Is the property industry changing?

Fixing our broken housing market – a view from Eddie Hooker

So the government has now published the eagerly awaited white paper on the housing market in the UK.  A 106 page document, 4 main chapters, 200 pledges and various action points and frameworks.

The paper focuses on four main areas: planning laws, acceleration of house building, market diversification and what help they can provide now.

As Hamilton Fraser primarily operates within the private rented sector, my interest immediately jumped to the paragraphs and pledges that related directly to changes being introduced for landlords, agents and renters although the whole documents screams the same message – we need more homes for people to live in and this isn’t going to happen quickly!

Frightening statistics

Some of the statistics quoted in the paper are frightening; the average home in the UK costs almost eight times the average salary, below average income earners spend more than a  third of their income on housing, more than 4 million households rent in the UK – nearly twice as many as 10 years ago.

As a 50 year old who owns his own home, albeit with a mortgage, I count myself extremely lucky.  When I bought my first flat back in 1989, in my early twenties, and my wife and I had combined earnings of £30,000 per year, the salary multiplier was less than 3 times.  5% deposits were commonplace.  Granted interest rates were far higher back then but nevertheless housing was affordable.

It’s my children that I am concerned about.  The average salary in the South East is around £30,000 but the average house price in the same area is more than £400,000 – more than 13 times the average income and even if you combine salaries for couples the multiplier still hits seven times.  And to be fair, many people in their 20’s won’t be earning £30,000.  And let’s not forget affordability of mortgages and rents are based on interest rates and currently these are at rock bottom levels.  I dread to think what will happen if they start to creep up!

Add to this student loan repayments and high costs of childcare and the future looks bleak. Certainly in the short to medium term.

Is house building the answer?

So I welcome the pledges set out by this white paper.  Build more houses, make renting fairer and provide financial assistance to those that need it.  But can it be realistically achieved?

Successive governments over the past 20 years have tried to speed up the rate of house-building.  Every new administration quotes ever increasing numbers of homes that need to be built, 100,000 per year, 150,000 per year, 200,000 per year and now we need 250,000 per year for the next 5 years.  Our population is increasing year on year, people are living longer and lifestyles are changing, (and let’s not get into the immigration debate), – in short, we have an insoluble problem – demand for housing will always outstrip supply.

The realities of government policy

I return to my housing passion that is the private rented sector.  Recent government policies have focused on home ownership, hitting landlords hard and pushing some out of the market, again lowering supply and forcing rents upwards.  I am pleased that the May administration has recognised that the private rented sector plays an important part of the long term solution for the UK housing market.  Having said that, the pledges contained in the white paper focus on the tenant experience and fail to encourage would be landlords to enter the market and experienced landlords to grow their portfolios. The report itself states that standards are improving to the extent that 65% of private tenants are happy with their tenure compared to 48% in 2005.  There is still a long way to go but we all need to recognise that landlords must be encouraged and that the sector needs the interim solution.  Issues such as stamp duty and mortgage tax relief have a negative impact on the  sector and could actually result in rent increases, but that’s a topic of conversation for another day.

Driving up standards and the fee ban

Let’s focus on chapter four of the white paper and affordability for renters and driving up standards. The government introduced transparency of letting agent fees some two years ago in an attempt to suggest to the market that some of the frankly scandalous charges to tenants should be stopped.  But the market failed to sit up and self-manage this issue and in the Autumn Statement last year, the government announced that the charging of fees to tenants is to be outlawed, as they are already in Scotland.  A flurry of activity within the letting agent market followed with fevered discussion on alternatives such as capping the fees or allowing tenants to pay the fees over the course of the tenancy.  But it was all too little too late.  The white paper reinforces the government’s message:  letting agent fees to tenants will be banned.  It’s now no longer a matter of if, but when, with the only outstanding question being what is considered a fee.  Will letting agents pass on their loss of fees to landlords in the form of higher management charges? Will landlords increase their rents to compensate these increased charges?  Or will landlords turn to self-management, organisations such as our partner, the National Landlords Association are experiencing a spike in new memberships? Or will the online market with fixed fee models finally start to gain traction?  I certainly expect to see a change in the approach of the traditional letting agents in providing service to niche markets where added value is easier to demonstrate and larger chains looking closely at consolidation and cost efficiencies to combat the reduction in income that this legislation will result. Regardless, it will be a challenging time for the agent sector.

Client Money Protection

Client Money Protection insurance again is mentioned, with a clear suggestion that this important consumer protection tool will be made mandatory for all letting agents.  Having been involved in the closely regulated insurance industry for more than 30 years, the importance of managing and looking after client money cannot be understated in providing consumer confidence in the services that are being provided.  The changes experienced by the travel industry with the introduction of ABTA and ATOL bonding schemes (another variant of consumer financial protection) were revolutionary and raised confidence and standards within their sector.  The lettings industry needs the same confidence.

Houses of Multiple Occupation

Other measures such as mandatory electrical safety checks and properly enforced licensing of Houses of Multiple Occupation are also mentioned in the white paper, which again are welcomed to try and clean up the rogue element of the industry.  The real question, however, is has the government the appetite to fund the ever increasing costs of enforcement?  Yes, councils will now have the powers to issue fines and to ban the worst agents or landlords from operating but I would like to see the proceeds of these initiatives pushed back into the rental sector to further encourage and improve the stock (in terms of education and support).

Fixed term, longer tenancies

Finally, the question of longer fixed tenancies has been raised again.  This subject was fiercely debated during the 2015 general election as part of the Labour Party Housing manifesto.  I was pleased to see at that time that the policy was not introduced by the newly elected Conservative Party as I feared that the loud voices of some pressure groups failed to understand that a one size fits all approach to tenure is completely unworkable.  Recent surveys of the tenant population shows that longer term tenancies are not wanted by everyone.    In my experience in dealing with landlords for many years, most landlords also want security of income to support their investment and will grant longer term tenancies wherever possible.  Flexibility is an important aspect in the rented sector.  Everyone is different.  Landlords and letting agents should promote the availability of longer term tenancies where they are a feature of the needs of the tenant.  But not to make them mandatory.  I welcome the initiative to encourage the availability of bespoke housing solutions should they be required.

So much to digest and it will be fascinating to watch the progress of these initiative over the coming years.  I do not underestimate the challenges faced by any government in trying to bring together the varied and diverse requirements of the housing market.  There is no silver bullet. It will be a hard and long slog.  There will be winners and losers.  Getting the right balance will be extremely difficult.   But you can’t knock the government for trying.

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