Letting Agents

Jack Dromey Excerpts

Wednesday 27th February 2013 Westminster Hall

[Jack Dromey (Birmingham, Erdington) (Lab)]

It is a pleasure to speak under your chairmanship, Mrs Brooke. I congratulate my hon. Friend the Member for Rotherham (Sarah Champion) on the excellent case that she put forward. It was a bravura performance, making a powerful case for change. She started by referring to the private rented sector and the fact that that is growing rapidly. Various contributions in the debate have made the point that it has now overtaken the social sector in size at a time when home ownership has fallen for the first time since the 1950s. The very powerful report by the Joseph Rowntree Foundation talks about generation rent—a whole generation of young professionals who are now locked out of home ownership and end up in the private rented sector.

We heard very powerful contributions from my right hon. Friend the Member for Tottenham (Mr Lammy) and my hon. Friends the Members for Nottingham South (Lilian Greenwood) and for Sheffield Central (Paul Blomfield). They pointed to experience from their own constituencies of the problems that people face in the private rented sector. Undoubtedly, the sector will have an important role to play in the future, but absolutely not on the current terms. There are problems of security. Letting agents encourage churn, which leads to insecurity in the sector. There are problems of affordability. There are problems of quality: 37% of homes do not meet the decent homes standard. There are too many rogue landlords and too many rogue letting agents.

More generally, we need to transform the private rented sector into a sector that works for both tenants and landlords and in which there is no place for the disreputable, who undercut the reputable. Letting agents do perform an important role, because in a sector in which most landlords are small landlords, they depend on letting agents, but my hon. Friend the Member for Rotherham was right, in her forensic exposition, to refer to the overwhelming body of evidence that suggests that the current situation is absolutely unacceptable and must change.

According to the CAB report, 73% of those who dealt with letting agents were expressing dissatisfaction. According to the Which? report, this market is second from bottom of 50 consumer markets. There is also the OFT report. My right hon. Friend the Member for Wentworth and Dearne (John Healey) was absolutely right about this. It goes beyond what it would normally say to be critical of the sector and is calling for change, as are many others, from Shelter to the Resolution Foundation. Why is that the case?

In this very powerful debate, we have heard testament from a series of right hon. and hon. Members, including my hon. Friend the Member for Manchester Central (Lucy Powell). There is the problem of fees and lack of transparency. Often, exorbitant fees are charged. They vary wildly, and frequently there are exorbitant up-front fees. The hon. Member for Folkestone and Hythe (Damian Collins) is to be congratulated on his mystery shop exposing that in his own constituency. There is the problem of no client money protection. As a consequence, all too often, both landlords and tenants lose out. There is also the problem of repairs often not being carried out.

It is extraordinary that someone can set themselves up as a letting agent with no qualifications whatever. They have no need to conform to requirements or to provide mandatory safeguards for consumers. It is a ludicrous anomaly that estate agents are regulated, but not letting agents. An excellent phrase was used by the Royal Institution of Chartered Surveyors. It pointed to the fact that 4,000 letting agents act entirely outside any form of regulation or self-regulation in what it calls the “Wild West”.

In government, my right hon. Friend the Member for Wentworth and Dearne—I am proud to follow in his footsteps—took the initiative over the Rugg report to say then that this was a scandal that had to end. Sadly, when the current Government came to power, the then Housing Minister, who tends to get out the clove of garlic in one hand and the cross in the other at the very mention of regulation, dismissed what Rugg had recommended and what, in the consultative process, had been overwhelmingly supported. He called it red tape; we call it protection for tenants and landlords alike.

[The Minister for Housing (Mr Mark Prisk)]

I am interested to hear that. It has been mentioned that I put down a probing amendment on the question. If it was so important, why did the Labour Government not put the redress measure into law, which it would have been able to do, in Committee on the basis of the amendment that I presented?

[Jack Dromey]

We moved decisively down the path for comprehensive regulation—

[Mr Prisk]

You did not legislate.

[Jack Dromey]

We moved decisively down the path for comprehensive regulation of the sector under the last Government.

[John Healey]

It is of course hard for me to answer for our colleague who would have been in position as Housing Minister or the Minister responsible at the time, but does my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) agree that it might have been that the case that was put at the time from the Opposition Front Bench was not persuasive enough? It certainly is now.

[Jack Dromey]

My right hon. Friend makes a very good point. What the Labour Government did was to establish the Rugg review. The Rugg review made comprehensive proposals, including in respect of regulation of letting agents. We moved decisively down that path.

The hon. Gentleman who is now the Housing Minister, unless he has undergone a damascene conversion and believes the opposite of what he said five years ago in opposition, will no doubt say when he responds, “Yes, this Government now intend to act,” because thus far there has been a lamentable failure to act, despite the chorus of voices calling for change. I am talking about tenants and landlords. The Labour party put forward a very powerful policy proposal, supported by the Association of Residential Letting Agents, the National Landlords Association, the Residential Landlords Association, the British Property Federation, the Royal Institution of Chartered Surveyors and many other players in the housing field, including registered social landlords, many of which now have private rented portfolios. They all back the proposals that we put forward, calling for change.

I pay tribute to the right hon. and hon. Members who have taken part in today’s debate, including the hon. Member for Southport (John Pugh), for the way in which they have spoken up. It is just like we saw in the Opposition day debate last month: there is a growing cross-party consensus that says, “This has to end.” In relation to how it ends, the hon. Gentleman was right when he said that the idea of a voluntary arrangement will not wash.

I pay tribute to Ian Potter and the work of ARLA. For two decades, it has campaigned for regulation, but in the meantime it has also tried to raise standards in the sector. However, that is on a voluntary basis—the rogues do not sign up. That organisation sometimes takes action against its own members who have acted disreputably, but it has arrived, out of bitter experience, at the clear conclusion that a voluntary scheme will never work; regulation is essential. The case put forward by the Royal Institution of Chartered Surveyors of the potential benefit to the economy of £20 million further reinforces the case for change.

The case is overwhelming. No more evidence is required. An all-party consensus is emerging. The Government have said that they have an open mind on this issue. An open mind, however, is no longer good enough. I ask the hon. Member for Hertford and Stortford (Mr Prisk), who is now the Minister for Housing, to have the courage of his convictions five years ago and to tell the House today that this Government will at last move to regulate letting agents.

--- Later in debate ---

[Mr Prisk]

We have a long-standing issue with long-term empty homes, of which there are 278,000. I am pleased to say that we saw a drop of 22,000 in the past full year, which is encouraging. We have put specific funds into our programme to bring those empty homes back into use. With respect, if I may say, it is a programme that we had to put in place, because it was not there when we came into office. The hon. Gentleman is right to highlight empty homes, but we are taking steps to change that.

Boosting supply is not only about financial support. We need to be careful to avoid excessive regulation that can deter the investment in supply that we all agree we need. If supply is stifled and if we go back to the bad old days of rent controls, we would actually see a stifling of investment and a shrinking of supply. The net result would be that tenants would have fewer properties to choose from and higher rents as well.

[Jack Dromey]

I am surprised at the Minister’s assertion. I spoke earlier today at the British Property Federation’s conference, where the Minister will be speaking shortly. The unmistakable message from the federation, which represents institutional investors, is that it believes that the time has come for effective regulation of the sector, particularly regulation of letting agents. It does not believe for one moment that that will put future investment decisions at risk.

[Mr Prisk]

I recognise the role for effective regulation; I will come on to that. However, the idea of rent controls, which one of the hon. Gentleman’s colleagues is proposing in a ten-minute rule Bill, is nonsense. Does he agree with it? Would he care to comment?

[Jack Dromey]

We are consulting right now on how we move to longer-term tenancies linked to more affordable and predictable rents. We are not convinced by the argument for rent controls, but all those who wish to make contributions can do so. It is to be regretted that the Government have set their face against that, which 1.1 million families badly need in the private rented sector, so that they can plan where they send their kids to school and plan how they manage their household budgets.

[Mr Prisk]

People will be encouraged if that is confirmation that the Labour party, were it to be elected in some strange manner in a couple of years’ time, will have rent controls. We will see how that develops, but perhaps I should persist, because other hon. Members have raised questions.

Targeted, effective regulation that is carefully thought through, of a statutory nature or otherwise, has a role to play. That is why we have made a particular effort to crack down on rogue landlords, for example, in the case of beds in sheds, which is a dreadful scourge. Frankly, too little has been done in the past. It is an area where people are genuinely exploited and where we want to use the law. That, in a sense, comes to the second question.

Various people have asserted in this debate that letting agents are completely unregulated, but that is not true. That is a myth, which it is important to dispel. We should not be telling tenants that they have no controls and that there is nothing there to protect them and no one to turn to to help them challenge someone who is behaving badly. Whatever our political perspective might be, there is a genuine interest in getting the message right.

Letting agents are subject to regulation. It is important to flag that up. The hon. Member for Sheffield Central (Paul Blomfield) highlighted a specific issue around students and the fact that they were being told incorrect things about market conditions. The Consumer Protection from Unfair Trading Regulations 2008 offer protection against someone who is deliberately misleading and pulling the wool over people’s eyes, enabling individual tenants the opportunity to challenge them.

Also, the Unfair Terms in Consumer Contracts Regulations 1999 protect tenants from unfair conditions. Several hon. Members mentioned the way in which tenants can find themselves facing unfair restrictions on the way in which they can use a property. We have seen—several hon. Members have mentioned this—that trading standards bodies can and will prosecute letting agents. I mentioned a case in West Bromwich in a previous debate and we have heard about a case in Rotherham. In Oxford, a letting agent had to pay £300,000 in fines and costs for consumer protection-related and money-laundering offences after failing to return tenants’ deposits—which several hon. Members have mentioned—letting properties without the authority of their owners, and not passing on rent. So action can be taken. There was a similar case in Plymouth, where the letting agent was jailed for two years for spending client money on foreign holidays—again, that was mentioned by one hon. Member—and propping up his business. That individual may yet face further action to seize his assets. So, serious sanctions are in place, which our constituents can now use. It is important to flag that up.