Why banning letting agent fees won’t push up rents

Supply and demand.

Oh you wanted more than that? Ok.

There is short supply and high demand for homes to rent. The balance between these forms a price that a tenant is willing to pay a landlord. So far not controversial.

However, that is not how the relationship between tenant and agent is characterised. At the time of signing a contract, the agent is the gatekeeper to a single home with any number of keen tenants. The agent is not an actor in the market for homes to rent but a creator of micro-monopolies for single homes.

This is the reason why letting agent behaviour, hidden fees, discrimination, poor customer service etc. is so rife, and indeed why these behaviours are rarer in areas where supply and demand for homes is in better balance.

The relationship between agent and landlord on the other hand is vastly different. The landlord holds the home and agents are many in number, requiring no great skill and no qualifications at all. The agents have to compete with each other to win a monopoly over the tenancy of a landlord’s property.

So agents won’t be able to hike up fees to landlords because the landlord will just go to a cheaper agent. This will lower agent fees until they are more reflective of their cost base, at which time they will have to start competing on other grounds, such as professionalism and customer service.

By banning letting agent fees to tenants, less money will go to agents that’s true. But landlords should expect lower costs and a better service as the effects play out. And more professional agents will be of benefit to tenants beyond the absence of exploitative fees. In fact, if this were implemented quickly and the market effects on agents flowed through quickly, that could radically undermine the case for mandatory licensing of letting agents.

This is such a classic market solution to a social problem that I’m surprised it’s not Conservative policy.

So like I said, it’s supply and demand.

Support our campaign to ban letting agent fees – and tell your MP to vote on Tuesday, 13 May.


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