Much has been said lately about the supply and demand myth within the private rental sector. The fact of the matter is that economics is simply not the last word as it’s often quoted to be. After all, economics failed to predict the 2008 crash – did it not?
We are told that rental properties are in short supply, they are.
We are also told rental demand is high, and yes, it is.
When supply is low and demand is high, then economics dictates that prices will increase and the amount of properties on the market will increase by default. This means more #landlords being attracted to the market due to the greater return on investment.
The upside for tenants is a greater choice of higher standard properties which completely justifies and offsets the higher expense of the rent.
Read that sentence above once more. Is that truly your experience of renting in the 21st century?
So yes, the rents more expensive but the laws of economics dictate that your landlord will continually improve and maintain your rental property to an extremely high standard to justify your higher rent.
When was the last time your landlord ever called you to say:
“Can I replace your white goods? They haven’t been changed in years now.”
“Is the heating adequate in the property for you?”
“What can I do to improve the property for you?”
By the laws of supply and demand this should be an extremely common occurrence.
The rise in price and availability is apparently accompanied by an improvement in the standard of the property and service offered to tenants.
This is how supply and demand economics explain the higher costs, yet in the real world that simply isn’t the case.
Most tenants will hardly ever contact their landlord (or ####letting agent) until the boiler dies or the oven stops working.
Because as proven to tenants over and over again – complaining will only get you a section 21 eviction notice, a bad reference or a chunk out of your deposit upon checkout.
In some unfortunate cases – all three of them.
Supply is so low and demand’s so high landlords can simply let properties as they are. They don’t need to improve them and they have absolutely no market incentive to do so.
That market will always supply a new tenant, everytime, just simply due to demand. The rent return can then be bumped up for the new tenant and all this is done without any capital investment to improve the property as there’s simply no need. The property is always taken as viewed.
In researching this article I found an interesting article on dailycollegian.com which states…
When contemporary economics discusses issues affecting the economy, it determines their importance and their meaning based on numbers and dollars. X illness is costing x amount, x stress at work is causing x loss of productivity. A monopoly causes x raise in prices. Elasticity of x is causing price of a product to be y. The end result is exactly what? It is exactly of what meaning or value? I could not think of a more irrelevant science, and even considered as a science economics is fractured. It is neither a social science nor a math; it haphazardly oscillates between the two.
Economic theory cannot be applied when a supplier has complete market dominance.
In most industry sectors the Competition and Markets Authority, responsible for strengthening business competition and preventing and reducing anti-competitive activities, would be called in.
So the next time anybody mentions supply and demand to you remember these two scenarios:
Rent controls are introduced by government. By the laws of supply and demand, tenants would have much lower capped rents but as a result there’s a drop in standards and fewer available properties That’s because landlords begin to see their revenues fall and simply get out the market.
Demand continues to outstrip supply, rents rise year on year and we end up with a similar drop in standards due to apathy and there’s still fewer available properties. Landlords profits continue to get larger year on year.
The laws of supply and demand may well apply to supermarkets and car manufacturers but they have absolutely no place or justification in the current broken UK private rental sector.