April 4, 2009

Estate Agents: Regulate These Bastards

Posted in Economics, Politics, Society at 7:30 pm by Paul Sagar

The boom before the present bust had much to do with housing. Many of the “toxic assets” now crippling the international financial system resulted from selling unrealistic mortgages to those who couldn’t afford them, on the Cloud Cuckoo Land presumption that houses prices would rise forever. 

Now that recession is well and truly here again, housing remains an issue. According to the Council of Mortgage Lenders, there were 40,000 repossessions in 2008 – versus 7,100 in 2007 – a figure which is set to rise. Shelter predicts that the recent collapse in house building will mean a total housing shortfall in England of almost 1 million by 2020. Crisis has estimated that there are about 400,000 “hidden homeless” in the UK. 

We need to re-think the UK approach to housing provision, both now and when the waters recede. As well as help for those facing repossession and demands for massive house-building programmes, here’s something else that should come under review: the regulation of estate agents.

More specifically, the regulation of estate agents at the bottom of the market for rented accommodation. To illustrate where I’m coming from, I’m going to recap my own experience of trying to rent property in East London.

In September 2008 A friend and I paid a deposit of £500 to an estate agent in Leytonstone for a two-bedroom flat. My friend had to work in Coventry where he was living with his parents, so needed his documentation posting to him. He waited, and after a week roughly half of the promised documentation arrived. 5 days later and he was still missing key paperwork, and we clearly weren’t going to be moving-in any time soon. I rang the agents and spoke to the manager to complain.

Within five minutes it emerged that the agents had both our names wrong, and other basic information was incorrect. This implied that our “reference checks” – which all estate agents charge a fee for, normally £100+ a person – had not been done. I complained that this wasn’t good enough…and the manager offered me the £500 deposit back as a gesture of good will. A little surprised, I turned down the offer as my friend and I still wanted to rent the flat. The manager assured me he was taking-on the case personally and that everything would be fine.

5 minutes later I received a call from said manager informing me that the landlord was dissatisfied with how long things were taking and was “putting the property back on the market”! At this point, the agent offered to show me another flat which was – no surprise – more expensive. I said I’d let him know in the morning.

By the next day, my friend and I had decided we didn’t trust these estate agents. We reasoned that they had offered us our money back, and that as the landlord was pulling out, we should get it and go elsewhere.

That’s not what happened. I went to the agents’ shop and found myself alone with the manager and 7 of his staff, all in the same room watching in. I declared that my friend and I didn’t want a new flat, and because the landlord was pulling out we wanted our money back. The manager replied, “the landlord is not pulling out, he’s putting the flat back on the market – if you act fast, you can still get it.” I didn’t like where this was going and phoned my friend who confirmed my feeling that it was time to get out. When I relayed this to the manager, he whipped out our holding deposit contract and declared that we had thereby forfeited our £500 deposit.

I read the contract over and over. I argued that it was the estate agent’s fault that we were being forced to pull out due to their incompetence. I cited Citizens Advice Bureau information – which was dismissed as “for weak people”. I sat in a room full of estate agents with an aggressive and physically imposing manager bearing down on me, and I’ll confess I was intimidated and afraid. The options were stark: run and lose £500, or stay and hand over thousands more.

I left the money and ran.

It’s worth remembering that my friend and I are both Oxford University-educated and with English as a first language, possessing an awareness of our basic rights as consumers. Yet many people renting in places like East London will have English as a second or third language, with low levels of education and little knowledge of their rights. I’ll admit that I was naïve in some of my actions, and that being book-smart doesn’t translate to being street-savvy. But the point is that nobody should need to be street-savvy in order to rent a flat. The rental market at present gives too much power to estate agents and not enough to tenants.

Oh, and if you thought my first experience was a fluke, I can summarise my second thus: A friend went to collect keys from a Bethnal Green estate agent,  for a room he was renting in my flatshare after. He had paid his deposit weeks in advance. Seeing the manager scream at a girl who was complaining she’d had no hot water for three months, he expressed his concerns at the estate agents repeatedly dishonest and aggressive behaviour to the manager. Displeased by this, the manager threw my friend’s money back in his face and told him to fuck off. Later that day I found somebody else had moved into the room my friend had paid a deposit for…which was fair enough, given that he had also paid a deposit for the same room a week earlier!

Yet things aren’t like this everywhere. In France, for example, the business of estate agents is highly regulated. French estate agents are governed by a law of 2 January 1970 (known as the Loi Hoguet) and a Decree of 20 July 1972. These laws were passed to protect the public from unacceptably low standards of ethics and competence, and are strictly enforced. French estate agents must possess a special license, lasting one year, and renewed annually. It must be presented to anyone who asks to see it, and displayed clearly in all estate agent shops. The license is not easy to obtain: applicants will need diplomas in French law, and/or many years of experience in the field. A tenet of French law is that estate agents are only allowed to hold a certain – quite small – amount of money when acting as middlemen between tenants and landlords. If an estate agent is found to have acted improperly, the amount of money they can hold in future is decreased. Thus everyone in France knows that if an estate agent is only licensed to hold small sums, they have a history of misconduct.

This contrasts starkly to the situation in England. Despite the Estate Agent Act 1979, there is no requirement to belong to a regulatory body in order to set up and practice as an agent in England. This means anyone can enter the industry – and during the boom years anybody did. The get-rich-quick lure of the booming property market attracted many comers. At bottom end of the rental market, it attracted the unscrupulous and the borderline-criminal.

This was especially the case in places like East London, where many tenants speak poor or little English, do not know their rights, and wouldn’t know how to begin taking a case to County Court should they wish to endure the hassle from estate agents and the court fees. Many estate agents are verbally and physically aggressive, lacing contracts with hidden clauses and traps which those with poor English will fail to spot, and which the timid will be bullied into accepting. Although the recession is already killing off many estate agents, it is likely that the most ruthless are precisely those who will best survive.

We are faced with the prospect of the worst, most unscrupulous businesses dominating the field when the good times return.

Why the disparity between England and France? There appear to be two plausible answers, though there may be more. The first is that in France, the proportion of people who rent for life is far higher. The “property owning democracy” Thatcher created meant two things: that the middle classes own their houses, and that everyone aspires to be middle class. The result is that in the UK the vast majority of homes are owned, and most of those who rent accommodation do so because they can’t afford to buy. The UK rental market has been predominantly for students and the poor, many of whom are immigrants. The result? Successive governments voted into power by a property-owning middle class have not been concerned with the situation of those outside that class, or who are expecting to enter it shortly. In France, where it is quite normal for middle class people to rent their entire lives, governments have paid far more attention to regulating the market on their behalf.

The second plausible explanation is that the underlying ideologies applied to markets by governments in France and the UK have differed markedly. For the last 30 years the prevalent attitude in the UK has been that markets are efficient and get things right. The neo-classical economic underpinning of UK politics states that a deregulated rental market will lead to the best (read: most efficient as defined in neoclassical terms) outcome. The theory goes that if some estate agents are crooks and others are not, then consumers will gravitate to the straight guys and the crooks will go out of business – hence no need for regulation.*

In France, the underlying ideology is of active state involvement to constrain capital: of course the rental market needs to be regulated, or else crooks will move in, cut corners and exploit the ignorance of individual consumers.

Whilst both those positions are caricatures, I do believe they hint at something true. But whatever the explanation, the point is that the situation regarding estate agents in the UK rental market needs to be changed, and as France demonstrates, can be changed. It allows unscrupulous middle men to exploit some of the poorest and most vulnerable people in society – as well as those, like me, who just want an affordable place to live at the start of their careers. The boom – and now the bust – have shown that the approach to housing in the UK needs to be reviewed and changed at many levels. Part of that review and change should be the regulation of an industry which, in many cases, is based on the exploitation of the poor, the ignorant and the vulnerable.

—

* Or possibly, the theory is that a deregulated market will create the most efficient resource allocation, and that is all that counts. If innocent tenants are exploited because of their unequal positions in transactions, that is just the interaction of supply and demand and no concern of the state’s.

Permalink