This post comes from Jon Knowles, who lives in Hounslow, West London. Some time ago Jon noticed some disturbing changes in his area. Homes built to accommodate a family of three or four were being bought up and converted to houses in multiple occupation.
The practice was starting to have an impact on the neighbourhood as these HMOs were housing many more people than the buildings were originally designed for, placing a strain on rubbish collection and the sewage system. Jon started to investigate and has uncovered something which is nothing short of a scandal.
The new type of housing development was the result of rogue landlords taking advantage of the planning and housing benefit systems to warehouse the poor in sub standard accommodation whilst sticking you, the taxpayer, with exorbitant bills.
What is more, this highly profitable scheme is being rolled out across London and could soon be appearing in an neighbourhood near you. In this post Jon describes how the scam works and the impacts it is having locally. You can read more on his local blog www.hanworth.org
The Great Hanworth Houses in Multiple Occupation Scam
In 2010 the previous Coalition Government made changes to planning regulations which had a profound effect on the housing market. The law was amended to allow for substantial alterations to a property without the requirement for planning permission from Local Authorities. In particular, changes in use were allowed between C3 dwelling-houses (ordinary family homes to me and you) and C4 houses in multiple occupation (HMOs).
The goal of the policy was to ease planning restrictions, encourage building and spur the economy in the middle of an economic downturn. The effect has been to allow the widespread exploitation of the vulnerable, the destruction of communities and for the public purse to be ripped off to an extraordinary extent. All of this has can be achieved through the exploitation of multiple loopholes which I will lay out here.
First identify housing stock in London Boroughs for sale between the £280,000 to £380,000 and purchase through an off-the-shelf holding company. Family sized properties are still available for these prices in the fringes of London, in places like Hounslow and Brent. You can probably get a quick loan from any one of a number of specialty mortgage outfits such as Commercial Acceptances and offer the company and future profits by way of collateral.
You won’t need to haggle with the vendor over the price, just gazump whoever else is bidding – your future profits will easily cover any the shortfall.
Now, the changes to planning rules allow you to entirely gut the property to maximise any and all available space for habitation under permitted development rights.
Divide the property into six bedsits, each with its own toilet, shower and sink. You won’t have to concern yourself with onerous building regulations either as you’re going to pay a private contractor to provide various certificates which will be offered to the local authority.
No-one will check. As far as the neighbours are concerned the home is being re-modelled and you can tell them any old rubbish you like to keep them off your back. Once the work is substantially finished you can let the Valuations Office Agency (VOA) know that the property is now ‘flats’ and they will dutifully re-band for Council tax purposes. This is important because you will want to pass off the cost of the tax onto your tenants and not have to worry about dipping into your profits. Now you need to find tenants.
At this point you can involve a lettings agency or else advertise privately. Gumtree is a good free source of free advertising. You might also approach certain homelessness charities. The idea here is to attract those on universal credit, particularly those to whom local authorities have a slender duty of care. If they are offered a roof over their head they simply have to accept – it’s either that or the gulag of rough sleeping.
In outer London, housing benefit rules allow you to charge as much as £980 pcm for each bedsit in your property and the local council will guarantee you payment up front. With six flats that is £5,700 pcm! With a few cunning twists you can ensure that the Council pays you directly and bypass the tenant – just get them to sign a simple form denouncing themselves as hopelessly unreliable at managing their affairs.
So now you have six tenants on Universal Credit and Assured Shorthold Tenancies (ASTs) all paying their own Council Tax with the generous assistance of the tax-payer. In four or five short years your company will have paid off the mortgage. But why wait? You can repeat this business model as many times as you like.
Hanworth, West London
What I have outlined above is not theory but lived experience. In Hanworth, at least nine properties that we know of, small family homes, were purchased at the asking price and turned into bedsit HMOs without let or hindrance from Hounslow Council in 2016. This is all but invisible to anybody other than a determined investigator. All the properties are within half a square mile. Local residents fought tooth and nail to have these properties opposed in the planning stages only to be told that it ‘was not a planning matter’. Appeals to local councillors were fruitless.
The only current defense against this naked profiteering is an obscure piece of planning legislation known as an Article 4 Direction. This allows for the removal of certain Permitted Development rights within a defined geographic area. However, it can only be done with the support of local authority officers and it comes with the threat of compensation for those whose ‘rights’ have been removed. For this reason local authorities are extremely reluctant to take such a course of action. After six months and more of campaigning residents were able only to obtain a deferred Article 4 Direction coming into force in November 2017. The profiteers can do their worst to the neighbourhood until then.
Let me make abundantly clear the damage that this business model is doing. Relatively affordable housing stock is being removed from an over-heated market. There is a desperate shortage of such housing stock and after substantial ‘remodelling’ these properties are unlikely ever to be family homes again. The properties are wholly unsuitable for change of use into HMOs and so obviously violate many of the standards which are supposed to apply to such conversions.
Building standards in these properties are very poor. Outsourcing of building regulations is allowed such that the HMO owners are permitted to appoint their own contractors to supply the necessaries to council. If you want to keep getting business from these companies you may not wish to hold them to any kind of standards. We have seen sewage flooding back up from the toilets and the showers on the ground floor of one of these properties. Communal kitchens are way below the required minimum in terms of space and have no external ventilation, not even a window in several instances.
The abuse of Houses in Multiple Occupation – A city wide problem
Worryingly, I have discovered that this practice is being repeated all over London. In Hanworth we have seen eight properties converted in a very small area by the same network of companies owned by gentlemen from the Charedi community of Stamford Hill. We know that these companies own properties all across London and the UK where this model is being replicated. Large sums of money flow between well-established Charedi charities and these property companies in the form of donations and loans. The purposes of these transactions are obscured as far as possible, facilitated by abbreviated accounts filed at Companies House.
They are certainly not the only people in this business. The profits available to these companies from the public purse are tremendous and the practise will not stop until the laws are changed to prevent it.
For reasons of concision I am unable to go into the many details which are necessary to understand the complete systemic failure which allows this disgraceful profiteering to thrive. The dubious ethics and questionable practices of the companies involved and the impotence of current legislation are discussed at length over at my blog hanworth.org.