Economic Theory

Occupational licensing of estate agents will restrict competition, and protect incumbents


Sajid Javid has recently announced that in future, estate agents will be required to hold a professional qualification, thus adding to the large numbers of people who cannot conduct business without government permission. Around a fifth of the workforce is already in this position.

According to the EU Single Market Regulated Professions database, nowhere else in Europe seems to require individuals facilitating housing sales to be individually licensed. This used to be the prevailing view here too: in 2010 an Office of Fair Trading report argued against it. Of course the business itself is already regulated, for instance by the requirement to belong to a redress scheme as well as the general coverage of consumer protection and money laundering regulations.

What has changed to persuade a relative free-marketeer such as Mr Javid to go for these new rules? The suspicion must be that this is largely a political ploy to show that the government is Doing Something about the housing problem: the issue was first raised at the last Conservative Party conference, after all, alongside a pledge to deal with ‘rogue landlords’.

About the only new evidence that emerged in the ‘consultation’ period following the conference seems to be the survey finding that ‘six out of ten buyers and sellers have experienced stress’. The only surprising thing about this is that it is not ten out of ten, but this anyway tells us little in itself. The things which most concern buyers and sellers are probably gazumping and its equally evil twin gazundering (which could be minimised by bringing in Scottish-style conveyancing rules) and the high charges made by estate agents -who may be acting for both parties as the law stands. Nothing is being done about these issues.

The new regulations are at least in part the consequence of pressure from the industry. With falling sales (partly because of the government’s ill-advised increase in Stamp Duty) and increasing competition from largely internet-based outfits like Purplebricks, the 11,000 traditional estate agents represented by the National Association of Estate Agents (NAEA Propertymark) have been redoubling their campaigning efforts to promote licensing.

The NAEA is on the face of it a classic example of Milton Friedman’s dictum that the pressure for licensing ‘invariably comes from members of the occupation itself’ rather than the general public. It is itself a provider of professional qualifications which stands to gain from compulsion. As their Chief Executive Mark Hayward said, in welcoming Mr Javid’s announcement:

“We have been campaigning for a more professional estate agent market for years,  and are really pleased the Government is committing to this. For too long, unprofessional agents with no qualifications have been able to operate in the sector […]

[E]nforcing compulsory qualifications will result in a fairer industry not only for consumers, but for the professional agents who have undertaken qualifications in order to deliver the highest standards every day.”

These standards, though, seem (according to their websites) to permit the four agencies recently convicted of price-fixing in Burnham-on-sea to continue in membership.

The role of estate agencies may be something of a side-issue compared with the problem of insufficient and over-priced housing, largely the result of planning restrictions which Mr Javid has so far done little to attack. But the requirement for licensing will almost certainly reduce competition amongst estate agents, raise the costs of buying and selling houses, and restrict access to yet another occupation by requiring people to jump through unnecessary hoops before taking on what is essentially a selling role like many others.

 

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.


1 thought on “Occupational licensing of estate agents will restrict competition, and protect incumbents”

  1. Posted 18/04/2018 at 18:40 | Permalink

    Dear Prof Shackleton

    And in next week’s news, used car salesmen will be compelled to be qualified.

    And the week after …

    You can make it up, but given time, the government will ‘do something’ about whatever it is you made up.

    Too much time, too little to do.

    DP

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