How understanding tenant choice can create business opportunities for letting agents
Ben Grech, CEO at Reposit, provides his insight on consumer choice and upcoming tenant trends.
Tenants' consumer choice is affected by personal preferences and their budgets - and both of these change according to external factors. We're in the midst of the cost of living crisis, at the tail end of a global pandemic, and there's a lot going on in the lettings industry. These all affect consumer choice - and therefore tenant trends.
Lockdown and an influx of new tenant preferences
During lockdown, many tenants were able to save money through staying with family. Some chose to get a pet, and others started to work from home.
These direct consequences of the pandemic affected what tenants were looking for in a rental property - from fast broadband to pet-friendly, commuter-belt locations - and their budgets were originally quite healthy before the market rates caught up with demand.
Properties with a full set of facilities and social areas grew in popularity - which benefited the already growing build-to-rent sector.
The cost of living and a crisis of affordability
Then the cost of living crisis hit. Once again, tenant consumer choice has been affected. Tenants are now choosing to stay put as market rates put previously affordable properties outside their price bracket.
Rather than focus on what they want, tenants are having to make decisions based on what they need. Some of the discretionary elements of what they might have previously opted for are being sidelined. The core basics - a study, a clean and tidy house - are being prioritised.
Regulation in the industry and its impact on tenant choice
With rental supply down 46% from the 5 year average, it would be fair to say “what choice?!” when it comes to considering tenant preferences. However, though the current market does present challenges, there are still opportunities to be found for agents, landlords and tenants as well. With such high tenant demand and low stock, there's an increasing pressure on agents to do more for less.
It's not simply factors external to the industry that have affected tenant choice. Industry regulation will continue to have an impact on these tenant trends, as they have in the past.
The Tenant Fees Act indirectly affected the rents that tenants pay, restricting their choice. Many landlords had to pay agents more to compensate for the loss of revenue - which filtered back to the tenant through increased rents.
Agents turned to technology suppliers to find cost-effective solutions to remedy this dip in revenue and these solutions offered tenants a better, online service. Those agents are now on the front foot. They anticipated what tenants would want, as well as spotting an opportunity to do their jobs in a more efficient way.
Now the Renters' Reform Bill aims to put more choice back into the tenants' hands, ensuring they can always access homes that are of a decent standard.
In reality, there's more to it than that.
Tenants deserve a choice, and yet that choice relies on the availability of homes to rent. If that availability is not there, then their choice is immediately limited.
Agents and landlords can't necessarily control that. Landlords have to be able to afford the payments on their properties, and their rents reflect that. What agents can do is look for other ways to offer their tenants more choice.
Influencing tenant choice through product innovation
The ideal world is for agents to operate profitably, for landlords to make a decent return on their investment, and for tenants to have the choice that they want and can afford. How do you get that? Product innovation.
Market forces create the opportunity and the demand for new products - and they're often very good products. Reposit, for example, helps move the burden of a cash deposit from the consumer balance sheet with a cheaper upfront cost for the tenant.
It's still one choice alongside a traditional deposit - and yet it gives tenants an alternative way to organise their finances and budget - increasing their ability to choose. Additionally, reducing the admin of a deposit is also a great way to reduce the burden for agents when letting a new property or at the end of a tenancy.
These new products can create revenue opportunities for agents through commissions. It's a win-win for all involved.
Letting agents that can recognise the impact of consumer choice on lettings trends before they fully take hold will be better placed to spot these new opportunities for their businesses in the future.