A whine//magnum opus about London renting

I briefly became a fervent Jeremy Corbyn supporter today after a nasty surprise from our letting agents.

Hours later, that’s subsided. But the exchange did crystallise a few thoughts.

I’m moving out of my north London flat this week. Today an employee of Jigsaws, the lettings agent just a stone’s throw from Corbyn’s north Islington home, told us of their £162 exit fee and £210 (minimum) cleaning fee. The unspecified charges are alluded to in the small print of our contract. It was our responsibility to discover the detail and ask what the charge was likely to be, the agent said when I called her later.

Feelings of both anger and embarrassment that are characteristic of such ‘gotcha’ charges followed. It’s the sort of drive-by shooting that leads to a loss of faith in my brand of happy-go-lucky liberalism. I’m over the hump but now I’m sort of interested in it all.

We got fleeced because of two inequities or asymmetries. One, of information: when we sat down to sign our contract a year ago, the agents knew the hidden charges buried within. We didn’t. Two, of care: to middle-income tenants like us, the fees are a nuisance and a forgettable financial discomfort; but in London’s low-yield rental market, they are crucial to the agencies’ business model.

Researching whether we had any recourse to action I came across the property ombudsman’s website. From May 27 (after we signed), it says, agencies were obliged to “display a list of all fees, charges and penalties.”

That’s encouraging. Transparency should encourage competition between agencies, mollifying and/or formalising the rip-off fees. It may even lead to disintermediation. If prospective tenants knew about hidden costs upfront, they might push to strike deals with landlords directly. If the Airbnb for long-term rentals doesn’t exist already, someone will invent it. And existing players like SpareRoom may take market share.

I’m venting of course. Dodgy estate agents are nothing new and we should have done our homework more carefully. But my (naive?) guess is that by the time my younger siblings and cousins squeeze into the London property market, agencies’ mercenary tactics will be on the way out.

London Renters Win in Billionaire Backyard as Prices Soar

London Renters Win in Billionaire Backyard as Prices Soar

In a way this makes no sense. Rent in London is high relative to other U.K. cities and many category peers in other countries.

Relative to London house prices however, which have rocketed since 2009-2010, rental values are low. That’s true elsewhere too: the U.K. house price to rental price ratio is 40 percent above its long-term average, the IMF says. There are well-stated reasons why that could be a new normal. Notably the supply of new housing has failed to keep pace with demand for a decade or more.

But it could be a new bubble. One reason why rents are a good comparator is that they tend to be constrained by income. Unless you make do with continually smaller living spaces and such what, rental values can’t increase much more than income growth, which in the U.K. has been pretty flat. That house prices have gone up by 40, 50 or even 60 percent in the capital in recent years suggests, to some degree, that property is over-valued.

In the meantime, some tenants have found themselves living in properties with a million pound+ paper value, paying rents commensurate with a valuation of only half or a third of that.