Are remote landlords fuelling local problems? Are these purchases simply causing misery for local populations? Is selective licensing up to the job? – see below.
It is well known that buy-to-let is under pressure to produce good returns given recent changes to HMRC’s tax rules and rising landlord’s costs.
High yields
Who can blame landlords for chasing yields for investing in cheaper housing in regions like the North East of England which give a high income relative to the cost of purchase. Seems like a no-brainer as they say, to achieve a 10% return and growth prospects when savings attract less than 5%.
According to Zoopla, landlord investors should be looking at buy-to-let rental yields to help them decide if the cost of a property is worth it, given the potential rental income:
“Gross rental yields have increased in the last year as rents have risen at a faster rate than house prices,” says Zoopla, and the highest yielding cities in the UK are predominantly in the North: Sunderland, Aberdeen and Burnley. These locations are offering average gross yields of over 8%, while “the North East is the best region for investors looking for strong yields, offering an average of 7.65%”
In recent years, the financial pressures on buy-to-let landlords, coupled with the inexorable rise in house prices in the South East, have combined to push many more London-based and Southern landlords to look North for better returns.
Areas like Teesside, where decent terraced homes can still be picked up for £30,000 to £50,000, offer yields of 8% to 10%—that’s a far cry from what’s possible in much of the South East and the capital.
There’s no such thing as a free lunch, as the saying goes! So inevitably there has to be a downside: these bargain-basement investments come with risk. Properties bought at auction or unseen can be in poor condition but despite this many out-of-area landlords rely heavily —sometimes blindly—on local agents to advise on purchases and manage their investments. Some agents are totally upfront about it and do a great job, while others…
What’s more, these cheap properties often in run-down districts attract tenants in crisis—those facing homelessness, ex-offenders, or individuals with addiction issues. If landlords aren’t careful, and agents aren't proactive, a small handful of problem tenants can cause real damage to a neighbourhood’s reputation—and the social fabric – resulting in a downward spiral.
If properties can be picked up cheap enough, rammed full of tenants on benefit support, then who cares about the condition of the property. This might be one view of a certain type of investor. The investment could pay for itself in no time, and after that, it’s all profit! But in this situation others suffer the consequences, those decent people living hundreds of miles from the owners.
Selective licensing schemes have become a go-to tool for local councils looking to tackle rogue landlords and neighbourhood decline. The logic is quite simple - compel buy-to-let landlords in the council’s designated areas to register with a scheme, meet certain minimum standards, and be more accountable for their tenants’ behaviour.
But, and that’s often a big BUT, while the theory may sound great, in practice the results have been far more contentious. To be fair, some councils make it work, but especially in places like Teesside, where residents recently told TeessideLive, selective licensing simply “doesn’t work”.
So, what’s really going on? What does it mean for landlords, agents and residents, in particular for those landlords investing at a distance?
Local authorities argue that selective licensing will weed-out poor-quality landlords and reduce anti-social behaviour. In areas like Middlesbrough, parts of Hartlepool, and Stockton-on-Tees, licensing is seen as a way to clamp down on slum landlords and improve the housing stock.
But residents and even some councillors are now raising concerns that these schemes are more of a bureaucratic exercise than an effective cure. Despite years of imposing selective licensing, some streets are still plagued by fly-tipping, drug use, noise, and vandalism. Locals are now asking: if licensing is working, why are the problems persisting and growing?
Remote (absentee) landlords are being fingered as a possible cause, but there’s another serious question, one that the landlord representing bodies has been asking for for years: how effective is local enforcement?
The Renters’ Rights Bill is about to enter with a plethora of new rules and regulations with stiffer penalties for non-compliance, but how effectively will they be enforced on those landlords and letting agents who fail to comply. How effectively can enforcement be applied when councils constantly complain of underfunding and understaffing in housing cases? Many fail to enforce the already adequate rules to prevent these problems arising, will the new rules make the situation any better?
Selective licensing puts the onus on landlords to control tenant behaviour. But that’s rather difficult anyway, and for a landlord living 250 miles away, it’s impossible. Relying on a cut-price letting agent, and receiving rent paid via Universal Credit, there’s often little engagement with the tenants’ properties or community in which they live. There’s little incentive to change the status quo.
In theory, selective licensing enables councils to take enforcement action against those absentee landlords, but in practice their enforcement resources are stretched too thin.
Middlesbrough South and East Cleveland MP Luke Myer has called for another selective licensing scheme to be introduced to help tackle crime and anti-social behaviour, but locals claim it 'doesn't work'. And TeessideLive readers have been calling for a crackdown on rogue landlords linked to crime and antisocial behaviour in East Cleveland.
As one Teesside resident told TeessideLive:
“They [the council] know which houses are causing the trouble, but nothing gets done.”
In that lack of enforcement vacuum, local frustrations are growing. The responsible landlords who stick by the rules and do a good job feel penalised by the fees they pay and red tape they must comply with, while residents claim the bad landlords can easily slip-through-the-net. Meanwhile, these residents are feeling totally abandoned.
Local councillor Barry Hunt also voiced his concern to TeesideLive over persistent issues in his ward, blaming landlords who ignore problem tenants. He said:
"It’s just a certain few [tenants] that are causing the bother and we are getting a bit fed up. If a landlord has someone in a property that is continually abusing the situation, they should be held responsible — they are getting the money every week."
Alistair Oswin a Guisborough-based letting agent said that existing regulations are sufficient, but enforcement is lacking:
"Housing associations must also be held accountable. From my perspective, selective licensing is a cash cow for local authorities. It drives landlords out of the sector, reduces supply, and pushes up rents."
Redcar and Cleveland Council’s Cllr Adam Brook, cabinet member for neighbourhoods, told TeesideLIVE:
"Anti-social behaviour and crime in our neighbourhoods are completely unacceptable. I’ve met with local councillors, ASB officers, police, and our MP to discuss action." He urged residents to report issues to help build cases for intervention.
“Something has to be done with these landlords, they buy a house for about £5000 in terrible conditions and get as many people as they can to live in it for maximum rent. They then get their money back in about 6 months. It’s absolutely shocking, most of these dodgy landlords are in London, and our councillors are doing absolutely nothing about it.”
“How many of these landlords are from the South and just rely on letting agents to be their only contact with their tenants? There are good and bad letting agencies, some do only what is required to ensure their fee.”
“This additional licensing makes no difference to the area concerned or the behaviour of tenants. Just look at North Ormesby for example, landlords in that area have had to pay this additional licensing for several years now, but the area hasn’t changed and MBC have not reinvested. It’s simply another tax the local councils can apply.”
“There is no evidence this scheme will control tenants. If it's always the same people, then why haven't they been arrested? This is just passing the buck & blaming landlords, also if it's just a few, why punish the good Landlords? All this does is drive them out, resulting in fewer available rental properties & higher rents. It's always the people at the bottom of the chain (tenants) who lose out. Selective Licensing doesn't work, it's just yet another tax. Use existing regulations & the LAW to fix the situation.”
“Selective licensing is just another tax from the government; it's a rip off and easy revenue for the council.”
“The council and housing associations need to take the blame here. They send all the problematic tenants to the small villages and towns because they've caused havoc everywhere else. Why not start making these people suffer instead of normal people who live and follow the rules?”
There is nothing inherently wrong with landlords looking for higher yields in different locations. For landlords investing from a distance, the key is due diligence and proactive management. That means they must:
Selective licensing isn't going to go away. In fact, more councils are rolling out new schemes all the time. While they are not perfect, licensing can be made to work well, and many councils have proved it. It needs effective enforcement and councils, landlords and agents all pulling together. See: Greater Manchester “Good Landlord Charter”
Landlords, whether they are local or remote, can either be part of the solution, or part of the problem. Selective licensing is often seen as a money tree for councils but with the right approach (1) it doesn't have to be a burden on landlords and (2) it can be an effective framework to tackle anti-social behaviour, for maintaining high letting standards and for improving neighbourhoods, and not least to protect landlords’ investment values.
For those responsible landlords, selective licensing should not be seen as a threat, rather as an opportunity to set themselves above the rest.
Good letting agents in the UK may be part of several professional associations, including:
Propertymark (formerly ARLA and NAEA),
Royal Institution of Chartered Surveyors (RICS),
UK Association of Letting agents {UKALA).
These organizations provide guidance, support, and a framework for ethical and professional conduct within the lettings industry.
What do you think about the issues discussed here? What would be your solution? Add your comment below.
[Main image credit: Alena Darmel]
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