Letting Agents (Competition, Choice and Standards)

John Healey Excerpts

Tuesday 2nd July 2013 Commons Chamber

[John Healey (Wentworth and Dearne) (Lab)]

I beg to move,

That leave be given to bring in a Bill to establish a national mandatory licensing scheme for letting and managing agents, with established standards and redress for landlords, tenants and leaseholders, and prohibition of letting and management agent fees; to enable local authorities to administer and enforce the scheme; to require that tenants, landlords and leaseholders have written agreements; and to empower local authorities, either alone or in partnership, to trade as letting and managing agents.

The Bill is unfinished business for me. As Housing Minister in the last year of the Labour Government, my priorities were driven largely by the extraordinary economic circumstances we faced: helping people keep their homes, preventing the collapse of private house building and launching a new wave of social house building, especially council housing, to kick-start the economy in the wake of the global financial crisis. All of that we did successfully.

However, I ran out of time to reform the private rented sector and, in particular, deal with the growing problem of the housing market middle men who answer to no one—letting and managing agents. The detailed plans for reform that I set out in 2010, following the Rugg review, did not make it into legislation and were all dropped by coalition Ministers. I am now making the case for change anew, with cross-party support and backing from housing charities and industry bodies.

There is a silent crisis in the private rented sector. More than 9 million people now rent their home from a private landlord, a higher proportion than at any time for almost half a century. It is no longer just the young and mobile biding their time until they can buy their own home; half of those in private rented homes are over 35 and more than 1 million families with children are basing their lives on landlords who can evict them at a month or two’s notice.

“Generation rent” has no organised voice and little market muscle. We have better consumer rights when buying a fridge or hiring a car than we do when renting a home. Now that the majority of private tenancies are let through agencies, anyone can set up as a letting or managing agent, even if they have a bad track record or a criminal record. There is no system of licensing or standards, no requirement for a money protection scheme or a system of redress, and no legal right to a written tenancy contract.

In addition, tenants are often hit by huge and hidden up-front fees. Multiple charges for administration, inventories, references, credit checks, deposit handling, contract preparation and tenancy renewal are common. In our local area in Rotherham, the council reckons that tenants are being asked to pay hundreds of pounds for such fees. Research recently released by Shelter reveals that the average cost of up-front fees charged by letting agents is almost £350, and Which? reported last year that none of the 32 letting agents it surveyed had information about their fees on their website. One lady in Shelter’s report speaks for all private renters. She was charged £540 in administration fees alone. She said:

“The rental market is a horrible place right now… While I’m not on the cusp of poverty, this sort of thing could easily spiral. Frankly it is terrible that the government does not see this sort of thing as a priority matter.”

She is right. This affects not only people on low incomes, but people like her on middle incomes.

However, it would be a mistake to think that only tenants suffer from sharp practice. Landlords often report letting or managing agents failing to provide the services expected or hitting them with hidden and excessive charges. Even people who own their own home as leaseholders can suffer when managing agents acting for the freeholder adopt the same high-cost, low-standards business model that plagues so many other parts of the sector.

The worst drag down the reputation of the rest, which is why many of the legal changes I propose are backed by the associations representing letting agents, managing agents and landlords. The Association of Residential Letting Agents, the Association of Residential Managing Agents, the Southern Landlords Association and the British Property Federation have all joined Shelter, Crisis, Which? and the National Union of Students to support my call for regulation to raise standards in the sector. Self-regulation has failed. Legal regulation is required to improve choice, competition and standards in the market. That is exactly what my Bill would do.

The Government were recently forced by Labour in the Lords, led by Baroness Hayter, to agree to introduce a redress scheme. That is widely seen as necessary but nowhere near sufficient. It will only offer help after the damage has been done. Therefore, the legal changes in my Bill would include a legal right to a written tenancy agreement, a ban on agency charges beyond a deposit and rent in advance, a comprehensive redress scheme when things go wrong, and mandatory national licensing for all agents, with core standards and a “fitness to practise” test. For those rightly concerned about the cost of regulation, the Royal Institute of Chartered Surveyors has used the Department for Business, Innovation and Skills impact assessment model to show that such basic legislation would have an initial cost of £46 million but would bring net benefits of over £20 million a year.

However, the changes simply cannot be done from the centre. Local authorities must be at the heart of improvements in the lettings market. That is why my Bill would also give councils strong enforcement powers and new powers to set up their own local letting agencies as public sector comparators and competitors to their private sector counterparts. That model of market challenge by the public sector already works well for low-end rented properties in places such as Derby, Lewisham and Newham. I believe that a new system of mid-market local letting agents, run by the public service, would help drive up standards and drive down fees. Councils could run such operations under their existing trading powers, so local tenants and landlords would benefit and local council tax payers could too.

Our home is our biggest financial outlay, whether we buy or rent. The basic regulation now in place for estate agents is still missing for letting and managing agents. The private rented market is now failing too many despairing tenants who feel let down by low standards and ripped off by high fees. This sector has been called the property market’s wild west. It is high time Parliament brought the rule of law to bear on the cowboys, and my Bill would do just that.

Question put and agreed to.

Ordered,

That John Healey, Mr Gareth Thomas, Lucy Powell, Sir Peter Bottomley, Andrew George, Lilian Greenwood, Ian Mearns, Mr Steve Reed, Clive Efford, John Pugh, Derek Twigg and Natascha Engel present the Bill.

John Healey accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 18 October, and to be printed (Bill 83).