BLOGS

Compliance costs are rising just as supply stays tight

Landlords across England and Wales are absorbing a wave of regulatory change at a moment when rental supply is already constrained. The Renters' Rights Act — which abolishes Section 21 "no-fault" evictions, moves tenancies onto a periodic footing, and introduces a new private rented sector database and ombudsman — is being phased in alongside a separate, more localised trend: the steady expansion of selective and additional HMO licensing schemes by local authorities.

For institutional landlords, lenders and agents, the combined effect is a market where the cost of doing business is climbing steadily, but where underlying income fundamentals — rent levels, yields, and tenant demand — remain broadly resilient. The question for portfolio investors is less "will compliance costs rise" and more "which markets can absorb them without disrupting rent-setting and disposal strategy."

Licensing has scaled up fast, then plateaued in enforcement pace

REalyse's HMO licensing data illustrates just how quickly local authority licensing activity accelerated earlier this decade. National licence issuance rose from roughly 3,700 in 2020 to a peak of nearly 16,900 in 2022, as councils rolled out selective and additional licensing designations across large parts of their housing stock, particularly in areas with high private rental density, historic HMO concentration, or perceived property condition issues.

Issuance volumes eased to around 14,400 in 2023 and roughly 8,300 in 2024 — a pattern consistent with councils moving from an initial licensing "surge," where large batches of existing landlords register at once, into steadier-state renewal and enforcement cycles. It does not signal a retreat from licensing as a policy tool; if anything, the number of local authorities operating selective licensing zones has continued to broaden, particularly across London boroughs, and parts of the North West and Midlands where the private rented sector is a larger share of total housing.

For landlords with portfolios spanning multiple local authority areas, this creates an increasingly fragmented compliance map. A property in a licensed zone can carry meaningfully higher upfront and ongoing costs — licence fees, mandatory works, and inspection risk — than an equivalent unit a few streets away outside the designated area. This is exactly the kind of hyper-local variation that comparables-based analysis needs to capture rather than average away.

Regional yields still favour the North and Wales despite the compliance load

Despite rising compliance costs, REalyse rental listings data over the past 12 months shows gross yields have held up well outside London, suggesting income-focused investors still have room to manoeuvre even as regulatory friction increases.

The North East leads on gross yield at close to 7.5%, with Yorkshire & The Humber, the North West and Wales all clustered above 6.3%. London, by contrast, delivers the lowest yield in the table at just over 5%, despite commanding by far the highest average rent and the fastest average time to let at under 40 days.

That combination — lower yield, faster lettings, higher absolute rent — reflects London's capital-value premium rather than weak rental demand. But it also means London landlords have less yield buffer to absorb rising compliance costs, licensing fees, and potential void periods created by the shift away from Section 21, making disposal and refinancing decisions more sensitive to local licensing designations than in higher-yielding regional markets.

Days on market point to a market still absorbing supply, not flooded with it

Average time to let ranges narrowly across the ten regions, from roughly 40 days in London to around 46 days in the East Midlands and South East. This tight band suggests tenant demand remains broadly consistent with available supply nationally, rather than pointing to a sudden landlord exodus or a supply glut in any single region — a pattern worth monitoring as the Renters' Rights Act's abolition of Section 21 changes how and when landlords choose to bring stock to market.

For agents and lenders, stable days-on-market alongside resilient yields is a reasonable early signal that the market is digesting reform incrementally rather than facing a supply shock. That said, void periods and re-letting timelines in licensed zones are the metric most likely to move first if landlord attrition accelerates, and are worth tracking at postcode-district level rather than regional averages alone.

What this means for rent-setting and portfolio strategy

Three practical implications stand out for professional landlords, lenders and developers:

• Compliance cost is now a location variable, not just a portfolio-wide cost. With selective and HMO licensing designated street-by-street or ward-by-ward in many councils, due diligence should treat licensing status as a first-order input to acquisition underwriting and yield modelling, alongside comparable rents and £/sqft benchmarks.

• Regional yield resilience gives room to reprice, not just absorb costs. Landlords in higher-yielding regions such as the North East, North West and Yorkshire & The Humber have more headroom to pass through compliance costs via rent-setting without materially damaging net returns, compared with London's tighter yield margin.

• Possession and re-letting timelines deserve close monitoring. As periodic tenancies and revised possession grounds under the Renters' Rights Act bed in, days-on-market and void-period data will be an early indicator of whether landlord exit or reinvestment behaviour is shifting materially in specific local authority areas.

Outlook

Renters' reform and licensing expansion are structural, not cyclical, changes — they are unlikely to reverse, and further local authority licensing designations should be expected as councils use the tool to manage private rented sector quality and density. For institutional investors and lenders, the near-term opportunity lies in using granular, comparable-level data to identify where compliance costs are being absorbed comfortably within existing yield, and where they are compressing margins enough to affect valuations, refinancing terms, or disposal timing.