Communities and Local Government CommitteeWritten evidence submitted by the Young Group

1. Background

1.1 Young Group is a Private Rented Sector (PRS) consultancy that demonstrates and champions best practice through our own letting and management company, Young London

1.2 Young Group has been shaping the Private Rented Sector since 2003 through research, finance, investment and asset management. Our clients range from private individuals to corporates and institutional investors.

1.3 Our Private Rented Sector consulting advice spans all aspects of the PRS from strategic, operational considerations through to the day-to-day asset management of PRS holdings. Day-to-day asset management of Private Rented Sector investment assets is delivered through Young London, our lettings and management business. Young London has won multiple awards from The Times, The Sunday Times, HSBC and Bloomberg for its quality of service.

1.4 We provide consultancy and advisory services to those currently invested in the PRS and to those considering investing in the asset class including institutional investors and Housing Associations seeking to leverage a presence within the PRS.

1.5 Young Group is also the publisher of PRSupdate (www.prsupdate.co.uk).

2. Levels of rent within the Private Rented Sector (PRS)—including the possibility of rent control and the interaction between housing benefit and rents

The Danger of Rent Control

2.1 Young Group believes that rent levels should be set by free market mechanisms. The imposition of rent controls is detrimental to the long term stability of the PRS as the UK’s second largest housing tenure.

2.2 It is our view that rent controls would have a detrimental impact on the PRS; reducing both the quality and quantity of accommodation available to residents. It is widely acknowledged that there is a cavernous gap between housing demand and supply. Rent controls/caps will do nothing to alleviate this imbalance and would act against efforts to encourage investment into the sector to boost supply.

2.3 Standard supply-and-demand theory predicts that any price controls, including rent controls, will produce an excess of demand over supply—an economic “shortage”.

2.4 It is virtually impossible for a government to control and regulate the entire supply of a commodity. Once a shortage appears, alternative markets and black markets will arise leading to a two tiered market.

Impact of Shadow Markets

2.5 Using standard supply-and-demand theory, rents in the “shadow markets”—the unregulated portion of the PRS—would be forced higher than their normal market value. This is because the limited supply in the shadow market must absorb the shortage, the excess of demand over supply, in the regulated part of the market. With rents limited below market value in the regulated sector, they are forced above what would otherwise be the market rent in the unregulated sector.

2.6 The result is that average rents across the controlled portion of the sector and the shadow market are likely to sit as high as the free-market level would be without intervention. In fact, rents could end up higher because of misdistributions and diseconomies in the regulated sector of the market.

3. Regulation of landlords, and steps that can be taken to deal with rogue landlords

3.1 There already exists a raft of legislation and regulation that landlords must comply with, spanning environmental health, fire, gas and electrical safety, deposit protection and obviously the Housing Act itself.

3.2 Like much of the industry, Young Group believes that the issue is not one of a lack of regulation, more a lack of required monitoring and enforcement by the authorities and agencies responsible.

3.3 It seems counter productive to introduce additional regulation until the impact of rigorously implementing that which already exists can be adequately evaluated.

3.4 Landlords wishing to differentiate themselves as responsible landlords by self-regulating (if they do not wish to use the services of an agent) can already demonstrate their commitment to best practice through membership of a landlord association such as the National Association of Landlords (NLA) or the UK Landlord Association (UKLA).

4. Regulation of letting agents, including agents’ fees and charges

Governance of Letting Agents

4.1 There is wide-ranging support from within the lettings industry to bring governance of letting agents in line with that of estate agents through an amendment to the Estate Agents Act to include letting agents within the definition of “estate agency”. This would extend the remit of the Office of Fair Trading (OFT) providing regulation and redress through the existing framework and enabling the OFT to ban agencies that act improperly. Young Group fully supports this stance.

4.2 Governing letting agents by the same law as estate agents brings consistency and the opportunity to lessen consumer confusion/misunderstanding over their rights and level of protection.

Regulation of Letting Agents

4.3 The current non-mandatory regulation of letting agents has created a two tier system. Those who choose to join one of the sector’s professional membership bodies publically commit to complying with agreed best practice including protecting client monies and offering a defined process for dispute resolution etc.

4.4 To date, this has not led to the eradication of the less professional agents who either choose not to join or who flout agreed best practice. More needs to be done to:

(a)create a distinction in the minds of consumers between member agents and non-member agents;

(b)ensure consumers are fully aware of the service that they should receive from member agents, and how to escalate matters if those service standards are not delivered; and

(c)make membership of a regulatory body/licensing scheme mandatory.

4.5 It should be noted that the professional bodies have a balance to achieve between promoting the benefit to consumers of using a member agent and keeping costs at a level that does not discourage membership or impact fees levied by agents on their clients or customers.

Regulation of Fees and Charges

4.6 Young Group believes that the level of fees and charges should not be regulated and should be left to the market mechanisms. For the market to function effectively, and fairly, Young Group believes that it is imperative for transparency of fees to be a requisite of agency licensing and regulation.

Client Money Protection

4.7 As already stated, we strongly believe that client money should be protected by all agencies. We feel so strongly about this that, given the current non-mandatory regime, our agency co-founded the SAFEagent kitemark. The SAFEagent kitemark has garnered support from across the industry and government for its efforts to provide consumers with a straightforward, easy to identify method of identifying whether their money is protected from misappropriation or mismanagement.

5. The regulation of houses in multiple occupation (HMOs), including the operation of discretionary licensing schemes imposed by local authority for a category of HMO in its area

5.1 There is already regulation in place which relates to HMOs and Young Group does not believe that there is a requirement for additional regulation.

5.2 Discretionary licensing schemes, such as the London Borough of Newham’s selective licensing scheme are well intentioned. However, in addition to the position stated above, we believe that there is a danger in creating a further level of local licensing that differs from one authority to the next; effectively creating a postcode lottery of landlord licensing.

5.3 Young Group believes that a joined up approach is required. This is particularly so across London, which sees residents moving freely from one borough to another.

January 2013

Prepared 16th July 2013