A Crash Is Coming: How will it affect the private rental sector?

Some of the private rental sector’s most experienced and respected experts believe it’s almost inevitable that a housing market crash is on the way - but it may well be that it will hit sales prices and leave the rental sector relatively unscathed.

The question of a possible market crash was the lead issue for a panel of experts who discussed the future of the PRS at an event in London, launching a new option being presented to letting agents and landlords called the Advanced Rent Option.

The panel was a veritable Who’s Who of the lettings industry. It was chaired by independent consultant Chris Watkin with participants being Adam Walker (business transfer agent and industry consultant), John Howard (property developer and investor), Charlie Bryant (the managing director of Zoopla), Simon Shinerock (chairman of Choices Estate Agents) and Vanessa Warwick (co-founder of private rental sector online forum Property Tribes.)

There’s a video of the debate at the bottom of this story, kindly provided by Property Tribes, while immediately below there is a summary of what was said.

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1. Will there be another property crash and how will it hit the PRS?

Adam Walker said a crash was inevitable as the housing market works in cycles and major events such as Brexit lead people to feel they have “lost confidence” in the market. John Howard agreed (“Absolutely - of course there will be a crash”) because he calculated a crash happened on average every 17 years and that it’s not occurred yet because of record-low interest rates.

Charlie Bryant said the next major rise in interest rates will bring about the next downturn, adding that “we've never had it so good with interest rates.” Simon Shinerock also felt one was inevitable - although interest rates were unlikely to rise soon. 

Vanessa Warwick questioned the definition of a crash - is it a drop in capital values of 10 per cent or 20 per cent or more? And as she’s been a landlord for 15 years and isn’t selling at the moment, will a price correction affect her? 

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2. Can agents remain profitable and successful in today’s challenging market?

“Even in a bad market, the best agents can still make money” insists Walker, who says the best ones claw back money whether it’s by increasing fees or selling more ancillary services. Key, he said, was to consider “'what has to change in the business model to keep making money.”

Shinerock was asked what he did at the time of the last crash to keep his agency profitable - he said shifting focus from sales to lettings to concentrate on the 'huge boom' in the rental sector was the solution.

Watkin then asked Vanessa Warwick for her thoughts on letting agents and what they could do to be able to charge more. She described herself as “a big fan of agents” who are “under-appreciated and under-valued”.

Watkin then asked why landlords often want to start their own letting agencies and John Howard - who had done exactly that for a short time - responded that landlords think it is an easy move, when in reality it’s not.

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3. Why do just 50 per cent of landlords use letting agents?

Walker said they were “ill-informed” and that there was a huge opportunity right now for agents to engage with independent landlords. He gave the example of one of his clients, an agent, who has been writing to local independent landlords notifying them of the fines they could be about to receive for non-compliance.

Vanessa Warwick said that there were now 'so many challenges on so many different levels’ for landlords, and that agents could help by taking a more holistic approach and partnering with mortgage advisers and tax advisers. 

Charlie Bryant agreed that agents need to be "much more flexible in the types of services they offer.” He said this means catering to “millennials who think they know it all and want a light-touch service” to those who want a traditional full-service.

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4. Why are governments intervening in the private rental sector so much?

Adam Walker described it as “a co-ordinated effort to drive out small landlords” adding that the government doesn't want amateurs, while John Howard admitted that he was “staggered” a Tory government created so many challenges to small private companies and landlords.

But Charlie Bryant insisted that government intervention was good news for agents who could help landlords cope with the greater regulation, complexity and tighter margins.

Vanessa Warwick described the government's efforts to professionalise the PRS and raise standards as “laudable” but felt one key issue was “a complete lack of enforcement of regulations” meaning that criminal landlords fly under the radar. 

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5. What will the next disruption be for agents?

According to Zoopla’s Charlie Bryant it’s going to be “personalisation” while “the biggest change will be around using data to personalise the experience for consumers.” 

He said portal-based property search hadn’t moved on in 10 years and doubted whether people would accept that from the likes of Amazon or Netflix.

Simon Shinerock said his biggest concern is what was going to happen with Artificial Intelligence and that if there are bots that can do 90 per cent of the work, “agents must show how we can do better than that.”

The event - organised by Angels Media, publisher of Letting Agent Today and other Today industry titles - also saw the launch of the Advanced Rental Option, promoted by Choices Estate Agents. 

It provides landlords with a lump sum of up to 12 months' rent in advance, less the equivalent of standard letting agency fees, new tenancy set-up fees, an emergency maintenance float and optional rent guarantee. 

It’s open to any buy to let landlord, subject to referencing.