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Why getting rid of letting agent fees won’t solve renters’ biggest problems

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Why getting rid of letting agent fees won’t solve renters’ biggest problems

Letting agents will soon be banned from charging administrative fees to tenants in England. Chancellor Philip Hammond announced the change as part of a series of measures aimed at assisting “just about managing” families. The move could knock anywhere between £200 and £700 off the up-front cost of renting a home.

This is good news for a growing number of lower income households, and families and young adults, who are relying on rented accommodation for longer periods of time than previous generations. The private rented sector has grown substantially in recent years – today, around one in five homes in England is rented. Yet the sector remains poorly regulated, and reports show that 38% of private renters live in poverty, after housing costs are paid.

The change has been a long time coming. Back in 2014, a Communities and Local Government committee criticised the lack of regulation of letting agents, especially the charges made for administrative tasks such as reference and credit checks, tenancy renewals and applications. Fees vary significantly – particularly in larger cities such as London, where demand for housing is high – and up until now there have been no rules governing how they are set.

A better deal?

There are a few obvious benefits to the ban. Private renters currently spend more of their gross income on housing costs than households in other tenures. Banning fees will reduce the up-front costs of renting, and help to mitigate the cost of accessing housing.

There are concerns that agents will end up passing the administrative fees on to landlords, instead of tenants. This would deal another financial blow to landlords in Britain, a quarter of whom have already been hit with a tax hike earlier this year.

In turn, landlords may seek to cover their costs by raising rents for tenants, thereby increasing the financial burden, which the government is seeking to lighten. Reassuringly, evidence from Scotland – where letting agent fees have been outlawed since 2012 – shows that rents did not increase as a direct consequence of banning fees.

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Banning agent fees is a positive step towards improving the private rented sector for tenants, but it’s not a catch-all solution. As well as affordability issues, private renters are also more likely to live in poorer standard housing than home owners or social renters. Amateur landlords make up a large proportion of the sector, and often unwittingly fail to comply with property standards and basic management practices.

What’s more, the standard short-term tenancies can leave tenants vulnerable to rent increases and “no fault” evictions, and are the primary cause of homelessness. While six-month agreements suit tenants who need short-term or flexible housing, such as students, there are a number of groups who desire the security and stability provided by longer-term tenancies – particularly families with school-age children.

Getting professional

England’s regulation of these issues lags behind other parts of the UK. In Scotland, the reform of the private rented sector saw the introduction of longer tenancies. Scottish local authorities have also been given the power to introduce rent controls in areas where prices are increasing excessively. And in Wales, mandatory landlord registration and licensing has been introduced, to ensure a level of professionalism and safeguard property standards.

The improvements in conditions for renters in Scotland and Wales suggest that greater regulation may help to professionalise the amateur side of England’s private rental sector, and improve its reputation.

As city-regions across the UK start to receive devolved powers from central government, there’s been a growing appetite for greater control of housing and planning issues to be put on the devolution menu.

Local Economic Partnerships (LEPs) and combined authorities are new tiers of governance through which housing and planning policies can be implemented, including the ability for city-regions to design policy that reflects local housing issues and priorities that may not be prioritised by national government. Changes to the private rented sector in Scotland and Wales already suggest that there are differences in policy priorities within the UK, which may also be expressed at city-region level.

Whether the government is inclined to agree remains to be seen. Recent interventions have focused on altering the way landlords are taxed and adding to costs for landlords, while at the same time restricting the powers of local authorities to implement much-needed licensing schemes to improve property standards.

So, while tenants can pause to celebrate the ban on letting agent fees, this can only be seen as the first step toward properly regulating the private rented sector. Further regulation needs to focus on major issues confronting the sector – particularly insecurity and affordability. And local governments should be empowered to work with their landlords to improve the sector for all, rather than passing on costs to landlords.