'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.