKING GROUP

CORPORATE HMO WORKING GROUP 8 th December 2010 Discussion Paper on the Use of Article 4 Direction for Houses in Multiple Occupation (HMOs) in Haringey 1. SUMMARY 1.1 Houses in Multiple Occupation (HMOs) are a valuable source of accommodation in the Borough, meeting a need for low-cost housing, especially among young people, those on low incomes and single person households. There are 274 licensed Houses in Multiple Occupation in Haringey. The wards with largest number of licensed HMOs are Harringay (56 HMOs), Stroud Green (35), Highgate (23), Noel Park (20) and Muswell Hill (17). 1.2 There have been concerns about the environmental and social impact of the HMO clusters in certain parts of the borough. This paper sets out the recent changes to the planning legislations which govern HMO developments. it assesses the suitability of Article 4 directions (removal of permitted development rights for certain HMOs) to control the perceived problems associated with HMOs in Haringey. 1.3 Initial assessment indicates that implementation of an Article 4 direction in a small area in Haringey will not be an effective tool for controlling the problems associated with HMOs in the borough. The general view is that controlled areas may displace HMOs to adjacent areas, and new Article 4 Directions may not be capable of being applied quickly enough under the current regulations. An outcome of this could be that councils are tempted to apply controls across their whole area from the start, which can be very costly. Also the proposals could act as perverse incentive to create new HMOs prior to the introduction of Article 4 directions. 1.4 One possibility is to consider Article 4 Direction for large parts or the whole of the borough. This has been the approach by a small number of planning authorities outside of London. However, it should be noted that wide-area approach is mainly a response to studentification or a very specific problem in their area. 1.5 The current legislative framework governing the use of Article 4 Directions is designed to be used to control a problem which is already in evidence in a defined area rather than in anticipation of dealing with an issue before it becomes a problem. This may make the introduction of Article 4 Direction on a borough-wide basis rather problematic and open to challenge, unless there are compelling reasons. 1.6 The wording of Circular 09/95 strongly mitigates against an authority using a restriction on permitted development rights ("permitted development rights have been endorsed by Parliament and consequently should not be withdrawn locally without compelling reasons. Generally permitted development rights should be withdrawn only in exceptional circumstances ). 1

1.7 Therefore, declaring an Article 4 Direction in an area will require a sound evidence base. It will mean significant costs for Local Planning Authority due to demands of producing necessary documents. Due to a lack of detailed information on suspected unlicensed HMOs in Haringey, extensive surveys of properties would need to be carried out in order to establish existing use with regular monitoring. 1.8 The council is already working on a number of initiatives on HMO related issues, and the two pilot projects in Harringay and Myddleton Road areas led to a number of enforcement, planning and licensing initiatives to deal with identified problems. The current changes to planning controls need a cross-service response relevant to the problem in hand. 1.9 Large HMOs (6 people and over) will continue to be subject to normal planning control and Haringey s emerging Development Management (planning) policies intend to control the location and number of HMOs on the basis of amenity, environmental and design quality, and transport access. The council s planning department will monitor HMO developments and consider Article 4 Directions if necessary and relevant. Any possible impact of the Housing Benefit cap introduced by the Coalition Government on the housing stock will need to be subject to joint monitoring between Housing and Planning services to ensure that the long term impact on overcrowding and the housing stock is assessed. 1.10 Any other problems associated with HMOs (large or small) can be considered under the Discretionary Licencing scheme which appears to be quicker to implement. For instance there is no lengthy 12 month consultation for setting up the scheme. The council has started an additional licensing scheme in the Harringay Ward. Survey and consultation has started with presentations to the landlords forum. The consultation questionnaire will be on the web soon. 2. BACKGROUND TO NEW LEGISLATION 2.1 There have been a number of changes in 2010 to the planning legislation which relate to the proposals for Houses in Multiple Occupation. The legislation introduced in April 2010 has been amended by the Coalition government and new rules came into effect in October 2010. Changes relate to permitted development rights and Article 4 Directions for HMOs. Permitted Development Rights: 2.2 The combined outcome of changes in April 2010 and in October 2010 mean that from October 2010) For small shared houses or flats occupied by between 3 and 6 unrelated individuals who share basic amenities, a change of use from a dwellinghouse (class C3) to a small house in multiple occupations (C4) is possible under permitted development rights and planning applications are not needed. HMO proposals with more than 6 occupants will be subject to normal planning controls. 2.3 Definitions and classifications are as follows: Small HMOs Classified as Class C4: In broad terms, the new C4 class covers small shared houses or flats occupied by between 3 and 6 unrelated individuals who 2

share basic amenities. This includes smaller shared houses and bedsits where there are between three and six occupants who share a kitchen, toilet or bathroom in a property in the private rented sector. Large HMOs -Considered sui generis which means that planning application will be required for change of use from a dwellinghouse or a small HMO. Changes to Article 4 Direction procedures: 2.4 If the local council believes there is a problem with HMOs in a particular area, they will be able to use Article 4 powers to require planning permission. Where Article 4 directions are used, there are costs for local authorities including the liability to pay compensation where a planning application is refused or granted subject to conditions for development which would previously have been allowed. 2.5 Because an Article 4 Direction involves a loss of rights, sometimes compensation is payable. The Government has modified the compensation regime, and reduced the local authorities liability to pay compensation where they make Article 4 Directions for controlling HMOs : where 12 months notice is given in advance of a direction taking effect there will be no liability to pay compensation; and Where directions are made with immediate effect or less than 12 months notice, compensation will only be payable in relation to planning applications which are submitted within 12 months of the effective date of the direction and which are subsequently refused or where permission is granted subject to conditions. 3 SURVEY OF LOCAL AUTHORITIES FOR USE OF ARTICLE 4 FOR HMOs 3.1 London Boroughs: London Councils reported that no London authority has yet to approach them with a query on the use of Article 4 for HMOs. London Council s e-mail to us indicated that control of HMOs was a particular concern for towns and cities which faced studentification. No London boroughs except Ealing responded to our general survey. Ealing do not currently consider HMO clusters to be a significant issue and are, therefore, not looking into the use of Article 4 directions. Ealing has a Discretionary Licensing Scheme in place. 3.2 Outside London: A number of local planning authorities, all outside London are currently considering Article 4 Directions for their areas. These local authorities face very specific issues, such as an influx of HMOs as student accommodation. Most of these authorities are consulting on Article 4 Directions either for the whole or a substantial part of their area. 3.3 Manchester City Council has introduced an Article 4 Direction to control the number of HMOs in light of the high concentration of student accommodation in the city. It will come into effect in October 2011 following a 12 month consultation. For more information, please see Appendix 1. 3.4 Portsmouth City Council. The city council s private sector house conditions survey (PCC, 2008) notes that HMOs occur at a significant rate in Portsmouth, driven by the student population and residents on low incomes. In 2007/8, it was estimated that 5.1% of dwellings in the city were HMOs compared to 2.5% nationally. It is likely however, given the recent economic challenges and the continuing growth of the city s 3

university that numbers of HMO properties in the city have increased in the past two years. Portsmouth served a citywide Article 4 Direction in relation to HMOs on 1 st November, which they are looking to bring into force on 1 st November 2011. They have also just begun preparing for consultation on a draft HMO planning policy. 3.5 Bournemouth Council is considering introducing an Article 4 Direction due to the high number of student accommodation in the town. 3.6 Exeter City Council has started a consultation, with a view to the Article 4 Direction coming into force on 31 December 2011. In Exeter, the issue of HMOs is largely synonymous with student properties. Over 70% of registered HMOs are exempt from Council Tax due to entire student occupation. The number of private properties that are exempt from Council Tax, due to their entire occupation by full time students, grew from 1,184 in 2006 to 1,930 in 2010. About forty roads have more than 25% of properties exempt from Council Tax and six roads have more than two thirds of properties. The Article 4 Direction would apply to the St James area of the city and around 7,000 properties of which about 1,400 are already HMOs. In some streets up to 80% of properties are entirely occupied by students. In the St James Ward as a whole, over a quarter of homes are entirely occupied by students. 3.7 Leeds City Council is considering Article 4 Directions. There was a Council motion in November 2010 for the Planning Service to consider Article 4 Direction for Leeds. Student population in Leeds is around 50,000, and there is concentration of student shared-accommodation in a number of wards. Please see Appendix 1 for more information. In February 2008, the Government published the HMO licensing statistics based upon the number of applications received for mandatory licences and the number of licences issued for all English local authorities. The figures demonstrated that the top five local authorities who were in receipt of over 1,000 applications included Leeds, with 2,750 applications. 3.8 Milton Keynes: According to a Council report, there are approximately 550 suspected HMOs in Milton Keynes. Data collected for the Strategic Housing Market Assessment estimates the figure could be as high as 900. With just over 100,000 dwellings in Milton Keynes the estimated number of HMOs equates to between 0.5% and 0.9% of all residential properties in the MK Borough. Within specific grid squares this rises to up to 6% of all properties and, in some local areas within a 400m buffer, this raises to 17%. In some terraces, concentrations reach over 30%. 3.9 Milton Keynes, Oxford and Newcastle made a request for a judicial review into the new regulations for HMOs and an application for an interim injunction to the high court on 29 th Sept, with the support of a number of other university and seaside towns such as Charnwood Borough Council, Leeds City Council, Nottingham City Council, Bristol City Council, Torbay Borough Council and the National Organisation of Residents Association. The legal challenge is continuing, and a hearing to grant or refuse leave for Judicial Review is expected early in 2011. For more information please see Appendix 1. 3.10 In summary, local planning authorities currently considering Article 4 Directions for their areas are the ones which face very specific issues such as a spread of HMOs as student accommodation. Most of these authorities are consulting on Article 4 Directions either for the whole or a substantial part of their area. 4. HMOs in HARINGEY 4

4.1 Information held by the LBH Private Sector Housing indicates that HMOs in Haringey are spread throughout the authority. Traditionally, they were focussed on the larger properties in the West and accommodation above shops on major thoroughfares. These types of properties will still have a considerable number of HMOs. However the smaller terraced properties in the east have also become HMOs which are more likely to have between 4-6 occupants using shared facilities. Some neighbourhoods are reporting an increase in these types of HMOs. 4.2 The total number of licensed HMOs in Haringey is 274 in November 2010. As a general guide to mandatory HMO numbers in London including our neighbouring boroughs, please see the extract form a CLG map in Appendix 2. 4.3 Below are the distribution of licensed HMO numbers by Ward : Number of Licensed HMOs Wards Total Alexandra 8 Bounds Green 6 Bruce Grove 8 Crouch End 15 Fortis Green 16 Harringay 56 Highgate 23 Hornsey 11 Muswell Hill 17 Noel Park 20 Northumberland 8 Seven Sisters 9 St. Ann's 18 Stroud Green 35 Tottenham Green 1 Tottenham Hale 1 West Green 6 Woodside 15 (blank) 1 Grand Total 274 4.4 There are unlicensed HMOs in the borough but no accurate figures have been established. In 2008 the Building Research Establishment estimated that 56,000 of the 236,000 to 379,000 HMOs in England are subject to mandatory licensing. But according to CLG figures, councils have only received 31,345 applications for mandatory HMO licenses since April 2006. Only 21,688 have been issued. The general view from the Private Sector Housing Team is that the low numbers of large HMOs are unlikely to be a problem. The issue that causes concern is the number of smaller HMOs which have been created without any permission or license. 5 IS THE ARTICLE 4 DIRECTION A RIGHT APPROACH FOR HARINGEY? Advantages of Article 4 Direction 5

5.1 By allowing conversion under permitted development, the legislation prevents councils from mitigating impacts on neighbours through conditions or planning obligations. Local areas that wish to control the spread of HMO proposals will be able to use Article 4 powers to require planning permission. Utilisation of Article 4 Direction, in principle, allows Local Planning Authorities to maintain control over HMOs which can include the refusal of planning permission of unacceptable HMOs and possible enforcement action to cease their use, or the applying of conditions to acceptable HMOs to reduce the impacts to the local community and improve the accommodation for the occupants. Controlling the development in the borough also allows councils to monitor quality and quantity of the housing stock in their area, especially the family housing stock. With permitted development taking place, councils may not have any data on the loss of family housing, unless by resource-intensive specific survey. Disadvantages of Article 4 Direction. 5.2 It may not be possible to use Article 4 directions effectively to regain control over HMO development: Long Consultation Period An Article 4 Direction consultation which will take 12 months, may lead to an unmanaged rush of HMO-related development contrary to community wishes ahead of Article 4 directions being made, and that once they are in place, HMOs would simply move to the nearest non Article 4 area within the same borough. Proposals could act as a perverse incentive to create new HMOs prior to introduction of Article 4 directions. Displacement Controlled areas may displace HMOs to adjacent areas, and new Article 4 Directions may not be capable of being applied quickly enough. An outcome of this could be that councils are tempted to apply controls across their whole area from the start. Unitended Impact on housing market Possible displacement to other areas will lead to less flexibility in housing markets in those areas, since it is generally assumed that flexible use will increase the value of C4 properties. Landlords may buy up small family housing stock to rent out in cheaper areas. This could be exacerbated by housing benefit changes which might lead to an influx of residents looking for cheap accommodation. 6

Resource and Cost Implications Setting the boundaries for Article 4 directions will require detailed analysis, since the boundaries are difficult to define and may be divisive. This has the potential to defer problems elsewhere Article 4 directions will mean significant costs for LPA due to demands of producing necessary documents. Initially, a survey of each property in the area would need to be carried out in order to establish existing use with regular monitoring No impact or effect for control over dispersed HMOs Article 4 direction cannot control future HMO issues arising since the direction is based on existing problems Even if an Article 4 Direction is applied to an area, it will not necessarily prevent the change of use; it will mean that there will be a planning application for a small HMO proposal - the outcome of which may be open to challenge. Impact of Housing Benefit Reform 5.3 It is not clear at this stage how the changes to Housing benefit and the relaxation of small HMO developments will impact on the borough s housing stock. Demand for HMO may increase due to housing benefit changes. This in turn, might lead to an increase of residents looking for cheap accommodation and landlords buying up small family housing stock to rent out. Application of Article 4 in one area may put pressure on areas with cheaper family housing stock. Alternatively, benefits changes could also have an impact on rental returns and may lead to a drop in the number of private landlords in certain areas. Whatever the impact, Article 4 directions are not suitable solutions for dealing with the strategic problems of HMOs and the housing market. 6 COST ASSOCIATED WITH ARTICLE 4 DIRECTIONS 6.1 Using an Article 4 Direction to control HMOs would mean that there would be a cost for local authorities to process these applications, as applications required under an Article 4 Direction do not generate a fee income. In terms of other costs, one report from Leeds City Council identifies the costs associated with Article 4 Directions as follows: Study into identification of scale and level of the problems Consultation Loss of planning fees in Article 4 areas Potential compensation due to removal of permitted development rights (although the Compensation by the Councils are limited under the new legislation, this still needs to be tested) Preparatory costs Cost of initial surveys for an Article 4 Direction in one area (one area with over 25,000 households Compensation Max potential compensation costs associated with planning and agents fees for an Article 4 Direction in one Area. Max potential compensation costs in relation to a loss of property value for an Article 4 Direction in one Area. Max potential compensation costs in relation to a loss of rental income for an Article 4 direction in one Area. 320,000 50,000 3,500,000 260,000. 7

6.2 On the other hand, as detailed in Appendix 1, Manchester City Council does not identify significant costs impact in introducing or managing Article 4 Directions in their area. 7 CONCLUSION 7.1 Utilisation of Article 4 Direction, in principle, would allow Haringey to maintain control over HMOs which can include the refusal of planning permission of unacceptable HMOs and possible enforcement action to cease their use or, the applying of conditions to acceptable HMOs to reduce the impacts to the local community and improve the accommodation for the occupants. 7.2 However, it may not be possible to use Article 4 directions effectively to regain control over HMO development. Controlled areas may displace HMOs to adjacent areas and new Article 4 Directions may not be capable of being applied quickly enough under the current regulations. This may result in the Council chasing the HMO issue around the borough. 7.3 The proposals could act as perverse incentive to create new HMOs prior to the introduction of Article 4 directions. Consequently, there may be an unmanaged rush of HMO-related development ahead of Article 4 directions being made. 7.4 Even where an Article 4 Direction is applied to an area, it will not necessarily prevent existing clustering. 7.5 Even where an Article 4 Direction is applied to an area, it will not necessarily prevent the change of use. It will mean that there will be a planning application for a small HMO proposal. 7.6 Consultation with residents, landlords and other stakeholders for 12 months before the Article 4 Direction comes into effect could also mean that appropriate management of HMOs will be achieved either with substantial delay (if an Article 4 Direction with notice is produced) or substantial cost (if an Article 4 Direction without notice is produced, because of the risk of compensation). 7.7 It will have no impact for control over dispersed HMOs unless a borough-wide approach is adopted. 7.8 One possibility is to consider Article 4 Direction for large parts or whole of the borough. The introduction of Article 4 Directions is likely to be a complex and time consuming processes that will require thorough research, which may not result in evidence strong enough to support an Article 4 direction. The wording of Circular 09/95 strongly mitigates against an authority using a restriction on permitted development rights ("permitted development rights have been endorsed by Parliament and consequently should not be withdrawn locally without compelling reasons. Generally permitted development rights should be withdrawn only in exceptional circumstances ). Therefore, declaring an Article 4 Direction in an area will require sound evidence base. 7.9 The current legislative framework governing the use of Article 4 Directions is designed to be used to control a problem which is already in evidence in a defined area rather than in anticipation of dealing with an issue before it becomes a problem. This may make the introduction of Article 4 Direction on a borough-wide basis rather problematic and open to challenge. 8

7.10 The Council will lose income as in the controlled area; planning applications would have to be considered without any commensurate income to the authority. Summary of Other Controls 7.11 Large HMOs (6 people and over) will continue to be subject to normal planning control and Haringey s emerging DM planning policies intend to control location and number of HMOs on the basis of amenity, environmental and design quality, and transport access. The council will always have the right to declare an Article 4 direction in a particular area in Haringey if necessary and relevant. 7.12 However, the council has a cross-service working party and is already working on a number of initiatives on HMO related issues. The Private Sector Housing Team has already started an Additional Licensing scheme in the Harringay Ward. Survey and consultation has started with presentations to the landlords forum. The consultation questionnaire will be on the web soon. This appears to be quicker to implement as there is no lengthy 12 month consultation for setting up the scheme. 7.13 The scheme will make landlords who own properties within the designated area apply and meet the criteria approach set by the authority for a licence. Failure to do so will be an offence. It will engage all council services with each application so that all aspects of the property are dealt with: Owner must be a fit and proper person The property will meet the relevant standards. The property will be well managed. Council tax will be paid for the correct number of units and by the right person. This will create income by chasing owners who have failed to pay the correct amount. General nuisance and anti-social behaviour will be controlled. Issues of vulnerability of both adults and children will be picked up. Units of accommodation used by both this authority and others will be identified and condition noted. Works required will contribute towards targets associated with police and fire service. 7.14 Any possible impact of the Housing Benefit cap introduced by the Coalition Government on the housing stock will need to be monitored to ensure that long term impact on overcrowding and the housing stock is properly assessed. Licensing process will also help with this particular monitoring. Prepared by LE/SN- Planning Policy, Design and Conservation, Planning and Regeneration, UE in December 2010 in consultation with the Private Sector Housing Team. 9

APPENDIX1: Background to Leeds Action: (Leeds officers informal assessment) Leeds City Council has considered Article 4 Directions for areas where there are concentrations of shared houses/ HMOs as student accommodation. The Council was going to consider a Councillor motion on Article 4 in late November. Reasons: 1. Studentification is a major factor in the issue surrounding HMOs in Leeds. The transformation affected all aspects of family life; homes for families became second homes for students, schools closed, nights were disturbed, burglary, rubbish and rats became the worst in the city, the economy was transformed, the young and the old became isolated. 2. Strong community lobbying for control of HMOs. Financial implications of Article 4 directions in Leeds: Survey costs 1. Advice from Leeds legal team suggests that in order to meet the necessary requirements for introducing an Article 4 direction, an initial survey would need to be conducted to establish the existing use of every household within the proposed Article 4 Direction area. Without such a survey, the Article 4 Direction would be open to a legal challenge from affected parties. 2. In Leeds, this survey would need to be carried out in 5 wards. One Article 4 direction would cover four of the five wards, and another would cover one of the five wards. 3. In order to illustrate the financial implications, the consultation report takes the example of the first Article 4 direction. There are 25,977 households in this area. 7500 of these properties are accounted for in terms of their established use. This leaves 18500 to be surveyed before an article 4 Direction can be implemented. 4. It would take an estimated 6 month period for technical officers to carry out this volume of work. The cost to the council would be 320,000. This figure does not include the management costs, admin costs/set up costs. 5. In reality, the total staffing cost of undertaking the surveys required is likely to be doubled when further Article 4 directions are taken into account. Compensation costs 1. The introduction of an Article 4 direction before the 12 month notice period is observed would result in costs to local authorities in the form of compensation to affected parties. This could appear in two forms: a) Abortive costs for submitting a planning application (inc. application fee and employing an agent). b) Costs in relation to the difference between the value of a C3 dwelling house and a C4 HMO (including difference of rental income). 2. In relation to point A, the total cost of submitting a planning application and associated fees are likely to be in the region of 1000 per application. For 50 properties (this is the estimated amount of applications for the year) this could result in a cost of 50,000 for the council. 3. In relation to point to b, the compensation claims could, potentially, cost the council between 1,500,000 and 3, 500, 00. These costs, coupled with a loss of a year s 10

rental income (which in Leeds could be as much as 5200 for a single property) could result in a cost of 130,000-260,000 for the year. Background to Manchester Action: Manchester City Council has already announced the introduction of a city wide A4D to control the number of HMOs in 12 months time. It is to come into effect in Oct 2011. Reasons for Article 4 direction: 1. Reduction of family homes: High student population and concentrations in privately rented house in the south of the city. These are mainly council tax exempt households as they are entirely occupied by full time students. This means that the stock of housing available for families is reduced and they become priced out of the area. 2. Noise and anti-social behaviour: in Manchester noise and anti-social behaviour problems are felt most by long term residents in the areas where student concentrations have risen recently, but which traditionally catered for families. 3. Crime 4. Environment: There are a number of environmental problems visible in areas with high concentrations of HMOs, such as neglected gardens, litter problems, overflowing bins, fly tipping, parking problems and properties in a state of disrepair. Financial implications of Article 4 directions in Manchester The council has outlined that the costs relating to introducing the Article 4 Direction are not excessive as they are giving the full year's notice necessary to avoid compensation liability. In addition to this: 1. The council will not survey all of the houses in the City prior to making the Direction, instead, they will deal with cases as and when they arise. (still at a cost) 2. There will be some advertising costs: the Council had to place an advert into the Manchester Evening News when the Direction was made and they will need to put another advert when it is confirmed. The adverts usually cost a few hundred pounds each. 3. In terms of officer time; a few weeks gathering evidence to justify the Article 4 Direction was carried out, but this is something that they would have had to do regardless of the Article 4 direction to back up their Core Strategy policy on HMOs. 4. Once the Direction comes into force, the Council will not be able to charge a fee for determining planning applications for C4s, thus loosing potential income. Background to Milton Keynes Judicial review: 1. Milton Keynes made a request for a judicial review into the new regulations for HMOs and an application for an interim injunction to the High Court on 29 September. The request was adjourned, meaning that the regulations came into force as planned on 1 October. However, there was found to be sufficient merit in the case to require the Government to enter a defence to all matters raised by 8 October. The application for a review was refused, the reasons given were: a. The defendant was entitled to rely on the consultation exercise conducted in May 2009, which set out the 3 options the defendant was considering. Accordingly the defendant was under no obligation to reconsult; b. the impact assessment demonstrates that the financial impact on local authorities, such as the claimants was considered; 11

c. it is not for the courts to impose additional procedural safeguards when the primary legislation establishes the means by which the statutory instrument is to be scrutinized by parliament; d. a high level political agreement cannot give rise to a legitimate expectation enforceable in public law proceedings; e. There is no error of law. 2. Milton Keynes has renewed their request for judicial review through the oral hearing process and expects a hearing early in the New Year. As a fall back position they are also in the process of producing an Article 4 Direction to withdraw the permitted development rights with 12 months notice. APPENDIX 2 - Mandatory HMOs in London Source: Evaluation of the Impact of HMO Licensing by CLG 2008 Source: DCLG ( extract from Evaluation of the Impact of HMO Licensing 2008 ) 12