Scrapping of agent’s fees may push up rents

Posted: 12th Dec 2016

The government’s relatively recent proposal to abolish the right of property agencies to charge tenants fees for their services, has led to some consternation in the letting industry.

The backdrop

Certainly this was a populist move in terms of public perceptions. Nobody enjoys paying fees of any sort and some are more unpopular than others.

That was particularly true with tenants and the property agency fees they were normally asked to find. It’s easy to sympathise because when moving home the expenses can start to mount up and paying hefty intermediary’s fees for simply the right to rent a property was always a major source of tenant discontent.

It’s a fact of life that few tenants will be losing sleep worrying about just how landlords will cope now the government believes they’re the group that should be liable for such costs. However, reading in the media, many landlords point out that this is just moving costs around and not eliminating them. They maintain that the net result is likely to be an increase in rents.

The logic

While the media have reported individual cases of excessive fee charging from property agents, even the most vocal critics of their services admit that they are fulfilling a necessary role. It’s one that has benefited all participants in property hunting, including the tenants who can often save time by engaging in ‘one stop shopping’ as opposed to trying to look at many different landlord properties individually.

That role is one that costs the agencies money and of course they have to make a profit on top. The inevitable conclusion is that if the new measures reduce their income then they will need to replace it from the only source they have left – the landlords.

The government’s rationale is that landlords can more easily shop around for property agents and that means that they will be better able to control the agencies’ fees and squeeze down their prices by playing the competition card. That’s something tenants, of course, couldn’t do.

The risks

While there is a certain logic in such arguments, there is also a commensurate risk.

Some landlords are already overloaded in managing their business operations and things such as rates, taxes, let property insurance and so on. There will, for some, be the inevitable temptation to simply pick up these ‘new’ costs from the property agencies and then pass them onto their tenants through increased rents.

It would be naïve to see this option as anything other than the most attractive path of least resistance for many landlords. This is why many are predicting that the government’s stated objective, of reducing housing costs for tenants, is unlikely to be achieved. The costs will remain the same but they will simply now be invisible and hidden within the rental amount.

Scotland’s experience

There are some though who point out that this measure was adopted in Scotland several years ago and without catastrophic consequences.

The statistics are disputed but many argue that the move led to a very short-term increase in rental costs but that this quickly smoothed out and rates went back to their pre-measure levels.

However, it is notoriously difficult to compare the Scottish rental market outside of perhaps Edinburgh, Glasgow and Aberdeen, with the generalities of the position across much of the densely populated southern areas of England. In many areas of the latter, demand hugely outstrips supply and that may suggest that certain of the balancing market forces might not apply south of the border.

To put it another way, in many parts of England the argument goes that this measure can only result in higher rents.

Summary

Numbers of objective parties are saying that once the initial headline popularity of this move has passed, the net effect for most tenants will be higher rents.

For some landlords, there may be the concern that this will simply become incorporated into the “landlords charging higher rents” statistics that are equally controversial and sometimes a political ‘hot potato’. Some anticipate more ‘landlord bashing’ in the media as an outcome.

The position over the months ahead will be closely watched by all in the business.