Tenancy deposit schemes “a waste of money”

A housing expert has branded tenancy deposit schemes “poor value for money”.

Michael Ball’s study, “The impact of regulation on the private rented sector”, commissioned by the Residential Landlords Association, is published this week.

In the report Ball, a professor of urban and property economics at the Henley Business School, says the cost of tenancy deposit schemes “vastly outweigh” the benefits.

He claims they cost more than £275m a year in fees and administration, but only £7m is returned to tenants annually in deposits judged to have been unreasonably upheld. This results in a net benefit of minus £269m.

The report says:

“The objectives of the policy are to ensure that tenants get back the deposits to which they are entitled; to encourage good practice; and to make an alternative disputes procedure available. However, the simple cost-benefit analysis undertaken here suggests that the overall costs of this policy vastly outweigh the benefits.

“As those costs filter through to higher rents, most tenants who have no problem with deposits end up paying higher rents, while only a very small percentage of tenants get monies back they may not have done otherwise (but even they still pay higher rents as well, offsetting some of those gains). A new, profitable insurance ‘industry’ has also arisen on the basis of the legislation.”

Ball also claimed that some rogue landlords will ignore tenancy deposit schemes altogether.

“Unfortunately, unscrupulous people will still try to rip people off no matter what the law says,” he says, “One scam is to claim that deposits are protected when they are not. However, if people ignore the rules and tenants do not check adequately, there is little that regulation can do.”