Labour wants to ban tenant bidding wars – it’s easier said than done though

The Conversation has published a piece outlining why they believe Labour will struggle to implement their policy of banning bidding wars.

It can be seen here, and in summary:

Policy Overview: Labour proposes to ban “bidding wars” in the private rented sector to control escalating rents. This policy aims to provide tenants with greater clarity and stability regarding housing costs by requiring advertised rents to be final and prohibiting landlords or agents from initiating higher bids.

Key Objectives:

  1. Enhance Tenant Clarity: Ensure tenants know the maximum rent they will pay without the fear of unexpected increases due to competitive bidding.
  2. Restrict Upward Rent Pressure: Mitigate one of the channels that drive up rental prices, thereby providing some relief in high-demand markets.

Potential Implications:

  1. Alternative Rationing Mechanisms:
    • Discrimination Risk: Without bidding wars to allocate housing, landlords might resort to selecting tenants perceived as lower risk, possibly discriminating against those on benefits, in precarious jobs, or with children.
    • Key Money and Side Payments: As seen in past rent control measures, landlords might introduce unofficial payments to compensate for regulated rent ceilings.
  2. Voluntary Overbidding:
    • Informal Norms: Even if landlords cannot solicit higher bids, tenants might still offer more to secure housing, leading to informal expectations of overpaying above advertised rents.
    • Policy Neutralization: Allowing tenants to voluntarily pay more could undermine the policy’s effectiveness, rendering it almost neutral.
  3. Upward Adjustment in Advertised Rents:
    • Initial Rent Hikes: Landlords might preemptively set higher advertised rents, knowing they cannot raise them through bidding. This could lead to a one-time significant increase in rent prices.
    • “Or Nearest Offer” Practices: Rental pricing could evolve to resemble the home buying sector, with advertised rents becoming starting points for negotiation.
  4. Compliance and Enforcement Challenges:
    • Awareness and Rights Enforcement: Tenants might lack knowledge of their rights or fear eviction if they assert them. Effective policy implementation relies heavily on informed and empowered tenants.
    • Enforcement Burden: With existing resource constraints, enforcing the new rules might overwhelm the responsible government bodies, reducing policy efficacy.
  5. Marginal Impact on Rent Growth:
    • Symptom vs. Cause: The policy addresses a symptom (bidding wars) but not the root cause (high demand vs. low supply). New Zealand’s experience shows rents can continue to rise despite banning bidding wars.
    • Need for Broader Reforms: Long-term rent stabilization requires addressing the housing supply-demand imbalance through substantial reforms.

Conclusion: Labour’s proposed ban on bidding wars aims to protect tenants from rent hikes due to competitive bidding. However, its effectiveness hinges on the detailed policy design and robust enforcement mechanisms. Without addressing the broader issue of housing supply, the policy may only offer temporary relief and could lead to unintended consequences such as discrimination or informal overbidding practices. Comprehensive housing reforms are necessary to achieve sustained rent stability

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