The market for lemons – UK private rental market…

I have been on the rental market for the best part of nine months without much success. From the abject-looking properties being advertised for outrageous prices to the good ones where another renter just beat you to the property or your income just falls short, the process of renting a property with a landlord can be quite challenging in the UK private rental market. More so when you are a student with a meagre income. Think about the income requirements, referencing process, credit checks, and address history, among others and you are more likely to resort to specialised student accommodation (usually with squeezed spaces) to ease your worries.

There is one aspect of the process however that brings to mind the market for lemons problem espoused by economist George Akerlof. Essentially, sellers and buyers (in this case landlords and tenants) do not have equal information about the product. As a result, some buyers end up with “lemons” – defective products. Relating this to the referencing process, landlords would usually require as much information about a prospective tenant through their managing agents – income levels, job status, previous landlord references and many others. Whiles this may be prudent on their part to ensure prospective tenants have what it takes to meet their end of the bargain (essentially paying the rent and taking care of the property), a lingering question remains; what information is available to the tenant to convince him that the landlord would equally have what it takes to meet his end?

An interesting piece in the Financial Times by Joy Lo Dico (subscription required) provides some pertinent issues – quite a good read. Essentially she argues that landlords use such information to get the right tenants for their properties, and rightly so.

“How does the tenant do the same — figure out which landlords are lemons?”, she asks.

A ten-minute property viewing appointment may just not be enough to find out as much information about the property, neighbours or landlord. Given the housing crisis, however, landlords are probably more in an advantaged position. The results? Tenants, rather than landlords, are perhaps more likely to end up with the lemons.

Off to continue my search. Wish me luck!!!