Will Increased Government Intervention Be A Barrier for New Estate Agents?

I’ve always liked Laissez-faire economics, the belief that the economy and business function better without the intervention of Government. To me it seems rational that individual industries and capitalists know what is best for them over politicians, who often have little experience in the industry and who’s knowledge is only as good as the people advising them or idealistic pressure groups lobbying them.

The property industry has been under attack these past few years, I’m sure some of it is grounded in the desire to improve the home-buying process and improve the level of customer service purchasers and vendors receive, however it is hard not to feel that an element of it is populist policy making.

It’s hard not to blame them really when 82% of individuals surveyed by the Homeowners Alliance support plans for Estate Agents to be licensed but the question is by whom and to what standard? You’d expect the senior management team to be competent, but finding, retaining and training staff is incredibly hard for a small agent already, and could become much harder if everyone has a license or qualification.

In addition to this, the well-publicised scrapping of tenant admin fees will not only, as the Government predicts, cost the economy £4bn, cause branch closures and unemployment but in my opinion reduce competition. I know of agents in the South East who survive from admin fees, their local landlords are refusing to pay anything but a minor introductory fee of £250-£500 on large student properties in an area where the big national chains are charging 8% fully managed. How are independents meant to compete?

The Government argues in their wisdom that the costs will be passed from applicant to landlord but I think this is naivety or hopeless optimism. Landlords have enough troubles of their own with Section 24 and the scrapping of Indexation, they’d have to be on very low gearing or a fairly high ROI to be able to pay agents a fair price, in reality if they are highly leveraged in the South East they are in serious trouble.

The impact of all these changes for landlords are already starting to be visible through reduced stock levels as landlords sell of their portfolios, tenants paying increased rents, more landlords bringing the letting and management in house and eventually I’m sure, we shall see an unwillingness to do or delays in doing maintenance.

Estate Agents and Letting Agents are often launched on admin fees, a fact I believe has been overlooked in this debate. Every agency I’ve been involved with launched with low or zero fees and uses personal investment and the tenant admin fees to cash flow the business for the first twelve months, whilst enduring losses as the establish a good reputation, obtain market share and start charging vendors and landlords.

The single biggest fear I have from banning admin fees is the likely reduction of entrants to the market, the flurry of recent acquisitions and liquidations will slowly reduce the number of firms and a market currently dominated by SMEs (88% currently employ less than 9 staff- Mintel Dec,2017) will become dominated by larger chains and one or two big online agents creating an oligopoly. I fear we could see a battle in which only those with the cash flow or outside investment will survive significantly reducing competition in the long term.

In defence of the Government I do support their introduction of compulsory Client Money Protection Insurance, we’ve seen far too many house of cards collapsing taking tenants deposits and landlords rent with them, only last year the 10 strong South London chain Jackson’s was put into Administration by the TDS over missing tenant deposits. Fortunately in that case, a white knight in the form of Dexter’s stepped in to prevent another scandal in the industry.

Luke Johnson recently wrote an article in the Sunday Times regarding this same issue and I agree with him on some of the issues regarding Licensing the Estate/Letting Agent Industry. The consequences of Government intervention on any industry can often be shocking and unintended.

I do worry that qualification, insurance, trade body membership etc are going to be a barrier to entry for many new independent.  It’s disappointing to see so much pandering to populist politics and the abandonment of Laissez-faire economics, which leads me to sadly conclude in saying I think it’s only going to get tougher out there. What are your thoughts? Are you an estate agent, could you survive if this is put into force?

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*Since writing this article Mark Prisk MP has acknowledged that their initial aim was wrong and an attempt to pass these costs to the tenant will be made in the form of rent. Could we be about to see a U-Turn or alteration to the policy to make it more workable for landlords and agents?

MP charged with scrutinising tenant fee ban admits the original aim was wrong