Stagnant wages and rising house prices have forced many would-be homeowners to rent while at the same time the stock of social homes has barely increased and has fallen into disrepair.
Millions are forced into the private rented sector to put a roof above their heads and find themselves at the mercy of Letting Agents.
There is an ideal world where Letting Agents are some of the most important people in the housing market, acting as intermediaries, bringing together informed tenants with fair-trading landlords to efficiently match supply and demand.
They should compete with each other on the basis of their prices which are simple, transparent and understood by both tenants and landlords well before there is any transaction. The reality couldn’t be more different.
The lettings market we know is plagued by lost deposits and cowboy agents looking for someone vulnerable to con. Little surprise then, that there were more than 8,000 complaints made against private letting agents last year, a rise of over 123 per cent since 2008.
But worst of all – and something that all landlords and tenants will have experienced – are the extortionate and opaque fees. Letting agents are masters of “drip pricing” where the true extent of the cost of a transaction is only made clear once a contract has been signed or a non-refundable payment has been made.
Throughout the course of a tenancy, a landlord maybe charged for a standard commission fee, a tenancy agreement fee, a withdrawal fee, a renewal commission, a third party renewal fee, a sales commission, an inventory fee, a tax statement fee and many others.
Similarly, a tenant will be asked for a holding deposit, an admin fee, a security deposit, a “check in” fee, a renewal fee, a “check out” fee, an inventory fee and a credit check charge.
That means that in London, the estimated cost of money that you need to find before you pay for your first month’s rent (in advance, no less) is £2,166. And it’s the insatiable desire for these fees that mean letting agents encourage their landlords to offer only short term contracts.
This is one of the key factors as to why there is so much churn in the private rented sector and why people in Tottenham are being forced to pay more rent or move on every 12 months or so.
The sorry state of the lettings market is dictated by three market failures. The first is a lack of information and experience on the part of landlords and tenants. More than half (52 per cent) of tenants in the private rented sector are under the age of 35. Of Landlords, 89 per cent are just private individuals rather than professionals and 78 per cent own just one dwelling which they lease out.
Secondly, as long as social housing stock is allowed to deteriorate and as long as house price growth continues to outstrip wages, demand in the private rented sector will grow. Yet decades of elevated demand have not led to an increase in supply, and whilst many people scramble for a few available homes, there are no incentives to provide high quality lettings or for agents to provide a transparent and valued customer experience.
Thirdly, and despite the fact letting agents typically handle greater sums of money than estate agents, they are entirely unregulated. There is no code of conduct and 40 per cent of letting agents refuse to sign up to self regulation.
There are no professional qualifications and there are low costs and low barriers to entry so that almost anyone can become a letting agent.
The government frets that any action will mean more “red tape” for businesses but there is more to suggest that regulation will increase competition rather than stifle it. A statutory code of practice for letting agents (similar to that agreed to by estate agents) would ensure that existing veritable firms aren’t dragged down in a race to the bottom. A commitment to consolidate all existing fees into a single, understandable fee at the start of a tenancy and also to publish the level of this fee on every advert and every website will actually expose these charges to competitive pressure for the first time. A compulsory membership of a redress scheme where consumers – which in this case are the tenant and the landlord – are finally empowered to act against rogue letting agents that refuse to refund deposits or manage properties to an adequate standard.
In what other “private market” is the consumer so disempowered? This isn’t more “red tape”; it is a green light for more competitive prices, more informed decisions, empowered consumers – who can oppose that?