Labour's rent proposals are bad news for the market, say letting agents

Three out of four Association of Residential Letting Agents (ARLA) members believe Labour's tenancy proposals will cause the gap between supply and demand to widen, a report by the body has found.

Labour leader Ed Miliband said that should his party win power on 7 May, it would stop tenants being 'ripped off' by landlords by capping rent increases at inflation and giving tenants three-year contracts.

However, 72 per cent of the professional and regulatory body for letting agents in the UK said that the proposed three-year tenancies, along with a cap on rents, would be bad news for the letting market.

The body's monthly report for March found that landlords in the North West and East Midlands would be most likely to pull out the market, with 84 per cent of ARLA agents in those regions expressing concern.

As well as seeing a reduction in landlords, 74 per cent said the proposed rent controlled tenancy agreements and strict rules would make it more difficult to evict tenants, and would not benefit them.

Almost two fifths of ARLA agents agreed that the Conservatives' pledge to build 200,000 new starter homes, offered at a 20 per cent discount to first-time-buyers, would be 'best' for the private rented sector.

Supply and demand

ARLA's managing director, David Cox, commented: 'A vast majority of ARLA letting agents are worried that Labour's proposed three year tenancies with strict caps on rents will only cause the gap between supply and demand to widen. Flexible tenancies are what makes the sector work, if this changes, some landlords will be forced to exit the market and tenants are likely to automatically incur rent hikes and feel driven to stay in agreements for longer before getting on the housing ladder; thus not freeing up rental properties for other tenants.'

He continued: 'The proposals are aimed at reducing opportunities for landlords to raise rents and to create stability for tenants. However, Labour's proposals aren't necessarily the solution. If you put a cap on rent increases above inflation, tenants are likely to experience automatic annual hikes. Whereas, in reality, landlords appreciate good tenants and would avoid raising rents to retain them.'

ARLA's report, which was carried out via an online survey of 465 of its members, shows that the average time tenants stayed in a property is 17 months, with a third of agents reporting they had successfully negotiated rent reduction for tenants.

Stamp duty

In addition to its plans for the letting market, a future Labour government has also pledged to give a stamp duty 'holiday' for first-time buyers purchasing homes for less than £300,000.

The plans would cost £225m, and be funded by a crackdown on landlords who avoid tax, as well as a cut in tax relief for those who fail to maintain properties. There would also be increased taxes for foreign property investors. The plan would apply for the first three years of a Labour government.

Mark Hayward, managing director of the National Association of Estate Agents (NAEA), said: 'This could be a real vote swinger for those looking to step on the housing ladder. Scrapping stamp duty for homes under the price of £300,000 would only mean good things for hopeful first-time buyers.

'For many, hidden costs such as stamp duty can be the difference between being able to afford a home, and not being able to afford one. Our recent research showed that just under a third of house sales were made to first time buyers, and hopefully we'll see this significantly increase over the next three years.'

John van der Luit-Drummond is deputy editor for Solicitors Journal
john.vanderluit@solicitorsjournal.co.uk | @JvdLD