Communities and Local Government CommitteeSupplementary written evidence submitted by the National Union of Students


1. Introduction

To follow on from Liam Burns’ appearance at the Select Committee’s evidence session in Leeds, NUS would like to elaborate on some particular points addressed and provide further detail on relevant NUS research, as requested by the Chair.

2. Summary

This briefing will cover the topics of letting agent regulation, letting agent fees, accommodation costs in the purpose-built sector, Article 4 Directions and property standards and enforcement.

3. Letting Agent Regulation

The issues for students

Current letting agent practices cause a range of issues for students and NUS is therefore supportive of moves to regulate the industry. As students are often pitted against each other, and others, in an over-crowded marketplace, they will generally look for the property rather than the agent, as has been reinforced by Which?’s recent research on the sector. This means that they have little choice as to which letting agent they rent with once they have succeeded in finding a suitable property which they can afford. As a result, tenant choice has little impact in terms of motivating quality-based competition amongst letting agents and there is therefore little incentive to improve standards of service. This also explains why 40% of the sector currently sits outside of any kind of voluntary standards or redress scheme: the market advantage these offer at present is slim.

Research conducted by Sussex and Brighton Students’ Unions demonstrate that there are significant differences in experience between students whose properties are managed by a landlord and those whose properties are managed by a letting agent. On a range of satisfaction indicators, it was found that landlords were consistently between 2.5 times and four times more likely to be rated “very good” by their tenants than letting agents. The most significant disparity was in the areas of “value for money”, “clarity of contract” and “delivery of promises”.

NUS recommended policy solution

For letting agents to be brought onto the same regulatory footing as estate agents, with this including access to client money protection, the OFT having the right to close down poor performing agents and further clarity on who the primary customer is.

Support could also be given to letting agents functioning as social enterprises, as is now the case in many students’ unions. This is a potential avenue to explore to drive up standards through quality-based competition in the sector.

4. Letting Agent Fees and Front-Loading of Costs

The issues for students: excessive fees and up front costs

Current letting agent fee-charging practices result in a significant front-loading of living costs for tenants and this can cause significant problems for students in relation to their studies and financial wellbeing:

Students report being charged many hundreds of pounds in fees, in addition to a sizable deposit and this can mean that their start-up costs in initiating a tenancy are well over £1,000. This may be a contributory factor to why students responding to the Brighton and Sussex survey were almost four times more likely to rate their landlord “very good” in terms of value for money than those whose properties were managed by a letting agent.

The level of up-front costs is of significant concern, particularly given that in many instances these will be charged prior to receipt of their student loan or any other maintenance package a student may receive, or will need to be found from the previous year’s budget.

The recent NUS Pound in Your Pocket research project, which included a survey of over 14,000 students in further and higher education found that over half of students regularly worry about meeting basic living costs such as rent.

It is therefore no surprise that the same research reveals that 5% of students paying high levels of up-front housing costs (£500–749.99 in terms of deposit) are taking on high risk debt such as payday loans compared to just 2% of students paying £249.99 and under. This is illustrated by the graph below. Although fees were not looked at specifically, it is likely that high levels of additional fees will further exacerbate any financial problems.

NUS Pound in Your Pocket, 2012

Non-transparent fees and difficulty in managing budgets

In addition, because of the current lack of transparency in fees charged, with fee structures often configured in complex ways so as to prevent full understanding of what will be due (so called “drip pricing”), students face serious difficulty in being able to plan and manage their budgets.

The recent ruling by the Advertising Standards Agency is certainly a step in the right direction, but there is still concern that with tenants so disempowered in the housing market, there will still be many who are not able to make their decision on the basis of fee level. Letting agents may still publish fees in hidden corners of websites or using complex formulae.

Non-transparent fees—not proportional

The final issue with fees is that often it is unclear what payment of a fee entitles the tenant to, or in fact what they are paying for:

For example, an administration fee, which appears to cover a service which merely entails putting a tenant’s name on a standardised contract can run to hundreds of pounds—clearly not proportionate in terms of the service provided.

Often, these fees are charged both to the landlord and the tenant without either party necessarily being aware of this.

The most problematic fee type is the “holding deposit”—this is often required before a tenant is even able to make an offer to rent a property, and commonly well before they have seen a copy of the proposed tenancy agreement, or found out about the letting agent’s fee structure.

If the tenant then either withdraws due to finding that the terms are not suitable, or potentially unfair, or if they fail a reference or credit check, they are liable to lose the entire amount. Meanwhile, the landlord is able to terminate the arrangement at any point without incurring any financial loss.

NUS recommended policy solution

For all of the reasons above, NUS advocates for, as a minimum, the need for fees to be proportionate, transparent and fair to be legislated for.

Ideally, we would like to see the model recently introduced in Scotland to be adopted throughout the UK.

This requires that no fees beyond the deposit are charged to the tenant so that they are able to plan their finances according to more even payments made throughout the year and prohibitive front loading of costs is avoided.

Meanwhile, the letting agent is able to charge any necessary fees to the landlord who is more likely to be able to shop around between agents (and therefore encourage competition on fee levels), and the landlord is able to set their rent according to the costs they have incurred.

5. Accommodation Costs in the Purpose-built Student Sector

The issues for students

During the evidence session, the Chair expressed significant surprise at Liam’s assertion that rents in the purpose-built student accommodation sector had doubled in the past 10 years. This shocking finding was uncovered through this year’s NUS/Unipol Accommodation Costs Survey. It is clear that with many institutions unable to invest in their own accommodation and students pushed out of housing in the community by Article 4 Directions in many places, the private sector has seen room for significant profit. Private sector bed spaces have increased exponentially from representing 4% of the sector 10 years ago in 2003 to 39% today. 79% of the bed spaces planned for development next year will come from the private sector.

It is therefore clear that the presence of a sizable and growing private element of the sector is having an inflationary influence on pricing across the sector. Presently the average weekly rents across the UK for each sector are as follows: £118.49 for institution owned and managed accommodation, £119.83 for those under nomination agreement (between institution and private provider) and £140.07 for private, direct-let buildings. Average annual rent across all provider types is now therefore £5,244.04, which is likely to be much of or all of a student’s maintenance loan payments. In London, a room in a private development will set a student back almost £10,000 per year on average.

The difficulties these overinflated rents are causing for students is reflected by NUS’ recent Pound in Your Pocket research into student financial wellbeing which found that over half of students regularly worry about regularly worry about meeting basic living costs including rent and that in many cases, this leads to them considering dropping out. Those students paying between £500 and £600 per month were around four times more likely to take on high risk debt than those paying £400 a month or under, as is shown by the graph below.

NUS Pound in Your Pocket, 2012

In many cases, as with housing benefit and private rents elsewhere, the state is effectively subsidising the functioning of these private companies while they are given free rein to make a huge amount of profit from students. It is clear from the rate of growth of these developments (despite a reduction in student numbers and large numbers of voids this year) that investors see significant gains to be made in this market, at the expense of students and the state.

NUS recommended policy solution

NUS would therefore like to see the government take action on this issue, as it represents a significant causal factor in student poverty and a barrier to access to education. Potentially avenues could be explored around requiring affordable room quotas in private developments, or requiring developments to be in nomination agreement with an institution would help to keep costs to students at a more reasonable level.

6. Article 4 Directions and Limited Supply of HMOs

NUS is concerned about the impact of Article 4 Directions on students and others seeking affordable housing in the private rented sector. 88,000 people aged between 25 and 35 are now only going to be in receipt of the shared accommodation rate of Local Housing Allowance and this will result in an increase in demand for HMO accommodation. Many local authorities recognise that there will be increased demand for this type of housing in their Strategic Housing Market Assessment (SHMA), but meanwhile also implement Article 4 Directions without any credible plans to enable HMOs to come into existence in other areas of the city.

To give an example, Leeds’ SHMA expects that young households in the city will increase by 33,000 over the next 14 years. Meanwhile, in the first eight months in which the Article 4 Direction was applied (February to October 2012), just six planning applications were granted to convert properties to C4 status. If HMO development continued at this rate, just 168 new shared households will be created in the next 14 years.

The actions of local authorities implementing Article 4 Directions seem to be purely politically motivated and ignore much of the evidence of the detrimental impact this planning control can have. Research undertaken in Leeds demonstrates that there are significant problems, including empty homes which are unsuitable and unaffordable for families. Additionally, the DWP interim report on the impact of changes to Local Housing Allowance suggests that some housing officers are noticing decreased supply available for benefit recipients as a result of Article 4 Directions in some cities. Given the fact that we are in the midst of a housing crisis, it seems ludicrous that local authorities have the right to impose limitations on the supply of affordable, high density housing, when it is often for political gain rather than being rooted on a sound evidence base.

NUS recommended policy solution

NUS would like to see a full and wide-ranging review of the usage and impacts of Article 4 Directions, specifically with reference to the availability of affordable shared housing, not only to students, but to young professionals and benefit recipients.

7. Housing Standards and Enforcement

The issues for students

Often students are dissatisfied with the upkeep of the property they are renting, but there is a lack of clarity as to how they are able to hold their landlord or letting agent to account. Since often students move on from housing after the period of their initial tenancy and there is often high demand in cities with large student populations, there is generally very little incentive for landlords or letting agents to keep their property up to standards, particularly during the tenancy.

There are generally hugely differential levels of ability or willingness on the part of the local authorities to act on enforcement issues and often there is very little support available at all. In many cities, with local authorities’ budgets being squeezed, there is little incentive to prioritise this area of work and many are reducing capacity in this area, effectively giving landlords and letting agents free reign.

Additionally, where something becomes potentially a criminal matter, police forces are often found to disregard it and view it as a civil matter. This can become hugely problematic, and there have been instances of letting agents renting out properties in the process of being repossessed or fraudulently advertising properties that don’t exist and taking large sums of money from students, particularly those from outside the UK who may be forced to book accommodation from abroad.

Additionally, we are now seeing a proliferation of additional and selective licensing schemes implemented, which often increase the rent levels of student houses, while giving demonstrably little indication of improved standards, or even of any kind of inspection. This suggests that in many cases, this is being used as little more than a fundraiser for the local authority and potentially, as a way of creating an additional hoop for landlords to jump through if they wish to bring “undesirable” HMOs to the market.

NUS recommended policy solution

For this reason, NUS believes that the focus should be on enforcing existing legislation and on creating a national register of landlords to ensure that landlord accountability is improved at the bottom, often-illegal end of the sector. To drive up standards elsewhere, NUS is also supportive of robust accreditation schemes, including the national Unipol/Accommodation for Students Code which ensures standards that tenants can be sure of, through a systematic process of verification and accountability to tenants (via clear and transparent complaints mechanisms).

May 2013

Prepared 16th July 2013