Every HMO deal in England clears two separate council decisions before a tenant moves in. One is licensing: does the property need a licence, and under which scheme. The other is planning: does turning a family house into a shared house need permission at all. The two systems are run by different departments and drawn on different maps. An investor who checks one and skips the other can end up owning a four-bed that is only allowed to house a single family.
The licensing side is a known, budgetable cost. The planning side is discretionary, and that is where conversion deals die. The National Residential Landlords Association estimates that between 75 and 80 English local authorities now have an Article 4 direction removing permitted development rights for small HMOs. Each has its own boundary and refusal criteria, and more arrive every year. Here is how the two systems interact in Nottingham, Birmingham and Bristol, where the maths comes out very differently.
Three licences and one planning gate
Licensing under the Housing Act 2004 comes in three forms. Mandatory licensing applies across England to HMOs with five or more occupants forming two or more households. Additional licensing extends the requirement to smaller shared houses, usually three or four sharers, and is adopted council by council. Selective licensing covers every private rental in a designated area, shared or not. Fees in the three cities below run from £700 to £1,861, and operating without a licence carries civil penalties of up to £40,000 alongside rent repayment orders; Birmingham City Council spells both out on its licensing pages.
Planning runs on a different axis. A house shared by three to six unrelated people is use class C4, and the switch from a family dwelling (C3) to C4 is normally permitted development, so no application and no fee. An Article 4 direction removes that right inside a defined boundary, and the same conversion then needs a full planning application. The fee for a material change of use is £610 from 1 April 2026 under the government's indexed planning fee schedule. That fee is noise. The refusal risk is the real number, and it varies street by street. Larger HMOs of seven or more people are sui generis and need permission everywhere, Article 4 or not.
Nottingham, where the conversion route is closed
Nottingham's citywide Article 4 direction has been in force since 11 March 2012. The council's planning guidance does not pretend otherwise: "It is highly unlikely that you will be granted planning permission for a change of use from C3 (family) to C4 or Sui Generis (HMO) in Nottingham." Apply for an HMO licence without planning consent and the council may grant a licence for only 12 months, time to seek permission it has already told you not to expect.
So the classic BRRR conversion play, buy a tired three-bed, refurbish, let it by the room, refinance on the higher income, barely exists as a new strategy in Nottingham. What trades instead is stock that already has C4 use, proved by planning history or a lawful development certificate. The average Nottingham room lets for £581 a month on SpareRoom's city index (last updated April 2026), so a four-sharer house grosses around £27,900 a year. A family house next door cannot legally be converted to match that income, which is exactly why consented HMOs there are priced on income rather than bricks. Running costs still apply: the city's second selective licensing scheme has run since 1 December 2023, and from 1 April 2026 a licence costs £950 per property, or £759 for landlords accredited with DASH, Unipol or ANUK, according to Nottingham City Council's fee page.
Birmingham, where the answer is a percentage
Birmingham's Article 4 direction has covered the whole city since 8 June 2020. Unlike Nottingham's, it is not a de facto ban. The council's HMO supplementary planning document, adopted in April 2022, tests whether a conversion would push HMO concentration above 10 per cent of residential properties within a 100 metre radius, and whether it would leave a dwelling sandwiched between HMOs on both sides. Viability becomes a street-level question. A road at 8 per cent density can absorb another conversion; an identical road two streets over at 11 per cent cannot, and no amount of design work changes that arithmetic.
The licensing stack arrived three years later. Since 5 June 2023 every three and four person HMO in the city has needed an additional licence, currently £755, and 25 of Birmingham's 69 wards sit inside a selective licensing area where single lets need a £700 licence too, both per Birmingham City Council. Rooms average £611 a month on SpareRoom, so a four-bed conversion grosses roughly £29,300 a year. The whole compliance bill, licence plus planning fee, comes in under £1,400. The binding constraint is the density map, and unlike a planning committee's mood, the density map is knowable before you offer.
Bristol, a map with a deadline
Bristol built its Article 4 coverage in layers. Lawrence Hill, Ashley, Cabot, Cotham and Clifton East have needed permission for C3 to C4 conversions since 11 December 2011. Clifton West and Redland followed on 21 October 2012, and directions covering north, south and east Bristol plus Avonmouth Village took effect on 29 June 2020. The council has confirmed further directions for Brislington, Frome Vale, Purdown, Southmead and Horfield, St George and Westbury Park, effective 1 January 2027.
That date matters because directions do not apply retrospectively; the NRLA's toolkit notes that development completed before a direction takes effect is unaffected. A conversion finished and occupied in those six wards before 1 January 2027 keeps its permitted development status and can be evidenced afterwards with a lawful development certificate. The same works finished a month late join a discretionary planning queue.
On licensing, Bristol is the most expensive of the three cities. Its citywide additional licensing scheme began on 6 August 2024 and charges £1,023 on application plus a further £838 when the licence is granted, £1,861 in total for five years, per Bristol City Council's fee page. Set against income it is still small. Bristol rooms average £736 a month on SpareRoom's index, so four sharers gross about £35,300 a year and the licence absorbs roughly 1 per cent of five-year gross. The January 2027 boundary is worth far more than the fee ever will be.
What this does to BRRR underwriting
The refinance leg of a BRRR deal rests on the exit valuation, and the exit valuation rests on lawful use. Inside an Article 4 area a valuer will ask for planning evidence before treating a house as an HMO, so an unconsented conversion refinances as a family home whatever the tenancy schedule says. The discipline that follows is simple. In discretionary cities like Birmingham, buy subject to planning or price the refusal into the offer. In closed cities like Nottingham, the opportunity is buying existing consented stock at a sensible multiple, since the council has spent fourteen years making sure nobody can create more of it.
The other side of the ledger is that Article 4 protects incumbents. SpareRoom's Q1 2026 index puts the UK average room at £747 a month, up 0.1 per cent on the year, and reports that supply growth in the year to January 2026 dropped to 4.2 per cent from 13.8 per cent the year before. Room supply is flattening at the same time as 75 to 80 councils, on the NRLA's count, have shut the easy conversion route. A landlord already holding a consented HMO in one of those areas owns something that gets harder to replicate each year.
This is also why we treat planning and licensing boundaries as underwriting inputs rather than a post-offer checklist. A set of room-rate comparables is only worth having if the rooms can lawfully exist at that address, so Torquity's screening reads Article 4 and licensing designations alongside the rent evidence and widens a deal's confidence range wherever consent is discretionary.
Article 4 cities are still investable. The question is which side of the direction you sit on. Owners of consented stock are being handed scarcity, and buyers of that stock should pay for the consent without overpaying for it. Anyone planning a conversion needs a ward where the map has not caught up yet. In six Bristol wards, that window closes on 1 January 2027.