By way of introduction, on the 31st May 2012 BANES issued a notice of intention to implement an Article 4 direction. This meant changing the use of a property from C3 (residential) to C4 (HMO) from the 1st July 2013 required planning permission.
A House in Multiple Occupation (HMO) is defined by the Housing Act 2004 as:
- A house or flat which is let to 3 or more unrelated tenants who share a kitchen, bathroom; or toilets. For example, properties let to students or bedsits; or
- A building which is converted into non self contained flats; or
- A building which is converted entirely into self-contained flats and the conversion does not meet the standards of the 1991 Building Regulations and more than one-third of the flats are let on short-term tenancies.
The stated aim of the Council in implementing this change in planning legislation was;
“to encourage a sustainable community in Bath, by encouraging an appropriately balanced housing mix across Bath, supporting a wide variety of households in all areas.” (HMO SPD document)
The Article 4 direction covered the entire city of Bath, with a further designated “high density” zone marked on the Supplementary Planning Document disclosing the areas of the city that already included 25% existing HMOs – the Red Zone. Within this zone, the SPD suggested the response to any change of use application would be “Minded to refuse, unless there are other material considerations.”
As useful context to the above, the student population of the city makes up approximately 18% of the total – Bath is the third most densely populated student city in the UK.
So, what has been the impact on the city since implementation nearly 18 months ago?
Our partners in our Moorland Road office work right in the heart of the current Red Zone so here’s some collected thoughts;
Why was the planning change needed?
Certain roads in the Oldfield/Westmoreland/Widcombe wards have been favourites for investment buyers for many years – the Brougham Hayes/Lorne Rd area is a good example as it is level access/very close to town and right on the 18 bus route. In these areas, student numbers had increased to such a level pre 2013 that owners and private tenants were becoming very much the minority. Left unchecked, some roads (which were originally built as family suburbs after all) could have become exclusively HMO and other areas could have increased further in density.
Has it achieved the stated aim?
The increase in density in the Red Zone was halted in mid 2013 but the concentration of HMOs in Oldfield Park and close areas has remained broadly stable and there has been no significant migration to other areas of the city by either students or investors. Oldfield Park student density approached 80% in some roads before the implementation and the year gap between announcement and the 2013 deadline only served to accelerate the growth of this sector. As soon as investors knew the legislation was coming they surged into the core student areas to buy as many properties as they could. After implementation, investors have switched to buying current student lets within the core zone (so the numbers of HMOs have remained stable) whilst also acquiring/converting plenty of residential property on the outskirts of the zone (Twerton, Southdown, Moorfields to name a few examples). So what has happened is that the Red Zone has remained and indeed grown further.
What were the opposing factors?
Students want to live close to the city, not up a hill and close to their dedicated bus routes. Students also want to live in groups, near other groups. Landlords want to buy property that is architecturally appropriate for conversion into multiple occupation and offers a decent yield for the purchase price (plus any necessary renovations). In Bath terms, this serves to focus both parties attention on areas like Oldfield Park as opposed to (for example) the North side of the river (where property is significantly more expensive)or the southern ridge (where contours and lack of bus routes cause issues for students).
What has been the effect so far?
On the positive side, residential buyers now have less competition when it comes to buying property in BA2 as investors are basically unable to buy and convert within the Red Zone (and there have been successful prosecutions to prove this). Since these buyers have spent years being beaten to the punch, this is a welcome change that will keep the status quo housing mix wise. Prices in the area in the main have continued to increase but then the prices in other areas of Bath for similar housing are already much more so they weren’t likely to go down! In addition on pricing grounds, valuing investment property as opposed to residential is all about yield rather than bricks & mortar, leading to distorted values in certain roads and even between one neighbour and another.
As already mentioned above (and as anticipated in the SPD), there has been some displacement of investors (we might say expansion) to outer areas which has increased the density of HMOs outside the Red Zone. Some residents in high density HMO areas have found it significantly more difficult to sell and move on as residential buyers are understandably somewhat reluctant to pay normal values to live in roads they are massively outnumbered in by students. As the Red Zone grows further, this effect may move further afield or at the least values could vary as the road demographics change.
What else has changed?
In tandem with the Article 4 direction, the Council instituted Additional Licensing for HMOs within certain wards of the city (Oldfield, Westmoreland and Widcombe primarily). This has meant some elevation of the standard of accommodation in some HMOs that had previously gone unmonitored but has also led to a huge amounts of paperwork and a major backlog within the Council – many licenses are still not issued despite the deadline for applications being January 2014. It is also arguable that any costs for work required (and the cost of the license itself) may simply have been passed on to the tenants.
A significant number of purpose built student developments are currently underway, either at the two universities or within the city. Counting planning applications in process, up to 2500 student units are due for completion shortly and this may take some demand away from the residential areas. There is demand from professional sharers that may well fill this gap as professionals have often found it extremely difficult to compete against the student letting market in Bath. If student demand falls / more building takes place and professionals do not appear to substitute, some landlords may wish to look again to private sector families & couples.
What do you think? Have we missed anything?
Comments and suggestions always welcome!