Published 2nd September 2020
HMO Article 4 directions are a legal means through which a council can require property owners to obtain planning permission when converting single homes or residential properties (C3 use class) into HMOs (C4 use class). The main focus of this piece of legislation is to withdraw the rights permitted under the Town and Country Planning (General Permitted Development Order, GDPO) of 1995.
The GDPO gives homeowners Permitted Development Rights (PDRs) to convert their homes how they see fit, including changing the use class of their properties if they wish, without having to create a formal planning application. Article 4 directions are designed to remove specific PDRs in either specific areas of the council or the entire council.
The idea behind this is to grant councils powers that can help control the housing market in certain areas, preventing over-flooding to the community. Article 4 directions can be used by councils to restrict the number of HMOs in a given area, especially when considering how the development may affect the area and how the development characteristics may compare with its surroundings. It’s important to keep in mind that Article 4 only applies to smaller HMOs of up to six residents maximum or other C4 properties. Anything larger than six is considered a larger HMO, which falls under a separate house class and requires different permissions.
That makes sense, doesn’t it? It’s important to keep an equal balance of the types of living accommodations in the housing sector. However it’s important to keep in mind that HMO Article 4 directions directly impact landlords who, traditionally, look to rent C4 class HMOs to students or young people.
The Residential Landlords Association once pointed out that there has been some unease about the ‘Studentification’ of areas, hence the regulation. Essentially, the argument being that students or young people living together make bad neighbours. But the RLA argues against this, stating how it actively discriminates against students and young people by pressuring the already limited affordable housing stock. This also doesn’t address the issue that limiting the number of HMOs available to this demographic does nothing to decrease the actual demand. As demand of HMOs increases but the supply of HMOs available decreases, the results are prices rising.
C4 use class rental properties are being bought and sold for a higher price than C3. This is because of two reasons: less investor activity and investor’s ability to add value. According to Allsop magazine, investors are taking precautions in cities where Article 4 directions exist with regards to buying C3 houses and developing them to C4 HMOs. And less investor activity in the C3 market means slower market growth for regular homeowners. C3 houses are less desirable because investors cannot gain from rental returns and the ability to add value to C4 housing is inhibited.
Overall, Article 4 is a difficult situation for landlords and letting agents. While many councils are doing a great job of encouraging student developments, the reality is that many people are turning away from residential properties as an opportunity for development. Because of this, the supply isn’t meeting the demand of students. Investors are straying away from C3 homes and looking at only the HMOs and the C4 market to avoid any chance of getting turned down planning permissions and potentially losing out on profits from renting their own developments that they personally oversaw, hence choosing HMOs that are already made.
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