Bidding Wars – what really happens?

During the General Election campaign, the topic of “bidding wars” was brought up as an issue. This was described as the practice of encouraging tenants to secure a property by offering to pay a higher rent than advertised. The now-PM, Sir Keir Starmer, was quoted as saying the practice was “driving rents through the roof.”

The NRLA took a closer look at this topic in the All-landlord Survey it commissioned in August 2024. This research was conducted by an independent market research agency (Dynata). Over 1,000 PRS landlords across England & Wales participated in the online polling.

By coincidence, approximately one-landlord-in-five who took part were NRLA members (meaning approximately 80% were not). It is also important to note that around 30% of the sample managed their portfolio entirely, with the remaining majority using an agent to manage at least part of their portfolio. 

Landlords were firstly asked whether, in the last two years: Have you ever brought a residential property to the market for new tenants, and ended up with a higher rental agreement than you had initially envisaged?

(Note that we deliberately did not link this outcome to the phrase "bidding war"). 

Chart 1 below shows the results from a landlord perspective:

So, the above chart shows:

• The largest proportion of landlords surveyed have not looked for tenants in the last two years and so cannot have benefitted from this phenomenon. 

The fact that such a large proportion of landlords have had their tenants for over two years also tells us something about the PRS and landlord-tenant relationships which, despite our efforts, is overlooked in the media. 

• Only 10% of the landlords interviewed have benefitted from the “bidding war” phenomenon - in that they have receive a higher than anticipated rent - more than once.  
• The proportion of landlords who have benefitted at least once from unexpected rent rises is roughly equal to the proportion of landlords who have not looked for tenants at all. 

Chart 2 shows the difference between self-managed portfolios and those at least partially managed by a letting agency. Just to be clear the percentages are derived from the landlords who HAVE benefitted from receiving a higher than anticipated rent over the last two years (less than half - 41% of the landlords surveyed): 

The graph illustrates quite clearly that independent, self-managing landlords are less likely to have benefitted over the last two years from these bidding wars when compared to landlords who let via letting agents. 

Landlords were also asked the principal (“typical” was the phrase used in the fieldwork) reason why the final price (rent) had been driven upwards beyond the initial ask.

Only landlords who had received a higher than requested rent were asked this question: Chart 3 highlights the most common reasons (this is not a complete set of replies, the remaining responses were few in number):

This chart highlights multiple reasons why a landlord ends up with a higher-than-expected rental income on a property.

These reasons are varied, but many can be summarised by being a product of a supply shortage and lack of options for tenants in the market. 

Note that the “Other” reasons are illuminating. For example just 1% of landlords stated they were knowingly engaged in practices such as “sealed bids” to secure a higher price. 

Higher rents are also used as a tenant screening mechanism. Landlords perceive higher rents remove the problem of adverse selection (as defined by economists). So, for the landlord, avoiding problems of anti-social behaviour or the risk of rent arrears is lessened by offering property at a higher rent. 

But whatever the rent, landlords face an information asymmetry - they do not know the tenant’s true ability to pay across the duration of the tenancy. So, allowing rent payments to rise above their expectations of market value is one way of addressing this problem. A second approach is to use a strategy of increasing up-front or initial payments. There have been instances of landlords requesting higher levels of advance rent being reported in the media.

How common are these practices? We asked all landlords about their policy on upfront payments over and above a four-week deposit and a month rental payment in advance.

• 52% of all landlords stated they “never” took such payments.
• 14% stated they “always” took additional payments.
• Fewer than one-third of landlords (30%) stated they “sometimes” took such payments. 
  • The remainder responded either “don’t know” or declined to answer the question.

Landlords who replied "always" or "sometimes" to the above question were asked about their motivations for these ‘additional’ payments.

Chart 4 below reports on the responses for those 44% of the sample who had received such payments: Please note, on this occasion multiple responses were permitted. Again, only the answers which had the greatest response are reported:

The responses show upfront payments are predominantly used by landlords as a risk management tool, rather than a mechanism to deliberately extract additional profit. 

Other than “Cash flow” - which appears at the foot of this list - there is little indication the strategy is more often than not deployed as anything other than a defensive mechanism.
 

Finally, we asked landlords whether they would support a move to ‘outlaw’, ‘regulate’, ‘restrict’ or other actions to limit the practice.

As the evidence above shows, the existence of this phenomenon has more nuanced reasons than policy makers would have the public believe. So perhaps the findings of Chart 5 shouldn’t be a surprise – but to many it probably will!

The proportion of landlords who favour “action” is notable. Note that we also re-ran the calculation for only those landlords who had benefitted from either higher-than-expected rents or upfront payments. The results were near-identical to the all-landlord result in Chart 5.

Even those landlords who have benefitted from either of these practices favour regulation. The results indicate a “level playing field” is preferred. The result is also consistent with the analysis that enacting the strategies described in this blog are typically defensive mechanisms to protect the landlord from non-payment and other risks.

Landlords simply do not recognise their individual actions and strategies mean they are being dragged into a discussion of a “war” between landlord and tenant!

Once again evidence challenges the narrative and misconceptions about the landlord’s role in the PRS. The landlord is not an economic agent trying to maximise the value he or she can extract from their assets, using bidding and upfront payments to find a profit maximising price.

Instead, the landlord is turning to the price mechanism as a defensive shield to identify suitable tenants.

For the PRS to work better, landlords need to have confidence in non-price screening routes to tenant selection such as referencing. Landlords also require assurance that when screening fails, alternative mechanisms (ie the courts) will work as smoothly as possible.

Landlords want a level playing field – whether that is between landlord and tenant, landlord and other landlords, or even in how landlords are portrayed in the media. The research presented here, indicates action on "Bidding Wars" should be an opportunity to redraw a level playing field and not to dial up rhetoric on landlords.