May 6, 2018

Beware the estate agents calling for even more red tape

Estate agency is frequently cited by the public as one of the most disliked professions. That aversion is likely to get worse if new regulations are introduced, because they are sure to bring about reduced competition and higher fees.

The government recently announced that it is to “professionalise” the market and introduce new qualifications that will be required by law before you sell or let a house for a living. Nowhere else in Europe do they feel the need to oblige individuals who sell property to be licensed by the government.

Unfortunately, Britain has a dysfunctional housing market — caused mainly by planning restrictions and Nimbys — and the government is desperate to be seen to reform the home buying and selling process, but licensing will only make it more expensive.

In America, realtors, as they are called, are most definitely licensed. Having had personal experience of buying and selling homes there, I can confirm that the service is no more professional than in Britain, but the cost is massively higher. US real estate brokers typically charge the seller 5% or 6% of a home’s value — at least 500% more than the usual fee in Britain.

Supposedly the new rules will bring an end to “rogue managing agents”. I’ve found that awful managing agents are often members of the Royal Institution of Chartered Surveyors or the National Association of Estate Agents. Having such letters after their name makes no difference when it comes to disreputable behaviour.

The government says delays and complications cause stress to house buyers and sellers, but none of that is necessarily caused by unqualified estate agents. Lawyers are equally likely to be to blame, as are arcane planning laws, local authority searches and the Land Registry, all the latter controlled by government.

Of course, the various trade bodies are delighted at the news. Indeed, they have been pressing to make the industry more of a cartel for years. As the economist Milton Friedman wrote, pressure for licensing “invariably comes from members of the occupation itself” — not the public. Vested interests love more regulation because it keeps others out — it is a classic case of concentrated benefits and dispersed costs.

I do not understand how a Conservative government, which is meant to promote business and free markets, has allowed itself to be captured by certain trade groups who want to minimise competition and boost their fees. Unfortunately, ministers and Whitehall civil servants live to legislate: their solution to everything is to pass more laws, but very often legislation has damaging unintended consequences, and ends up causing more harm than the problems it was designed to solve.

Unquestionably, estate agents are worried about their prospects. Countrywide’s share price has fallen by almost 80% in the past three years; Foxtons Group shares have sunk by three-quarters. The volume of property transactions is stagnant. Meanwhile, the rise of online estate agents such as Emoov, Purplebricks, Tepilo and HouseSimple means the profession faces digital disruption. The introduction of licensing would probably force many operators to shut down, and might even prevent online agencies from functioning. This reduction in choice must be against the public interest, and should be resisted by politicians.

Len Shackleton at the think tank the Institute of Economic Affairs comments astutely about the disadvantages of occupational licensing. Regulations are supposedly introduced to protect the public from unscrupulous or incompetent practitioners. In reality, such rules entrench existing operators and exclude new entrants. They typically increase bureaucracy and costs for no material benefit.

Shackleton points out that about one in five British workers now needs a licence from government to practise their chosen profession — twice the proportion of 15 years ago. This includes security guards, art therapists, chiropractors and social workers. I’m unconvinced they are all much better than they used to be.

Work life in the 21st century is drowning in costly new regulation, from the General Data Protection Regulation to the apprenticeship levy, occupational licensing to auto-enrolment. We want higher productivity, more innovation and a rising standard of living. More pointless red tape will only hinder those ambitions.