The tenant fees ban will hit loyal renters the hardest, while between 4,000 and 16,000 letting agent jobs could be at risk, research by ARLA Propertymark claims.
The trade body commissioned Capital Economics to look at the impact of the Government’s proposed tenant fee ban as part of its response to the forthcoming consultation.
Essentially, they argue that those on longer tenancies will be hit by rent rises if letting agents pass on the increased costs to landlords, while those renters who move more frequently will save money on paper as they won’t be hit by rent increases and won’t be charged fees.
The Capital Economics report, unveiled at the ARLA Propertymark conference in London and sent to members yesterday, raised eyebrows on social media with many expressing little sympathy for the lost income facing letting agents.
But the research contains interesting analysis on the lettings sector and the likely scenarios if the ban, as anticipated, gets introduced.
The report estimated that the sector employs around 58,000 workers, based on ONS data on the number of employees in the real estate sector.
Based on estimates of fees received by letting agents, Capital Economics estimated the industry has a turnover of £4bn a year.
On average, fees charged to tenants were estimated to account for around one fifth of letting agents’ revenue.
Looking at average fees charged, based on the 9,000 ARLA Propertymark branches, the report found the average fee charged by ARLA Propertymark Protected agents is £202 per tenant, which the document points out is cheaper than in France and the US where renters pay €12 per sqm or $1,404 on average respectively.
Capital Economics also cites estimates from the Department for Communities and Local Government that the mean fee paid by tenants on entering their accommodation was £223 in 2014-15 and the median fee £200, while Shelter puts the figure at more than £500.
However, the economists choose to go with a fee quoted by lettingfees.co.uk of £412 on average.
Based on this, the research calculates that the total revenue from fees charged to tenants is around £0.7bn for letting agents in England and Wales annually.
The report then looks at the likely consequence of a fee ban and how turnover and jobs would be affected.
If letting agents take the full hit and do not pass on any fees to landlords, their revenue will decline by a fifth, Capital Economics claims.
In turn, this will have an impact on employment levels as letting agents will need to cut costs to maintain profit margins, affecting around 11,000 jobs. The report goes on to say that job losses could even reach 16,000.
The report states: “Estate agents who provide lettings within the wider housing market will be impacted. For every job lost in the lettings sector we can assume that 0.5 jobs will be lost in other activities these agencies undertake because of their impact on profit margins. As such, around 8,000 additional jobs at such ‘hybrid’ agencies will also be at risk.”
In another scenario, the report assesses what happens if letting agents pass on the full loss in fees to landlords and landlords leave rent unchanged. The report finds that income from rents to all landlords that use letting agents in England and Wales will fall by £412 every time their property is rented, or the annual equivalent, £275 per year per property.
If letting agents pass on 75% of costs to landlords, they will lose 25% of £0.7bn income from tenant fees, or £0.2bn, and around 4,000 jobs will be at risk, the report said.
In the worst case scenario for tenants, letting agents pass on all the loss from the fees ban and landlords pass this on in rent. The report estimates this would make rents increase by an average of £103 to £275 per year to cover higher landlords’ costs.
However, the report claims in a more plausible outcome, rents will rise by £103 per year. In this outcome landlords in aggregate lose £0.3bn in rent income.
Explaining why tenants who move regularly will benefit, the report states: “Both short-term tenants and long-term tenants, who move less frequently, will see a rise in rent equivalent to £103 per year under our plausible outcome.
“However, those that move more often will now save more compared to previously. For example, over a period of ten years those that move every six months will see savings of £5,493 whereas those that move every five years will see a saving of £549 compared to a time when they paid tenant fees rather than the landlord paying more fees and passing these on in the form of higher rents.
“As rents will increase by less than the average tenant fees, this will be positive for tenants. However, those that move property less often will not reap the same benefits in savings.
“Typically, these are likely to be lower income families who will probably move less often than younger, wealthier millennials. For savings to accrue to tenants from the change in policy they would need to move as often as every two-and-a-half to three years.”
David Cox, chief executive of ARLA Propertymark, said: “The lettings sector is worth about £4bn and employs around 58,000 people all over the country.
“The Government’s Autumn Statement announcement that it plans to ban letting agent fees was the third big blow in as many years for agents, and exacerbates the threat to the private rented sector – an increasingly important tenure on which millions of people rely.
“For many tenants, buying a property simply isn’t an option, and they must depend on the private rented sector to provide security, good standards and fundamentally, a home.
“Our findings show that landlords are likely to raise rents as a result of the ban on fees. Those tenants who move least frequently, which tend to be lower income families, will be worst hit by rent rises.
“This is ironic and shows that there will be unintended consequences to what, in effect, is a crowd-pleasing populist policy.”