decline in housing affordability

UK addresses decline in housing affordability

Thursday, November 24, 2016

The United Kingdom’s tight housing market has prompted new government efforts to relieve renting costs and boost the country’s supply of private and public stock. This includes: a move to prohibit real estate agents from charging fees to private rental tenants; cancellation of planned rent increases to some tenants of publicly owned housing; subsidies to help others renters buy their dwellings; and funds to stimulate construction of 140,000 new homes by 2021.

“The challenge of delivering the housing we so desperately need in the places where it is currently least affordable is not a new one, but the effect of unaffordable housing on our nation’s productivity makes it an urgent one,” Chancellor of the Exchequer Philip Hammond told the House of Commons yesterday as he tabled the 2016 autumn economic statement.

Details of “a comprehensive package of reform to increase housing supply and halt the decline in housing affordability” have been promised in a pending government white paper. Meanwhile, two prominent real estate industry associations suggest the somewhat unexpected proposal for consumer protection legislation for renters could simply divert costs that will still flow through to tenants.

“Banning letting agent fees will be welcomed by private tenants, at least in the short-term, because they won’t realize that it will boomerang back on them,” predicts Richard Lambert, chief executive officer of the UK National Landlords Association (NLA). “Agents will have no other option than to shift the fees onto landlords.”

The scenario may seem unusual in countries like Canada where rental housing tenants typically contract directly with the landlord or property manager, but the NLA estimates that 57 per cent of its members rely on real estate agents, at least occasionally, to facilitate leasing of vacant units. This has also led to accusations that some agents are taking advantage of their gatekeeper role to extract undue commissions, particularly in highly competitive markets like London. In turn, while disavowing unscrupulous practices, the NLA contends prospective tenants should bear costs for credit checks, which are typically passed through in leasing agents’ fees.

“Government must strike the right balance between allowing credible, regulated letting agencies to recover reasonable costs and the unquestionable need to protect tenants from suffering excessive charges by less scrupulous agents,” concurs Jeremy Blackburn, head of policy with the Royal Institution of Chartered Surveyors (RICS).

Concurrently, the government’s halting of the so-called Pay to Stay policy means some tenants of the UK’s vast network of public housing under the auspices of local authorities will not face threatened rent increases. The now-cancelled policy would have required tenants with taxable incomes greater than £31,000 (CAD $52,000) or £40,000 (CAD $67,000) in London to pay market or near-market rents.

“The government will work to deliver its commitment to ensure that social housing is occupied by those who need it most through other measures,” the economic statement decrees.

A small fraction of social housing units will also be removed from the rental stock via a newly announced Right to Buy pilot project, which will provide subsidies to assist more than 3,000 sitting tenants to purchase their homes. “It is critical that this pilot also tests mechanisms for replacing homes sold like for like, without which the sector will be deprived further of much needed affordable rented homes,” Blackburn advises.

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