The UK government delivered its Autumn Statement today, announcing a ban on letting agent fees and additional funds to boost house-building. What does it mean for landlords, investors and the property market? We break down the real estate reaction to the policies.
UK Chancellor Philip Hammond confirmed that there will be a new Housing Infrastructure Fund of £2.3 billion by 2020-21, funded by the NPIF and allocated to local government on a competitive basis, which is aimed to provide infrastructure targeted at unlocking new private house building in “areas where housing need is greatest”.
This will deliver up to 100,000 new homes, while the government will also examine options to ensure that other government transport funding better supports housing growth.
The NPIF will provide an additional £1.4 billion to deliver an additional 40,000 housing starts by 2020-21, with the government relaxing restrictions on grant funding to allow providers to deliver a mix of homes for affordable rent and low cost ownership, to meet the housing needs of people in different circumstances.
The government also announced that it would pilot accelerated construction on public sector land, backed by up to £2 billion of funding. To meet this commitment, the government will invest £1.7 billion by 2020-21 through the NPIF to speed up house-building on public sector land in England through partnerships with private sector developers.
Mark Hayward, Managing Director, National Association of Estate Agents (NAEA), welcomes the news, especially “relaxation of how existing affordable housing funding can be used [which] will help to diversify our housing mix, creating the homes that people want and need”.
“However,” he adds, “the creation of 40,000 new homes that this new funding is expected to deliver is still painfully short of the number of affordable homes we need to solve the housing crisis and get first time buyers on the housing ladder.”
Ms. Agate Freimane, Senior Investment Director at BrickVest, also praises the government’s wider focus on infrastructure: “We welcome Mr. Hammond’s infrastructure drive to build and improve the UK’s roads, railways and broadband. Investors and businesses alike will benefit from the funding, which will trickle down to surrounding sectors such as property. Indeed, plans to fast-track scheduled projects like Crossrail 2 will in turn boost momentum in the UK’s property market as historically, areas that receive infrastructure investment typically benefit from a boost in both rental yield and capital growth. In London, for example, we’ve seen large infrastructure projects like the Night Tube having a positive impact on property prices in the last couple of years.”
The affordable homes initiative will occur alongside a more controversial measure, which is the funding of a large-scale regional pilot of the Right to Buy schemhe for housing association tenants. Over 3,000 tenants will be able to buy their own home with Right to Buy discounts under the pilot.
More controversial, though, is the decision to ban letting agent fees for tenants.
Letting agent fees ban to rebound against tenants?
“Landlords appoint letting agents and landlords should meet their fees,” said Hammond, who said that the unregulated fees had spiralled into hundreds of pounds for some tenants. Indeed, according to the latest English Housing Survey among renters who had paid agency fees, the average fee was £223.
The government says the move will “improve competition in the private rental market and give renters greater clarity and control over what they will pay”. However, the industry has warned that the polic will only backfire and cause landlords to pass on their higher costs on to tenants.
John Goodall, CEO and co-founder of peer to peer platform Landbay comments: “It’s encouraging to see signs of a government finally recognising the importance of the private rented sector, after a flurry of tax hikes left in Osborne’s legacy, but it’s hard to know whether a ban on letting charges will be good news for tenants in the long run. Landlords will have little choice but to absorb letting agent fees themselves and, in time, will pass these on to tenants. Scotland has already gone down this route, removing the fees back in 2012, and although there are a lot of moving parts in play here, it saw rents grow by 1.55 per cent over the past 12 months, the fastest growth of all of the UK Home Nations [according to the Landbay October Rental Index].”
The exact impact in Scotland, though, is hard to determine. According to the latest ONS index, private rents have inflated by 5 per cent in Scotland since the law n fees was clarified in November 2012, and in England, rents have risen by 9 per cent over this period.
Nick Leeming, Chairman at Jackson-Stops & Staff, adds: “We’ve seen a consistent reduction in the number of landlords buying investment properties since April this year which means that fewer rental properties are now coming on to the market to serve the growing rental population. A better solution would have been to create a more competitive fee environment and ensuring that landlords are not further discouraged from the market.”
David Cox, Managing Director of the Association of Residential Letting Agents, says the proposal is a “draconian measure” that will have “a profoundly negative impact” on the rental market.
“It will be the fourth assault on the sector in just over a year, and do little to help cash-poor renters save enough to get on the housing ladder. This decision is a crowd-pleaser, which will not help renters in the long-term. All of the implications need to be taken into account,” he adds. “Most letting agents do not profit from fees. Our research shows that the average fee charged by ARLA Licenced agents is £202 per tenant, which we think is fair, reasonable and far from exploitative for the service tenants receive. These costs enable agents to carry out various critical checks on tenants before letting a property. If fees are banned, these costs will be passed on to landlords, who will need to recoup the costs elsewhere, inevitably through higher rents.”
The Department for Communities and Local Government has said that it will consult ahead of bringing forward legislation.Google+