The unintended consequence of the Renters’ Rights Act that NOBODY is reporting

The Property Podcast

The episode explores the unintended consequences of the Renters' Rights Act, specifically focusing on 'inverse bidding wars' and new challen

Key takeaways

The Renters' Rights Act has inadvertently created 'inverse bidding wars' where landlords list rents higher than expected to invite lower offers.
Banning rent in advance may disadvantage wealthy tenants, such as overseas students or business sellers, who lack UK-based income streams.
Letting agents are testing new revenue models, including charging fees for processing small rental uplifts.
A headline 5% savings rate can result in near-zero real returns for high-rate taxpayers when accounting for inflation and income tax.
AI threatens roles focused on 'producing' work but offers massive leverage to those who act as 'conductors' using judgment and experience.

Main topics

Renters' Rights Act consequences
Rental market bidding dynamics
The dangers of high-interest savings traps

Notable quotes

Savings accounts are a parking spot for your cash before you drive into action.

Conclusion

Investors should look beyond headline numbers and embrace technologica

Transcript preview

Speaker 1 (0:01) Hey everyone, Rob B here with Rob D. You are listening to The Property Podcast and today we look at the unintended consequences of the Renters Rights Act that nobody is reporting. And then we move on to look at why a 5 % savings rate, as attractive as it sounds, is a trap and you need to make sure you do not fall into it. And then finally, we find some time to either inspire you or terrify you with a discussion on AI. Speaker 2 (0:33) Welcome to the Property Podcast. Now, in our business, Property Hub Invest, where we arrange more than £100 million worth of property deals every year, we are thinking and talking to our team a lot about AI and the challenges and the opportunities that it brings up. And depending on how you are, it could be the best or worst thing that's ever happened to you. We also talk to clients every day about what to do with their cash. And there's a very interesting conversation that's been happening more and more recently. We're going to share that with you as well. But we're going to start with the Renters' Rights Act and some of the things we've been seeing that... maybe the government didn't have in mind when they brought this in. Speaker 1 (1:03) That has been massive in terms of the noise around it, at least leading up to the implementation. And then it's all gone a bit quiet. There's not much being reported on it. We've talked about it, but nobody's really talking about what's happened since it's been implemented. So there's so much noise leading up to it and then so little afterwards. But things have changed. It's not that nothing has changed. It has. It's just not being talked about. And there are consequences to those changes. Some for the better, but also some for the worse. Speaker 2 (1:37) Very much so. There was so much hype going into this, like there always is with any change. Like, oh no, this is going to happen. The world's going to end. The world didn't end. For the most part, I would say the change has been less dramatic than most people would have thought. But we've been living with renters' rights for, what, five-ish months now? Something like that. Which is just long enough for some of the smaller unintended consequences to start making themselves known. I Speaker 1 (2:00) can't believe it's been five months. It still feels like it was implemented last week to me. But five months is crazy. Speaker 2 (2:05) Yeah, it doesn't seem that long and everyone is still finding their way around it. Agents, landlords and tenants. Everyone's still figuring out how this world works. And a change that didn't get talked about that much in the lead-up, but it's turned out to be one where there's been some... Very interesting changes in the market as a result is the change that was brought in where you now cannot accept or encourage rental bids over the asking price. So the idea was no more bidding wars. You advertise a price, you cannot accept anything more than that price. However much someone begs you or offers you, you cannot take it. That is the ceiling. That was supposed to end bidding wars, but what it has done is brought about the inverse bidding war. Apparently this is what we're calling it now. This is a story that I picked up from London Centric, which is a really great publication. They did some on the ground reporting talking about inverse bidding wars. In other words, if the maximum that you can accept is the amount advertised and you're not quite sure where your rent's going to land, then obviously as a landlord or an agent, what are you going to do? You're going to put that rent up. you're going to go in high and let people know that they can make offers below that. And that's exactly what happened. So there's a quote from this piece that says, they're talking to someone, she told one listing agent she was shocked by the massive increases in advertised prices. The agent said some landlords were going crazy and putting the rent really high. Others were doing it just a little bit higher than what their current tenants were paying. In other words, Rob, this hasn't really solved the problem. This has created a new and almost slightly worse problem. Because before, if you really wanted a place, you could offer the asking price and you wouldn't always get it, but you'd be pretty sure. getting it now if you pay the asking price you're very likely going in too high but otherwise you're playing this weird game of like well how much lower can i go without someone else being higher than my lower it's Speaker 1 (3:38) weird right and imagine this is regional because this can't play out in every region because you need more demand than supply because if you're playing this game and no other landlord is you're just gonna fall flat on your face. If you're trying to put your rent, let's say everyone else is at 1,000 and you go in at 1,200, then it's crickets. Who's going to take the time to go and start engaging with you at that level? So I suppose it's a dangerous game to play, especially if the market isn't hot. I've not seen any adverts. like deliberately saying like make offers or this is a starting point like please come in and make offers have you seen any so i know it's been reported but i've not seen any yet i Speaker 2 (4:18) haven't i haven't been looking extensively but i think what you said is right this is going to be regional so this publication was a london publication where obviously there is tons of demand and not a whole lot of supply so you could imagine it happening more in london than elsewhere but I haven't seen it, but I can imagine agents saying, oh, just make us an offer. Because when I was looking even before renters' rights, that was something they were saying to me. Agents just want offers. Because once they've got an offer, that's something they can do with it. It's something they can use to get leverage with other parties. So I can imagine it happening. But you're exactly right. That only works if your listing generates the attention in the first place. And if there is demand, if you set your price so high that no one inquires at all, then yeah, the whole thing falls a bit flat. I Speaker 1 (4:58) think this is really interesting, though, because this is clearly one of those unintended consequences that... has not been thought through. You know, whoever put this together hasn't thought this could play out. And I wonder, and I'm not saying it will, but it's certainly, I think everybody can get their heads around how it could become the possibility that this eventually becomes the norm, where people put rents on and then they say things like bids up to or rent up to, like make offers, like offers up to. That structure of advert becomes the norm. everyone gets used to it. So at the moment, it would really fail, like I've pointed out, in the wrong markets. But if this becomes the transactional norm, that tenants know that when they look at a property, they can always go in and put offers, that's acceptable and that's expected, then that landlord at 1,200 still may get contact if they like the look of the property, but someone goes in at 900. And it could be that tenants... feel like they're getting a better deal anyway if they get 900 against 1200. Maybe it's that, oh, I'm getting myself a bargain and what's the true asking price and all that comes into play. It would be a really weird market if that happens. And you can see how rental inflation can spike in hot areas when this happens because tenants get used to that bidding play. Of course, there's a ceiling, there's a cap, and they also know they can lock it out at that price. Speaker 1 (6:25) bidding wars unless you're involved in one nobody really knows that they exist listen to this podcast will because we can share that news and that information but in all markets combined most tenants wouldn't be aware that you go beyond what's advertised anyway so this whole new market dynamic that could become the norm is really interesting i don't necessarily think it's a good thing for either side but i think it could be the new thing we'll see Speaker 2 (6:53) Yeah, I think it's one of those where you try and solve a problem, but you create another problem in the process because the underlying problem, which is a supply-demand imbalance, has not changed. And there's another example of that as well, another unintended consequence, or maybe not, we'll see, of another change that was made, which is that now you're not allowed to take rent in advance. So previously, the classic case was overseas students. You've got someone coming from overseas, they haven't got any UK income, they haven't got a guarantor, so you just take 12 months up front, done. It works for them. It works for you as a landlord. That was seen as unfair because people with savings, people who were in a position to put down six or 12 months up front, were able to get in ahead of people who weren't able to do that. So change the rules. Now, I admit here we're in the realm of anecdote. I've heard a few cases of this now, where people who are extremely financially secure but can't pass referencing on paper are really struggling to find anywhere to rent. So I've got a friend who's just sold a business. He sold a business for a lot of money. He doesn't have an income, but he's got a lot of