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Unintended Consequences

Wednesday September 4, 2019

The law of unintended consequences has long been familiar to economists and is rapidly becoming a fixture here in the private rental sector. Well meaning legislation where the intent is wholly good, but somebody really hasn’t thought it through.

The most obvious example was the scrapping of letting agency fees, greeted with glee by tenants and consumer rights champions who completely missed the elephant standing in the corner of the room. These fees were not going to magically vanish with the stroke of a pen. Agents still need to perform all the tasks they did before but now the financial burden is removed from the tenant and onto the landlord. And guess where the landlord passes those fees? Yep, straight back to the tenant in increased rent so everyone is back to square one.

Another unintended consequence of recent legislation is a small number of landlords giving up on the long term tenancy market and renting short term through Airbnb. There are now property management companies that specialise in managing short term tenancies for landlords using Airbnb.

While £200 or more per night may seem attractive, many of these landlords seem oblivious to the risks. With a long-term rental, references and bona fides will have been checked by the letting agency who will hold a deposit to cover any damage to the property. Airbnb does none of these things.

Not all Airbnb users are Stag ‘n Hen do’s but it doesn’t take many to get a property listed for anti-social behaviour. Alarmingly, the police have recently been briefing on pop-up brothels using short term lets to operate in residential areas. With these short ‘holiday’ lets, landlords really have no control over who is going to occupy their property.

And it is not only landlords attracted by the chance of a quick buck. We have recently come across a small number of tenants prepared to sub-let their property for a weekend while they ‘sofa surf’ at a friends flat. We called one tenant to warn them they were in breach of their tenancy agreement and could face eviction if they continued to sub-let. They asked how we would prove they were sub-letting. ‘Airbnb’ written in black felt tip with an arrow to their apartment bell was a clue!

Most landlords adjust their business model to deal with increased legislation and costs but many have simply had enough, selling their property portfolio to seek easier investments. Again, the law of unintended consequences means legislation intended to protect tenants is actually reducing the available private rental stock.

It was American writer and film critic Richard Schickel who observed “The law of unintended consequences pushes us ceaselessly through the years permitting no pause for perspective”. The next piece of well-meaning legislation that will undoubtedly backfire would be any attempt to fix rents through central or local government rent control. It is inelegant to jump up and down shouting “TOLD YOU SO” but I fear that is exactly what I will be doing should this one backfire and go horribly wrong.

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