Banning letting agency fees won’t solve our problems

Douglas Haig warns that costs would be passed back onto tenants from landlords if letting agency fees were abolished.

Over the last four years the Private Rented Sector (PRS) has seen dramatic changes, and will continue to do so over the coming years. The PRS in Wales must answer to two governments, here in Wales where we have had the Housing (Wales) Act 2014 and the Renting Homes (Wales) Act 2015, and in Westminster where we have had Stamp Duty changes (soon to be devolved), Mortgage Interest Tax changes and more stringent lending requirements imposed from the Bank of England. The PRS is, so far, withstanding the weight of recent legislation and taxation changes whilst continuing to improve quality and service standards, tenancy length with negligible change in rents – but only just.

Wales is currently following a similar legislative path as Scotland whose landlords have also had to cope with the two-government phenomena.  Both Wales and Scotland have introduced mandatory registration and Scotland is ahead in the implementation of standardised contracts as these will be coming to Wales under the Renting Homes Act.  However, Wales has not yet gone as far as to ban letting agent fees paid by tenants.

As such we have a unique opportunity to consider what might be the future of the PRS in Wales if we continue to push for these changes, by looking at our cousins in Scotland.

Scotland banned fees in 2012 after a clarification to a law that had existed since 1984. Since 2012 rents in Scotland have increased dramatically, 5% according to the ONS, and has produced a number of headlines exclaiming that rents In Scotland are at an “all time high”. Many people point out that the increase cannot be attributed specifically to the banning of fees due to a lack of evidence specially connecting the two, however absence of evidence is not evidence of absence and there is a strong correlation between the two.  It is also worth pointing out that many agents in Scotland were already not charging fees because it was already illegal, therefore the impact was hugely reduced from its potential.  Meanwhile over the same period rents in Wales have been below or around CPI, and in some years even reducing. This is good news for renters in Wales and something we want to see continue, but when a mountain of legislation is placed on the backs of landlords, and a series of taxation changes to take away any support, landlords may not be able to carry the weight any longer.

We have long warned that fees will ultimately be passed on from agent to landlord, and this cost base will put another pressure on the market. It seems that whatever the cause of the increase in rents in Scotland, this warning has come to fruition.

What’s worse is that Scotland has transferred the cost of agency fees onto those residents who have been in their properties long term. At present, the agency fee is a one-off cost, it’s a cost on transaction. However, if this cost is spread into rents as a result of this market pressure rather than an upfront transaction fee, that cost will be paid month after month, year after year, not just by those that move, but everyone.  Therefore long term residents will end up paying more than they ever would under the current system because they are covering the costs of those that move often.

A banning of these fees would also reduce the service that agents supply to both landlords and tenants.  At a time when we are looking to improve service we can’t be putting pressure the other way.  Agents will also look more and more to accept the ‘easiest’ applicant to reduce costs.  If someone can come to them with full applications ready to go then they are more likely to accept them over someone that is struggling to provide full references.  Ultimately this will impact the most vulnerable in society the worst.

The change in England may well not affect landlords in the same way the policy would in Wales. England has not introduced the equivalent of the Housing (Wales) Act 2014 which requires national registration, training and licensing, nor has England introduced standardised contracts with a Fit for Human Habituation requirement.  However, if Wales follows the same path as Scotland, we cannot be surprised when we have the same result or quite probably worse.

The situation is far more nuanced and complex than it may first appear, and a long-term solution to the extortionate fees charged by some agents is entirely possible if we are willing to explore the arguments and alternatives. Placing a ban on fees is simple, it’s easy to understand and not difficult to explain. However, it won’t solve our problems, but create bigger ones later when rents inevitably increase.  We ask that Welsh Government listen to alternatives and work with the sector as opposed to simply copying England.

Douglas Haig is Vice-Chairman and Director for Wales of the Residential Landlords Association

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