I am beginning to wonder what I’ve done to offend this government. Firstly, David Cameron misjudged the mood of the electorate and triggered Brexit. As a direct consequence, fifteen of the estate agency business sales that I had arranged fell through. I spent four months putting most of these sales back together again only to see them disrupted for a second time by the tenant fee ban. This is irritating for me but it’s catastrophic for the hardworking business owners whose retirement plans have been disrupted.
In the medium-term, I am confident that the market for letting businesses will soon recover. Brexit will have no impact whatsoever on the size of the UK letting market. On the contrary, if people do not have the confidence to buy a new home, they will rent one and the size of the letting market could increase further.
The ban on tenant fees is more worrying; this too is unlikely to have a long-term impact.
The typical letting agent currently derives about 15% of their income from letting fees. The typical letting agent also makes a profit margin of around 15% of turnover. It is therefore utterly impossible for letting agents to bear the cost of the tenant fee ban themselves – it would reduce their profit to zero. The fees will therefore have to be passed on to landlords who will inevitably pass them on to tenants through higher rents. This is what happened in Scotland and my clients there have the figures to prove it. It will inevitably happen in England too.
What worries me more, however, is the reason why such a stupid and misguided policy was announced in the first place. It seems to be evidence of a weak and insecure government bringing in popularist measures in order to curry favour with a small group of marginal voters. This is not in the long-term interests of the housing market nor is it in the long-term interests of the country.
I am reminded of two teachers who taught my daughters in their first year at secondary school. One bought sweets and gifts for her pupils every day and let them do more or less what they pleased. They liked her hugely but they quickly lost respect for her and she left after one year. The second teacher, a strict disciplinarian, was both disliked and admired in equal measure. She went on to become the headmistress and in the twenty years since then, has taken the school to the very top of the national league tables.
Our current government finds itself in a very similar position. The tenant fee ban was imposed because a small number of letting agents were overcharging tenants who they saw as an easy target. The obvious solution was a cap on tenant fees but this would not have made such good headlines so we got an outright ban.
The tenant fee ban will be hugely popular with voters but it will achieve nothing. It will not address the cost of renting a property and it will not appease the Generation Rent campaigners. Once they realise that the tenant fee ban has led to higher rents, there is a real danger that they will move on to demand rent controls and this is where things could start to get really dangerous.
Rent controls would also be hugely popular with voters. If we had a referendum on it tomorrow, the rent control lobby would win by a huge margin. However, rent controls or even the threat of rent controls would immediately destroy the housing market. There would be a stampede by landlords to sell their investment properties and those that remained would see the value of their properties fall through the floor. This is what happened when the 1978 Rent Act was passed and the consequences were catastrophic. Tenants quickly found that no new properties were available to rent. As a result, they were forced to choose between buying a property, staying with their parents or waiting many years for a council house. Meanwhile, the injustices that were heaped on individual landlords were unforgiveable. Decent hardworking people who had invested in a rental property to provide for their old age, experienced an event that amounted to nothing less than the confiscation of their assets by the government. As an industry, we must mobilise ourselves now to stop the government from taking any more popularist decisions that could have appalling consequences for the housing market and for the country.
The only way to solve the problem of unaffordable house prices and rents is to build more houses, both for sale and for rental. The law of supply and demand will do the rest without any interference from government.
The way to achieve this is to speed up our appalling planning system in order to make more land available and to guarantee a stable market that gives both private and institutional investors the confidence to invest in creating new homes. Every intervention or threat of intervention makes this more difficult to achieve. The role of a good government is to give its population the policies that they need, not the policies that they want. Our government must find the courage to resist the call for intervention and just let the market be.
Adam Walker is a management consultant, business sales agent and trainer who has worked in the property sector for more than twenty-five years.