Rental bidding: proposed reforms won’t keep a roof over renters’ heads

Rental bidding occurs when prospective renters engaging in bidding offer an agent or a private landlord a higher amount than the advertised price for a rental property in an attempt to convince the landlord to approve their application. If other potential tenants realise what is happening – or they are invited by the agent or landlord to make higher offers – the agent or landlord may exploit this bidding process to extract the maximum rent for the landlord.

Also labelled a “rental auction”, rental bidding is not illegal in NSW, and difficult to regulate. It is a practice that lacks transparency, so that if it is occurring, rental applicants won’t necessarily be aware they have been in competition with their fellow tenants to bid for a particular property. They may simply be turned down without being given a reason. This lack of transparency makes it difficult to ascertain how prevalent the practice is in the real estate market.

“The tightest rental market ever seen”

In November 2022, median weekly advertised rents across Australia shot up by an historic amount, climbing 10.3 per cent from the beginning of the year, according to the PropTrack Market Insight report. This was deemed the “tightest rental market we’ve ever seen” by PropTrack director of economic research and report author Cameron Kusher.

According to PropTrack, at that date the median house rent in Sydney was $650, an 8.3 per cent rise on the year prior. The comparative rates for other major cities were Melbourne $480 (+6.7 per cent), Brisbane $550 (+11.1 per cent), and Adelaide $500 (+13.6 per cent).

In terms of the median unit price, the report showed, Canberra and Sydney are the most expensive cities for renters, at $550 per week, followed by Darwin ($520 per week), Brisbane ($465 per week), and Hobart ($462.50 per week).

“If we look at vacancy rates and the rate of rent increasing, it’s likely that rental bidding is more prevalent than 2016,” says Leo Patterson Ross, CEO of the Tenants’ Union of NSW. He is referring to a 2016 Consumer Affairs Victoria report, which estimated that one in five tenants offer to pay more than the advertised rent, and some are offering as much as $100 per week extra in order to jump the queue.

“We don’t have reliable figures,” Patterson Ross continues, “and that is often a feature of renting policy, that government has not invested in the data infrastructure to provide the data sets that are needed. The best evidence we have is a Daily Telegraph article in which they surveyed 80 agents in December last year and about 80 per cent said they’d engaged in rent bidding.”

Rise in digital inspections causes more rental bidding

Throughout the pandemic, renters and homebuyers became accustomed to the practice of digital inspections and auctions, enabled by Zoom, Google Meet and other meeting-based, video-enabled apps. International bidders have long been catered for through live phone and video presence at auctions, too. And Australian renters have also long been applying for properties via digital platforms, such as tApp or 2apply.

While digital rental applications are convenient and less fiddly than the reams of paperwork that previously formed part of the rental application process, this process also reduces the transparency of applicant screening and approval methods for prospective tenants.

A number of rental bidding or rental auction apps are already live in Australia, or are on their way. These include apps which have proven popular overseas, such as Rentberry, which allows tenants to submit offers to landlords, along with similar apps LiveOffer and Rentwolf.

Current laws and policies on rental bidding

Rental bidding is not illegal in NSW, and in other states it is illegal only under certain circumstances. In Queensland, it is illegal for landlords to initiate rental bidding by advertising a price range and enabling prospective tenants to make an offer. However, if tenants approach landlords or their agents with a higher offer than the advertised price, it is not illegal to accept that offer.

In NSW, from 17 December licensed agents were prohibited from soliciting rent bidding, and ads required a fixed price (as opposed to ‘contact agent’, ‘offers from’ or ‘by negotiation’). The Property and Stock Agents Regulation 2022 (NSW) was deemed the appropriate vehicle to implement the changes, made under the Property and Stock Agents Amendment (Solicited Rent Bidding) Regulation 2022 (NSW), rather than the Residential Tenancies Act 2010 (NSW).

These laws applied purely to advertisements after 17 December, allowing existing advertisements to escape the laws. Additionally, the laws apply only to real estate agents, so private landlords are still able to solicit bids.

Hypothetically, if one or more prospective tenants approaches the agent with a higher price than the fixed, advertised price, it is not illegal for the agent to entertain this. If the prospective tenant says, “Can I offer $100 per week more than the advertised price?” and the real estate agent responds, “Yes, you can. I will let the landlord know,” this complies with the new rent bidding laws, because the prospective tenant made an offer voluntarily.

According to Fair Trading NSW, a fine (Penalty Infringement Notice) may be issued for breach of the rent bidding laws – $550 for an individual or $1,100 for a corporation. The maximum penalty that a court can award for non-compliance is $11,000 for a corporation or $5,500 in any other case.

The nature of a voluntary bid is a murky concept for Patterson Ross, who questions on what basis tenants are offering bids and whether this is on a level playing field, or motivated by pure desperation.

“Our stance [at the Tenants’ Union of NSW] is that if you’re desperate and making an offer, it’s not a fair market and you’re being coerced either directly or indirectly to act against your best interests. On that basis, and in terms of transparency, the basic principle is that ‘what you see is what you get’ in the advertisement and that the agent/landlords cannot enter into an agreement at above what the advertised price is. That said, you should be able to negotiate down if you come to recognise that [the rental is] over-priced.”

The grey zone: where legality, ethics and fairness intersect

“The Tenants’ Union of NSW puts me at the intersection of social work and legal work,” says Patterson Ross.

The demand on the Tenants’ Union website during the onset of the pandemic was unprecedented, Patterson Ross says, and equivalent to its typical annual visitation.

“There were around a million unique users in the year from early 2021 to 2022, with 4 million page views. In April 2020, it was close to that entire annual visitation in a month.”

On 10 May 2023, rent reforms designed to enhance fairness and stability for tenants were introduced in the NSW parliament, though the proposed reforms fall short of reducing heavily inflated rent prices.

In the National Cabinet at the end of April 2023, Prime Minister Anthony Albanese tasked the states and territories with developing proposals to strengthen renters’ rights across the country by the second half of the year.

A bill was introduced in the NSW state parliament this week that would initiate a two-year emergency rent freeze. The government has ruled out rent caps to date, however, owing to the likelihood of deterring investors from the housing market.

European rental markets centred around tenant stability

Patterson Ross cites the examples of many European countries, which have embraced a more tenant-focused model that balances rent regulation with supply. He believes that this is more than a fiscally sound approach: one that fundamentally recognises the inevitability and value of a sizeable renting community in any nation.

Patterson Ross says, “The average tenure in NSW is 18 months but lower income households report to us that they move every six months or 12 months, so that sort of instability means they experience a disconnection from community. Without a stable home, they have no ability to form relationships with their neighbours before moving on, and children lose connections with schoolfriends.”

The 2016 census showed a slow but steady decline in home-ownership rates and a rise in rental rates which has continued through to 2023. The idea that all Australians can – and will – own a home purely through working and saving is no longer a realistic ideal. Whether renting, or owning, the right to a safe, stable home is one that should traverse the matter of renting or ownership.

Patterson Ross asserts, “It’s not inherent to renting that people do not feel safe or stable in their apartments.”

In several European countries, more regulations apply to rent prices and these also enable tenants to negotiate longer leases. The only country to have regulated or negotiated rents across the board is Sweden, while Austria, Denmark and France operate a rental system that combines both regulated and non-regulated rents.

Patterson Ross says, “Places like Vienna, Austria, have around 70 per cent of the city renting and around half of that is what we’d call social homes, but the eligibility is almost universal so renting is a very stable thing. Places like Berlin have 10-year leases as standard, they don’t allow ‘no grounds’ evictions, and rents are regulated so that they can’t rise so quickly.”

These countries have a greater proportion of non-market housing, whether that’s public housing, cooperatives or not-for-profits.

“But it’s cultural too,” Patterson Ross says. “There’s an expectation that the people who own properties – smallholdings landlords – won’t take advantage, and you’ll hold a property for decades, so that it is the renter’s home until they’re done with it. In Finland, it now has less regulation of rents, but culturally it’s accepted that you only increase the rent [in step] with inflation.”

The rental system in Japan also makes for an interesting comparison. Approximately 22 per cent of the population rent, and in the year to June 2022 the average rent in Tokyo increased by a mere 0.2 per cent. As reported in the Financial Times last year, the average rent in New York increased 35 per cent in New York over the same period, and 12 per cent in London.

Patterson Ross says, “In Japan, they have two forms of renting, one for foreigners and one for Japanese nationals, where you essentially buy a property for 10 years. So, you pay the upfront rent for 10 years to the landlord and at the end, the property is returned. People borrow that upfront cost at a much lower rate that you’d borrow to purchase a property.”

He continues, “The point is that different nations have come up with varying ways to address how people use a property without having to purchase it. Scotland too has been tightening up their rental sector, including a landlord register, [and this is] now rolling out across England. They’ve also introduced rent pressure zones, so that stabilisation measures on rents can be applied in a targeted approach.”

Australia’s problematic approach to rental bidding 

Patterson Ross says, “Under the current system, Fair Trading’s initial response was to monitor closely the rental advertisements. Making sure there’s a fixed price was easy and relatively successful. The issue of allowing bids only where they are unsolicited is very difficult to enforce, and you don’t really know how the agents are acting.”

Patterson-Ross recalls that the previous Minister for Fair Trading, Michael Dominello, suggested NSW Fair Trading should send out undercover compliance officers and pose as tenants to see how agents were treating the application.

“The regulator hasn’t been very visible, nor sent the clear message to the real estate industry that ‘we are looking and watching’,” laments Patterson Ross.

At present, many Australian renters are existing on shoestring budgets, or borrowing to maintain their property. The ideal relationship between income and spending is being sorely tested by rental prices.

How much should households be spending on rent as a percentage of their overall income?

“Australia hasn’t resolved this,” says Patterson Ross, “but the rule of thumb is that people on the lowest 40 per cent of income should pay no more than 30 per cent of their income on rent, not including energy. That metric falls apart for very low-income earners. The test that agents use is the residual income method: ‘how much have you got left after covering housing costs and does it cover the necessary bills?’ At the top end of incomes, you can afford to pay more than 30 per cent if you want to, but the ABS finds that higher income households tend to pay 20 per cent of their incomes on rent.”

The psychological impact of being priced out of your community                                                                                                                                       

Patterson Ross says that, as a result of not having affordable nor appropriate housing close to their workplace, family, friends or source of education, people have little choice but to secure rentals that are often long commutes from where they have established work and friendships.

“People are going much further out and, particularly in regional areas, that means leaving the whole town and sometimes it’s many hours of travel if they’re trying to maintain employment in their home town. People compromise on location, but increasingly they are also having to compromise on the quality and safety of a property. They may be forced into sharing with people they don’t feel comfortable with, or living in badly renovated garages. At the end of the day, the effects are that it’s exhausting to travel for many hours, people get sick in overcrowded accommodation and share that sickness. What people are telling us is that emotional distress and physical illness are heightened when they don’t have safe, stable, reliable accommodation.”

“Accept rent as an essential service”

“Australia made a decision to prioritise property ownership as the main way to house Australians and the consequence of that is that, at first, a lot of middle class and working-class people were able to easily access a very stable form of housing ownership. But before the 1950s there were always people who rented – most Australians, in fact,” says Patterson Ross.

There’s a common misconception that rental is a transitional state only for young Australians who are at the stage living at home and then buying a home.

Patterson Ross says, “The consequence of that misconception is a very poor renting experience, and now we’re also seeing the consequence of making home ownership privileged in tax policies and planning decisions, so that those who already own properties are doing really well and those who don’t are really struggling. We need to reconsider how we view government’s role in ensuring people have a home.

“One of the most effective ways is to accept rent as an essential service. Through a range of different mechanisms, akin to healthcare and energy, government has to ensure people can access safe, stable, affordable homes. This puts the onus on government to ensure supply keeps up with the needs of community.”