CEO of ARLA Calls on Letting Agents to Reduce Costs as Fee Ban Approaches
24th Sep 2018
Labour leader Ed Miliband will today pledge "sweeping" reforms to the private-rented housing sector as part of the party's local and European election campaign launch in Redbridge. Miliband will outline how the party intends to "tackle the root causes of the cost-of-living crisis", according to the party's official website. Aside from rental reforms, Mr. Miliband will state, "A Labour government will make sure that Britain builds 200,000 more homes a year by the end of the next Parliament".
The party pledges to legislate to ban letting agent charges to tenants upon signing tenancy agreements. In addition to this, Labour will legislate to make three-year tenancies the standard length, with the additions of limits being placed on how much rents can rise year-on-year. The press release highlights that over 9 million people live in rented homes today. These planned reforms therefore could have a monumental impact on the student sector, which accounts for roughly 20% of this figure, or 2 million students.
Looking at the policy detail, the intention is to create tenancy agreements that start with a 6-month probation period, at the end of which the tenancy would automatically run for a further 2.5 years. Landlords, with two-months notice, would only be able to terminate the tenancy beyond this six-month period subject to one of a number of more stringent pre-requisites being met.
On the face of it, these planned reforms look attractive to tenants; banning of agent tenant fees, a ceiling on price increases and longer tenancy agreements. By default, these are all in the interest of a student tenant. Delving deeper into the potential impact of such reforms on the student sector raises a number of question to the proposed policy-makers.
Firstly, what is the expected impact on rental prices if agent fees are banned? For agents that do not generate revenues through sales fees, is the expectation that agents will have to reduce costs elsewhere in their business to compensate for reduced revenues, or is the expectation that rents will increase as the fee is instead embedded into the rental price?
Further, in the student sector, the prime tenant is that of the undergraduate. In more abundant numbers, the majority of landlords prefer to take on undergraduates as tenants, who often abide by the July-June tenancy cycle, freeing up the property in the subsequent academic year for a new set of undergraduate tenants. In the instance that the property is not let by undergraduate demand, landlords will open up to the prospect of letting in the postgraduate market. This however takes the property off-cycle and makes renting to undergraduates in subsequent years more of a challenge. This issue is potentially exacerbated by the fact that landlords may be locked-in to renting to postgraduates for 3 years under the proposed plans. Student landlords could find themselves in a situation where tenants serve one-month notices mid-academic year, for example if they partake in studying a term-abroad as part of their course. This would leave landlords with an empty property until the next academic cycle commences.
Opponents to the proposed reforms by the Labour party highlight that the plans could move legislation closer to "rent control", which can lead to poor quality accommodation and higher rents.
What is clear is that added protection for the student tenant is, in principle, a good thing. However, regulation can also act as a tax on the market, and asymmetry in tenant-landlord notice periods in favour of the tenant, adds risk to the landlord letting his or her property. In the interest of maintaining risk-adjusted returns, landlords may be forced to increase rents to compensate.
24th Sep 2018
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