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'One million landlords exit the PRS' - the headline you don’t want to read

Ian Wilson, the head of Martin & Co, recently threw his hat into the ring regarding Labour’s stated intention to cap rents, create three year tenancies and ban tenants fees if they are elected. Mr Wilson attempts to be the voice of reason, arguing that as letting agents we have little influence over the outcome of the election and should therefore look to have a positive relationship with whoever wins.

He goes on to show empathy with some of the calls for change, in particular appearing to see the need for longer term contracts. His analysis of the effect that a ban on tenant’s fees would have on the market is less clear. He starts by saying:

“The average management commission nationally is 9%, which means that in round terms every £1 of rent generated is split 15p into agent’s pockets and 85p into landlord pockets.”

I'm pretty sure the maths here is wrong, or he has missed something out - either that or my parents need to ask for their money back for my extra tuition fees!

More mystifying, he goes on to say:

“So a ban on charging tenant fees, which translates into an increase in rents, will benefit landlords, even if it ‘hurts’ us.”

This is said without explaining why and leaving the reader to speculate. Perhaps he thinks that the money saved by the tenant not having to pay fees will somehow magically get added to the rent. Personally, I can't see why it should. More likely agents will think of 'voluntary' ways to get fees from tenants, like a referencing service as now happens in Scotland. Other agents may increase their charges to the landlord which would be the more likely reason rents could rise.

Of course Ian goes on to make the usual appeal that is always made by established players for more regulation:

“Our best defence is to accept some of the arguments about caps, limits or codes to prevent price gouging on fees, and work with the new Government on longer tenancy lengths, but in return ask for a commitment to the regulation of landlords and agents.”

This can be roughly translated as 'please raise the bar and keep out the competition'. In my experience this is a dangerous game to play, akin to making friends with a snake and hoping you can persuade it to bite your enemy. What normally happens is the snake thinks 'dinner' and bites whoever comes closest.

The real fallacy is that there is anything badly wrong with the current set up. True, standards need to be enforced and not just set, but that's no more likely to happen just because new laws are passed. Of course tenants should know about compulsory fees and they are already entitled to this information up front, but banning them altogether? That's meddling with the free market for the sake of it and just because they did it in Scotland, doesn't make it right.

If you imagine one of those balloons that the magician makes into a toy dog at a kids party, those balloons are much like the market. If you squeeze them they will get smaller in one direction and bigger in another. That's what will happen to the cost of renting if the proposal to ban charging tenants is implemented. Plus, this strategy totally ignores landlords who don't use agents. Denied fees, they will simply increase rents, probably by far more than the initial fee itself.

Equally, by capping rent increases over three years to inflation you create a huge desire to get the highest rent at the start of each tenancy. Ironically, this focus on increasing rents by more than inflation every three years will result in much higher average rents. That's because, at the moment, many landlords let rent increases slide. They are happy to let sleeping dogs lie but in the new era of a three yearly money grab many will feel obliged to go for it, brilliant stuff.

So, what can we all do? Well, probably, the best thing to do would be to lobby all parties with a well-reasoned argument in favour of a light touch in the sector. It is a shame that as things stand there does not appear to be a cohesive approach to this fundamental issue, one I myself raised many months ago in relation to the misguided misinformation being put out by the likes of Shelter and Generation Rent.

It may be hard to influence Labour if they win and if they do, I don't think it will go well for the Private Rented Sector. However, if the Conservatives get in it may not be too late to avert disaster. We shall see what happens.

*Simon Shinerock is Chairman of Choices Estate Agents. For more information on Simon, see his LinkedIn profile: https://www.linkedin.com/in/simonshinerock.   

  • Simon Shinerock

    Since I wrote this article, it has occurred to me that the important thing to focus on is this. Any attempt to transfer responsibility to provide subsidised social housing to the PRS is doomed to fail and will badly damage or destroy the sector and the changes Labour are proposing is simply a cynical attempt at winning votes from social tenants at the expense of their long term security.

  • Jamie Dens

    Interesting. Does anyone have a link to Ian Wilson's original comments?

  • Rob  Davies

    If more and more people are going to be forced into the PRS over the next few years - which they almost certainly are, thanks to sky-high house prices and a lack of social/housing association property being made available to those who need it - then the PRS will need to be better regulated, to reduce the risk of rogue landlords exploiting vulnerable landlords.

    Of course, Shelter's findings were exaggerated and over-the-top. Such hyperbole doesn't help. But to completely dismiss the concerns of Generation Rent is absurd. You talk about a free market - a free market shouldn't mean a free-for-all where those at the top screw over those at the bottom. That takes us back to Victorian times. You're not advocating that, Simon, are you?

    You also talk about Labour proposing these changes as a cynical vote-winner. Well, what do you think the Tories have been doing with their Right to Buy nonsense? Shameless electioneering that will only benefit a small minority. That's what happens during an election campaign - both sides make lots of promises, a lot of the time they don't keep to them.

    You clearly don't like the proposals - I have reservations about aspects of them too - but to say that if Labour get in untold damage will be done to the PRS is nonsense. And you have to bear in mind that some people wouldn't see that as such a bad thing. The boom in buy-to-let, the decline in homeownership, the lack of affordable housing - all these will be sticks to bash landlords and the PRS with. Not fair, no, but these concerns have to be taken seriously.

  • Rob  Davies

    That should read 'rogue landlords exploiting vulnerable tenants' of course. Edit button, please.

  • Jon  Tarrey

    Sorry, but this is a load of rubbish. You don't even try to hide your Tory bias. Why is regulation in the PRS such a bad thing? If it makes people more accountable, if it increases trust, if it makes people less insecure, then that's surely a good thing, isn't it?

    Of course it's not a one-way street - you get as many awful tenants as you do dodgy landlords - but that doesn't mean regulation can't be introduced in a fair, even-handed manner. They manage it in Germany and Switzerland just fine.

    Pure self-interest from those who don't want to see their rental yields affected by regulation. The PRS is allowed to operate in its own safe little bubble for too long - about time it was challenged.

  • Kelly Evans

    Totally agree Simon. Rent controls and rent caps have never worked well in the past - they used to have them in the 70s and they were an absolute disaster then.

    I work in sales now, but I worked on the lettings side for many years. The posters above don't seem to understand the mechanics of the PRS. Their ignorance is quite astounding.

  • Simon Shinerock

    To Rob, I suggest you read the biased report commissioned by Shelter and confront the lies they are peddling. I have seen entire industries wiped out in my time by Ill thought out regulations. My point is that if the authorities can't enforce existing controls, some of which are very recent, how can we believe they can be trusted with such sweeping changes? To Jon, rubbish is too flattering to describe your comments. I don't know if you were around in the 80s before the creation of the current PRS but I was and I remember the chaos and misery created because the previous PRS had been wiped out by well meaning ignorant people. It is a fallacy that the returns from the PRS are too generous to landlords, the reverse is the case, they are too low to attract institutional investment and the sector is being supported by low interest rates as it is. I am aware of the shortcomings of the current regime but if we follow the labour path it will take us into the fire and lead to many agents losing their livelihoods for no good reason.

  • Daniel Roder

    Even though I'm a landlord - and have reservations about things like too much red tape, regulation, government interference, whatever it may be - I'm not against better accountability. It can't be underestimated how poor the reputation of landlords is. Even though it's often the case that tenants are happy with their landlord on an individual basis, many will be swayed by what they read in the press, which is almost always negative. You only needed to watch that episode of Panorama the other night to know what agenda is being pushed.

    There are rogue landlords - people with no scruples or morals who just want to make a quick buck. But they are not representative of landlords as a whole. I know I would never dream of putting my tenants at any risk, I go above and beyond to help them as much as I can. I try and be on call as much as possible.

    But I'm not so naïve to assume that the perception of landlords is wholly positive, far from it. Lots of people have had bad experiences with landlords and have been scarred by that. As a whole industry we need to do more to drive out the exploitative, money-grabbing types and fight to convince the public that we're not all bad, we're not all land barons looking to bleed them dry.

    Having said that, I think your scaremongering a bit when you talk about agents losing their livelihoods, Simon. It's hype and scare tactics like this that also give our industry a bad name.

  • Daniel Roder

    *You're scaremongering

  • Rookie Landlord

    State intervention in the PRS is not only unwanted and unwise, it's also potentially dangerous. As you say, Simon, it's either a free market or it isn't. They should keep their noses out.

  • Simon Shinerock

    Daniel, I make it clear there is a need for standards and some regulations but they need to be enforced and enforceable without destroying the foundation of the market as has happened before. It is not my job to set policy but I do feel motivated to examine the consequences of proposed change and point out where I can see fatal flaws. It's absurd for Labour to commit themselves to action without understanding these consequences and on the basis of inaccurate biased research, I just hope that tomorrow we will get another Tory led Government or we are all in trouble.

  • Algarve  Investor

    If the Tories get in, we'll have another five years of houses not being built and extra pressure being put on the PRS.

    No party is offering all the solutions - which is why the independent regulatory body suggested in an EAT article today is actually quite appealing - but to say that the Tory record on housing stands up to scrutiny is absurd.

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