Is rent hiking a good business model?

by Ben Reeve-Lewis

21:22 PM, 21st January 2013
About 8 years ago

Is rent hiking a good business model?

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Is rent hiking a good business model?

It’s been a while since I wrote anything in my ‘Don’t shoot the messenger’ series. Mainly because I kept getting shot ha-ha.

But I have a tough skin.

This article is an open letter to all you P118 landlords but probably more the London crew, because it is about rent increases and London is a different animal to the rest of the UK. I see properties for rent in different parts of Britain where the rents seem reasonable.

London is off the scale though.

What prompted me to write this was an article based on a survey by the famed LSL Property Service covered on the ARLA website that said that 24% of landlords plan to raise their rents in 2013 by 3% more than the rate of inflation. Also a tweet from Juicy Properties that urged me not to blame landlords for the lack of supply of housing. I get that argument but I come from a different angle.

Now I admit that 24% is not the remaining 76% but in term of numbers we are still talking in 6 figures, which means that hundreds of thousands of tenants are going to be affected by rent levels that will cripple them financially.

I know. I meet these people every day. Downsizing and cramming their families into 2 rooms so they can still afford the rent and stay near families and friends.

I have been a landlord, a letting agent and a tenant, and as you know, for many years I have been an enforcement officer for landlord and tenant law, so I have a broader perspective than most, so I have a keen, informed eye for the rental world.

Good Business?

As every landlord will know, it isn’t worth chasing a tenant who owes arrears of rent. Even if you win the case, the chances of getting the money back are slim to non-existent. Courts will make a money order but they don’t collect it for you. If you get possession on rent arrears then the tenant, by definition has gone. You have to employ tracing agencies to get your money back and even if you win what do you get? £3.95 a week? Pleeeeaaaase!!!! Best walk away. Why throw good money after bad?

Serious rent arrears cases are up, so are repossessions and homelessness cases. They are all intertwined for a reason.

Landlord raises rent…tenant can’t afford it…..rent arrears accrue….tenant goes homeless….if they are VERY lucky the council doesn’t find them intentionally homeless…..even if they do, the council wont share contact details with ex landlord due to Data Protection regulations….nobody wins.

So why raise rent levels to a point where tenants can’t afford it? It doesn’t make sound business sense.

Government decided some time ago that as a nation we needed to shave several billion off of the housing benefit budget. Since they introduced this idea the amount of people claiming housing benefit has risen, not through the much vaunted dole scroungers, but that new class of ‘The working poor’, old fashioned working class people, not chavs, who will no doubt form the backbone of many landlords themselves, who are struggling with a freeze on wage increases, while rent rises are subject to no such controls.

Of Landlords.

Don’t get me wrong. I have no moral problem with landlords making a profit from their endeavours. The vast majority of landlords provide a good service and are very considerate of the needs of their tenants, who, after all, are the source of their income.

My open question here is ‘Does it make sound business sense to raise rents so far that their customers can’t afford them?

Pricing is an important issue. I work as a housing law trainer and pricing courses and services is always a major headache for me. When a client asks how much the course will be,  I curse myself if they answer with a ‘Yes’ too quickly, it sends me a message that I am under-priced, but my pricing levels are based on what the market will stand. There is a formula to it.

It seems to me, being completely blunt, that in the current climate, landlords set rent levels just because they can, with no reference to the durability of the market as a whole. Which seems to be to be a dangerous position to take in the long term.

Yes landlords have an eye towards growth and the extra income can help develop properties and services that will ultimately benefit their client group, tenants but what if those strategies for growth end up killing the goose that lays the golden egg?

Landlord media.

All websites and e-zines that promote the interests of landlords talk of a ‘Buoyant market’, a time when rental income has never been better, but it is important to bear in mind that this buoyancy comes at a price….the happiness and prosperity of the tenants, human beings beyond loan to value ratios..

It’s like a see-saw, where the landlord can only feel that their needs are being met when the tenant is at an all-time low.

One of the few things that unites tenants and landlords is their common mistrust, even dislike of the lettings agency business, I seriously think that letting agents will get regulated this year. Not because of shouts by Shelter but because of calls from within the letting agency business by organisations like ARLA. There simply isn’t anyone to stand up for them.

I think the same position threatens landlords too.

People are heartily fed up with the ConDem’s austerity/cuts programme because it doesn’t seem to be getting us anywhere. Come 2015 I reckon Labour will be back in with a serious shout (Admittedly not, perhaps with Miliband) and they have already announced plans for a landlord register and increased security for tenants.

If London landlords continue to price people put of the market and cause so much human misery who will stand up for them when the time comes? Probably the same people who will stand up for letting agents when regulation is introduced………Ian Duncan Smith and his dog, that’s who.

With people priced out of the home-ownership market a huge number of the electorate are turning out to be tenants and, like all voters, they will put their cross in the box where their self-interest lies.

I think London’s landlords are simply making hay while the sun shines. Driving into a future on a buoyant rental market that will leave them high and dry in the near future, resulting not only in repossessions against tenants who can no longer afford the rents but a dried up landlord market who can’t afford the mortgages because their rent levels have priced their customers out of the market. And as I say….who will stand up for them then?

As a business model the market is in a precarious position and on a purely personal and moral stance, I have to say if I was a landlord, hiking up rents way beyond the rate of inflation in a culture where people are going down the pan by the day and homelessness applications are going through the roof I couldn’t be happy knowing that my standard of living was at the expense of someone else’s happiness.



Comments

17:42 PM, 23rd January 2013
About 8 years ago

The first point is 76% of landlords are not increasing rents. This is something to be celebrated. It s ironic Private landlord behave much better then the socialist Labour leader of London's Islington Council part who want year on year inflation busting rent increases.
Check this video interview....

http://bcove.me/0tizio21
That the problem with socialists. They have double standards.
Why don't these socialists offer social rents or rent these houses to Housing Benefit tenants.

philip allen

18:47 PM, 23rd January 2013
About 8 years ago

The insult in your first line set the tone of your 'leftie' childish diatribe. It's difficult to know where to start with an 'ex' landlord who was, obviously, no good at it.

As one of the London 'crew' (you're really a trainer using derogatory terms like that? God help your students), I associate with numerous London landlords and have yet to find one that has rubbed his hands with glee and proclaimed, 'I can't wait to rip off my tenants with another rent increase'. You're making it up as do many 'journalists' looking for an easy column-filler.

I have recent experience of bending over backwards for a tenant, a young, fit, bright man in his early thirties who had been made redundant. Reduced his rent, made repairs, at no cost to him although his fault, and put no pressure on when he fell behind with his rent. I called round for a regular periodic inspection and found he had disappeared and totally trashed the place. 4000 pounds later I took the view that I had been fortunate that he hadn't burnt it to the ground and moved on.

An enforcement officer for landlord and tenant law? Don't make me laugh. "Ok Mr Tenant whatever the problem is you're right and the landlord's wrong"!

Where are your facts? What depths did your study reach? How many tens of thousands of tenants did you interview? How many landlords did you interview? Certainly not me or anyone I know.

On the subject of people not wanting to move away from their 'community' (I've always wondered, what is a 'community' exactly? I've yet to come across one in the places I have lived), my wife moved from her village in the north of her home country and settled in a bigger town where there were better job prospects. To this day she regularly travels to see friends and family and enjoys the outings. What's wrong with doing a 'Norman Tebbitt'? He was an educated man from the right, so you wouldn't understand him.

I am truly disappointed with Property 118 if they lead with wildly uninformed tripe like this from a trotskyist with a double-barrelled name.

Yours,

Philip R Allen

Mark Alexander

19:50 PM, 23rd January 2013
About 8 years ago

Hi Phillip, it's OK to attack the message but not the messenger. I am Property118 so I accept accountability for publishing this and several other articles which Ben has written. If you were to know Ben, as I do, you would realise that he probably the fairest Tenancy Relations Officer in the UK. His position, working as a TRO and also with Shelter may make him appear to be the enemy but I do not believe that is so. Ben is one of the few in his position who genuinely tries to understand the mindset of landlords. Without communication, understanding and reasoned debate our industry will not progress and will continue to be villified. We must admit that Shelter and the Council carry more weight than we do as landlords. That's because we are such a fragmented group. We need to unite to shout louder, in the meantime, it doesn't hurt us to communicate.

Joe Bloggs

21:57 PM, 23rd January 2013
About 8 years ago

i think you need to look at the circumstances behind the stats. many landlords dont put the rent up in line with market conditions until there is a change in tenancy. it may well be that this explains a large measure of the 24%. when bureaucracies start interfering with market forces is when things will get worse for everyone. everyone has a choice where they live, and if should landlords subsidise rents below true market so that tenants get their first choice? as you said people need to consider moving out of london, but what youre proposing wont encourage this. furthermore why should existing tenants get preferential terms over people wishing to relocate to london. there needs to be mobility of labour.

10:06 AM, 24th January 2013
About 8 years ago

I agree with Philip, but I disagree on his final point that the likes Ben should not be invited the write in. Wihtout Ben's article, there would be nothing to respond. Ben has raised valid concerns and it an opportunity for Landlords to put them forward.
YOu should also invite the likes of Shelter and some Labour MPs to write in. I dislike Shelter, as their comments are propoganda campaign. They only ever get phone calls from bad tenants. As a landlord for 20 years, no tenant of mine has had to make a phone call the Shelter. Many of them don't even know who Shelter is.

4:13 AM, 25th January 2013
About 8 years ago

Forget London for the moment, even if it is its excessive salaries for the few & tax-free expats which cause the seismic ripples in provincial house prices - we rarely raise rents on tenants in residence, just between tenancies after refreshing makeovers. However, tenants who fall behind with their rent because 'I spent too much at Christmas' or 'I spent too much on holiday' get a blunt choice at their next review. I don't object to tenants having luxuries, but I'm not a bank. Our average tenancy lasts for about 2 years - one bedroom flats. Longest to date has been 8 years & she was a joy to have.

Wouldn't it be nice to charge £30 for a letter regarding unapproved arrears and high penalty rates of interest taken direct from their pay without reference to the courts?

Taking accommodation without payment is theft, even if our politicians choose to rule that it isn't. Let alone taking the landlords furniture on departure after Notice to Quit. We are now in the process of UV marking all our white goods with Inventory numbers.

Ben Reeve-Lewis

11:45 AM, 25th January 2013
About 8 years ago

Phillip I can only presume that you have only recently come to P118, otherwise you would be familiar with me, my tone and the point of my articles.

My ‘Don’t Shoot The Messenger’ series is an informative, light hearted, playfully provocative and respectful elbow-nudge to the landlord community from someone whose job it is to prosecute landlords for harassment and illegal eviction but whose 22 years in the business leaves me with a
certain world weary cynicism, brought on by investigating complaints of nightmare tenants against what, by and large is a decent landlord community.

During those 22 years, when I haven’t been running around with a blue light on my head, kicking in doors and telling landlords “Your nicked son”, I have been a landlord myself, a letting agent, a homeowner and a tenant.

I don’t believe in the cartoon evil landlord or the doe eyed victim tenant.

I work in one of the most deprived areas of London, so I see the worst examples of everything and I write about that, because it is my life, its what I know.

My main concern is trying to deal with the fact that landlords and tenants don’t seem to like each other, and yet they need each other to survive. I strive to illuminate that in everything I write.

I have travelled up to Norwich, in my own time and at my own expense, just to connect with people in landlord/tenant world. I met Mark, Neil, Teena, Jack and the whole P118 crew and we get on famously. We don’t agree on everything but we don’t have to.

P118 regulars Paul Barret, Mary Latham and Ian Ringrose will tell you that we get the hump sometimes and bitch a bit but we still have respect for each other. We just have different views on various aspects of landlord and tenant stuff. That is the source of debate and ultimately, understanding.

I have a whole list of landlords who at one time or another I have threatened with prosecution. I pride myself on the fact that those same landlords call me by my first name, pop into my office to check that their eviction paperwork is in order and even, on occasion, invite me to family barbecues.

Lighten up mate and enjoy the playful debate. I do, that’s why I write for P118.

Ben Reeve-Lewis

14:53 PM, 25th January 2013
About 8 years ago

Oh and by the way. I just noticed your last comment. I have a double barreled name not because I went to Eton....it was Deptford Green Boys actually and if you met me you would know I have an accent like Ray Winstone. My name simply comes from a blending of mine and my wife's name. And dont knock Tripe. There is a brilliant Fujianese restaurant in Bethnal Green Road called 'Gourmet San' where they do a fantastic sweet and sour tripe. You cant get enough tripe in my book. I take offence at what is obviously a tripe-ist comment. Trotskyist????? Nah......Tripe-ist Yeah......absolutely haha

19:06 PM, 25th January 2013
About 8 years ago

Hear, hear Ben; you just make sure you keep on doing your posts, you make things interesting when Landlording is not the most exciting subject in the world!!

Your commentary keeps us LL grounded as sometimes I think we can disappear up our own a---'s

As regards LL and tenants not liking eachother.

I don't think this is a consequence of their individual descriptions.

I think such perception is borne out of both parties' experiences with eachother which have been largely caused by inadequacies in the rental system in the UK.

When you have for example a LL who will not resolve dangerous defects or supply the service that a tenant could reasonably expect to receive as per the AST you can understand the tenant crossing the LL off his Christmas card list!

Conversely you have a very p----d off LL when a tenant fails to pay rent and works the eviction system to stay in property, trash it, steal from it and then leave at eviction date with no real sanction possible against them to recover losses they have caused the LL.

Is it any wonder that suspicion of eachother is legion.
Of course these circumstances of such perception have built up since the new HA came in about 3 decades ago I think.
To start to like eachother we both need to start conforming to our obligations
There does seem to LL that there is a natural prejudice against Ll with a seeming lack of attention to the massive 2.1 billion pounds of losses that bad tenants caused last year to LL.
If such losses had occurred to tenants I believe there would be much shouting about the poor old tenant and how he was being crucified by the bad LL.
Well this situation is actually happening to LL and yet we don't hear much from Shelter or anyone else for that matter about such circumstances..........................................funny that!!

Mark Alexander

22:17 PM, 25th January 2013
About 8 years ago

Maybe I see the World through rose coloured glasses or something? However, the vast majority of tenants I meet hold their landlords and letting agents in high regard and vice versa. Yes there are a few a55holes and I’ve met them too in all three guises. The bottom line though is that over 23 years and with a very large portfolio I’ve only ever had three tenants from hell in the whole time and perhaps two or three late payers every year. I’ve had more bad drivers run into my car over the same period! Perhaps I’ve been lucky, or perhaps I’ve just learned to avoid trouble? I liken this to people who manage to regularly get themselves into street fights and in trouble with the law. They only do so as a result of their own attitudes and not learning from lifes previous experiences.

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