The sector is estimated to be costing local authorities up to £1 billion a year.
The sector is estimated to be costing local authorities up to £1 billion a year.

Failing and flawed system of exempt accommodation costing local authorities up to £1 billion – landmark report.

Prospect Housing has launched a landmark report into the exempt accommodation sector, detailing what must be done to protect vulnerable residents and rein-in unscrupulous operators.

In a sector first, Prospect have created a report that documents its own shortcomings after its closure earlier this year, in an attempt to help other providers learn from their mistakes and safeguard the wellbeing of vulnerable people living in exempt accommodation.

It makes a number findings:

  • Local Authorities pour approximately £1bn annually into the exempt accommodation sector at shocking cost to the taxpayer.
  • There are unethical providers, some even linked to organised crime that are seeking loopholes in legislation and regulation to boost profit and exploit vulnerable individuals.
  • To mitigate funding shortfalls, even legitimate providers have to artificially increase their service charges, providing opportunity for disreputable providers to line their own pockets.

The report makes a range of recommendations to national and local governments as well as other providers about how to ensure vulnerable people are better supported on a stable and sustainable platform:

  • Introduction of a Local Authority led licensing scheme for exempt accommodation, like that used in some areas for HMOs, to prevent an over saturation of accommodation in particular neighbourhoods.
  • Closing a number of loopholes in funding and regulatory regimes, preventing those taking advantage of vulnerable homeless people in need of housing.
  • The introduction of new Housing Benefit guidance to support Local Authorities to make more informed choices about the use of exempt funding.
  • A requirement that the Regulator must ensure that risk assessments include a failure of consumer standards and that Registered Providers own the relationship with their residents.

Shabana Mahmood MP for Birmingham Ladywood has long been campaigning on this issue. In response to the report, Ms Mahmood has written to the Secretary of State for the Department of Levelling Up, Housing and Communities, calling for them to work with the Department for Work and Pensions to address the findings.

Shabana Mahmood MP said:   

“I welcome this landmark and comprehensive report from Prospect into the highly flawed exempt accommodation sector.

“It highlights that the current system is structurally flawed, which is failing those it should be a lifeline for, whilst lining the pockets of cowboy landlords and unethical operators.

“I’ve written to the Secretary of State asking him to take these findings seriously and work across government to implement the recommendations.

“The Government must get a grip of this issue and close the multiple loopholes that enable these unscrupulous operators to exploit some of our most vulnerable people.”



Notes to Editors 

  • Prospect provided accommodation support for vulnerable adults at risk of homelessness in the Birmingham area from 2013-2021.
  • Its model of providing leased homes and associated care for those it housed would ultimately become unviable, following a downgrading from the Regulator.
  • After undertaking an independent review, Prospect ceased trading as it believed there was no way to return the business to regulatory compliance whilst maintaining its viability.
  • Exempt Accommodation was introduced in acknowledgment of the higher costs associated with certain types of supported or supervised accommodation.
  • It is for this reason that residents can apply for benefits that are more than the LHA. The provision of “care, support and supervision” is critical, as without it, the accommodation cannot be considered as exempt accommodation.
  • The accommodation is also exempt from several requirements which usually apply to social housing including:
  • Exemption from rent restrictions, including LHA caps in the private rented sector.
  • Allowing qualifying providers to claim rental costs through Housing Benefit that are more than LHA rates or social sector ‘general needs’ rents
  • Houses in Multiple Occupation provided by RPs and used for exempt accommodation are also exempt from licensing under Housing Act 2004 and from Management of Houses of Multiple Occupation (England) Regulations 2006, including exemption from selective and additional licensing.

Key passages from the report 

  • “In addition to being non-compliant, this situation does beg the question of whether a lease based model can ever be viable in the current circumstances, particularly in an overheated market such as Birmingham.” P.20
  • “For our part, our operating model did not give us sufficient oversight of practices employed by our Managing Agents. It also meant that the risk profile of the residents we were housing was not properly assessed and understood by us.” P.21
  • “To mitigate shortfalls, it’s commonly acknowledged in the sector that even legitimate Managing Agents and RPs, make this work by either:
  • Artificially increasing the cost of service charge lines in order to fund the level of support required by their residents. There is therefore potential for this to be abused by disreputable RPs, who have the opportunity to artificially increase the cost of service charge lines in order to enhance their own profits or;
  • Redirecting part of the administrative income away from funding compliance and audit activities which would have kept the RP and its residents safe, to meet the shortfall in support income.” P.22
  • “A large number of other Regulatory Judgements and Notices have been issued to our peers operating in the Birmingham area. The notices provide some insight into the poor practices and questionable behaviour of some of those organisations. In many cases, we believe some of these RPs are unscrupulously seeking loopholes in legislation and regulation to boost income and profit.” P.26

Key recommendations of the report 


  • Local Authorities to take ownership of the referral process
  • Inadequate risk assessment should be considered a failure of Consumer Standards
  • RPs to take responsibility for triage & risk assessment
  • RPs to take a more active role in the delivery of support
  • Expectation for RPs to offer more secure tenancy options
  • Support plans focussed on progression towards independence and employment
  • RPs must own the relationship with residents
  • RPs to take more care in managing the mix of residents within a property


  • Resolve the flawed funding models
  • Serious consideration at a policy level as to how support should be funded
  • Transitionary funding to enable the sector “to get its house in order”
  • Stop Exploitation of the funding through Social Media adverts


  • Ensure best practice governance is being adhered to
  • The role of Managing Agents to be well defined with clear governance
  • Development of guidance to sit alongside NHF Code of Governance
  • Ensure conflicts of Interest are properly managed
  • Ensure that only fit and proper directors are permitted to join Boards
  • Identify complaint and viable future operating models


  • Enhancement of RSH powers in line with the white paper
  • Enhanced role for Local Authorities in providing oversight
  • Acknowledgment of the potential in the model for exploitation and criminality.
  • Ensure local accountability for the quality and type of provision
  • Close the “Exempt funding loophole”
  • Urgent amendment to Housing Benefit guidance to allow Local Authorities to apply enhanced checks in this part of the sector
  • HMO licencing to be introduced for all (HMO) Exempt Accommodation.
  • Checks to ensure that there is sight of growth of RPs between SDR reports
  • Co-ordinated response to systemic non-compliance of RP’s in this part of the sector
  • Engagement with the CIC Regulator to prevent a new loophole from opening
  • Local Authorities to urgently put in place additional checks on CIC’s


  • Wider Sector to step up to support the resolution of this issue
  • RP’s to measure and publicly report upon their impact
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