The ULEZ Threat

I keep reading articles about the desperate shortage of rental accommodation in London and the spiralling rents. This is of course caused by the usual issues. Increased mortgage costs for landlords, new compliance legislation, savage fines for minor breaches of the compliance rules, the ending of Section 21 and the huge cost of complying with the new minimum energy efficiency rules. However, there is now another factor that is having an impact on the London lettings market and that is the expansion of the ULEZ zone.

I own some buy to let properties in London myself. They are Victorian properties which need regular maintenance and I have used the same contractors for many years and got to know them well. Builders are like farmers in that they always have something to complain about but it is interesting how their complaints have changed over the years and it is interesting that they all seem to have the same main complaint at the same time.

A few years ago, it was foreign builders undercutting their rates. Then it was the madness of the VAT rules that forced them to register if they exceed the limit by a single pound. During Covid, it was the utter stupidity of the Covid safe working rules – being made to wear a mask while mending a roof out in the fresh air. For the last couple of years, it has been the huge increase in the cost of building materials and how this makes it impossible to give an accurate estimate for a job.

For the last few months, however, they have all been talking about the impact of the expansion of the Ultra Low Emission Zone to the whole area inside the M25. Nearly all of the tradespeople that I use still have non-ULEZ-compliant vans and most of them have said that they will no longer be able to continue to work for me after ULEZ comes in. This is a huge inconvenience for me but it is going to have a catastrophic impact on letting agents who manage properties inside the M25.

I have read that over 30,000 uncompliant vans currently enter the ULEZ zone every day. The cost of buying a ULEZ-compliant van is huge and the value of the non-compliant vans has gone through the floor. Many builders will simply not be able to afford to buy a new van and as a result, they will no longer be able to work in London so what on earth are we all going to do?

Landlords and letting agents have a statutory obligation to deal with repairs promptly but how are we going to be able to do this when there are no plumbers or heating engineers or roofers or electricians? Will landlords be allowed to continue to let their property if they can’t get a gas safety certificate in time or will the tenant have to move out until a contractor can be found? We’re going to have a period of absolute chaos.

Agents could well be hit more directly by the new ULEZ rules. A lot of staff are still driving non-ULEZ-compliant cars so they may decide to change jobs or demand a pay rise to cover the cost of buying a newer vehicle.

The best solution of course would be to scrap or postpone the new ULEZ zone but the Mayor of London is adamant that this is not going to happen. If the ULEZ expansion does go ahead, market forces will eventually provide a solution but the transition will be a painful one.

Day rates for contractors in London will increase sharply. This will mean many contractors will have to register for VAT which will push up the cost to the consumer by another 20%. If the cost of maintenance rises, then landlords will have no choice but to increase their rents to reflect this. Agents may also need to increase their fees to pay for higher salary costs and this will drive up rents still further.

Whilst all this is happening, many landlords will also be starting to carry out major works to their properties which are necessary to comply with the new minimum energy efficiency standards. The cost of this work will also increase which means rents will need to increase still further to pay for it. If a landlord expects a return from their portfolio of 4%, then £10,000 spent complying with MEES will need an increase in rent of £400 per annum.

This is a classic example of how action by one part of the government directly contradicts the stated policy of another department. We are told that the government’s number one priority is to bring inflation down but the expansion of the ULEZ zone is going to lead to a significant increase in rents in London and will no doubt have a similar impact on many other sectors. Market forces will find a solution but how we all wish that the government would stop meddling in our lives without considering the consequences of their actions.

Adam Walker is a management consultant and business transfer agent who has specialised in the property sector for more than forty years.