Tenant Fees Bill

Written evidence submitted by Bill Cooper (TFB26)

Sirs,

I am writing to provide written evidence as part of the Committee’s consideration of the proposed legislation to ban the charging of fees to tenants by lettings agents and landlords.

I own two letting agencies in Oxford.  My businesses manage 400 properties finds tenants only for perhaps another 250 properties annually.  We let properties to professional people and students right across the Oxford market.  In total c£200,000 per annum of income will disappear on the day the ban comes in.   That is considerably more than the net profit of my business.  As such the ban could be a liquidation event for many independent agency businesses.

My strategy to prepare my business has been to 1. Push into house sales as a new source of income; and 2.  to target smaller competitors to acquire.  Due to a stagnation of the Oxford house sales market, exacerbated by wider government policy to penalise Landlords (few of whom are now actively increasing their portfolios), number of completed house sale transactions are down almost 15% when compared to 2016,  As a result, this market is not proving a reliable and effective source of new income.  Acquisition is also proving difficult, mainly because the large corporate players – Countrywide, LSL et al are given first refusal by brokers, and each are acquisitive of good quality lettings portfolios for the same reason.  As a franchisee, my business is unattractive to potential acquirers, so a sale is not open to me.

I know that many lettings agents in Oxford, particularly the smaller independent businesses are ill-prepared and I expect there to be extensive business failure.  This will jeopardise jobs – I currently employ 12 people to give an indication, and result in the consolidation of the market by the large corporate agents, forcing landlords to go to them despite their preference for local support from local companies.  Surely it is not Government policy to actively jeopardise small medium sized privately managed businesses?

More broadly, the combined impact of the stamp duty surcharge for landlords expanding their portfolio and the reduction of tax relief on mortgage interest has caused many landlords to divest, and most landlords to stop investing further.  The tenant fee ban will necessitate a transfer of fees from tenants to landlords for key activities such as tenant credit reference checking, and tenancy check-out services.  The cost will likely be greater for landlords given that there is likely to be abortive reference checks on tenants who prove unable to find guarantors and/or who fail the references – due to affordability or undeclared CCJs or similar.

The combined increase in costs for landlords will either undermine their profits or be passed on to tenants through increased rent. 

There is now growing evidence that the supply of private rented properties is in decline in Oxford and across the South of England - 5% down on its peak level.  This demonstrates that wider Government policy has stifled and discouraged private landlords from investing further and encouraged many to divest partially or completely.  This is happening at a time when demand for private rented homes is growing year on year and is forecast to rise well above 17 million people.  The combination of reduced supply and increased demand is likely to create upward pressure on rents irrespective of the pressure created by the tenant fee ban.  Together the inflationary pressure on rents could become a significant national crisis, undermining the goodwill Government is seeking from tenants.

The current political narrative in some quarters is that the solution to this will be rent controls, but of course the pressure above is created by Government policy (as opposed to natural market forces), so further Government intervention is likely to result in a further set of unplanned and unwanted consequences, and potentially genuine public alienation.

Whilst it is easy to understand why political parties are keen to be seen to be intervening on behalf of a growing group of voters – people renting private rental property, it is also clear that policy to date has had a rapid and real adverse impact on an already challenging market place.  Until more new homes come on stream, Oxford is facing a catastrophic shortage of rental homes.  On top of the investment disincentives already introduced by Government, the increase in costs for landlords resulting from the tenant fee ban could tip the city’s private rental market into chaos.

If a ban is inevitable, a better solution, would be a phased introduction, perhaps initially capping fees charged to tenants, in parallel with a relaxation of the investment disincentives and massive investment in house building.  A phasing of the ban over say 5 years would allow a sensible and progressive adjustment, as well as allowing the introduction to be paused or held at an appropriate mid-point rather than risking such a gross distortion of the already fragile private rental market.  It would likely allow SME’s to adjust and survive continuing the diversity of supply.

There is a worst case scenario that has a high probability of coming to fruition.  The ban in fees causes many letting agents to tip into liquidation, there is an inadequate response by financially challenged survivors causing fees to rise.  Landlords who are already diverting investment elsewhere, have to bear more cost further prompting them to divest reducing the supply of private rented homes.  This divestment doesn’t make oxford homes more affordable for first time buyers as the City already has the highest gap between average house prices and average income.  It instead causes a chronic failure in the local housing market with rents rising well above inflation and trend.  The public sector supply is not adequate and is unable to respond, putting further pressure on rents.  The only response available to Government is to impose rent controls to correct the unwanted and unexpected consequences of their previous market interference.

It seems to me that politics and politicians have become unable or unwilling to consider any issue strategically, and instead just embrace policies that are popular, implemented quickly and with insufficient thought.  We are seeing the consequences of that elsewhere in the World, this set of policies will be an example of the same short-term thinking here in England.  The lettings industry is not broken, thee policies could , and in my opinion will change that.

Yours sincerely

Bill Cooper

May 2018

 

Prepared 4th June 2018