Whose price is right?

Domain, the bible of Sydneysiders who attend dinner parties in journalists' imaginations, recently released another piece of high conversation fodder - its price data tool. This allows you to search nearly any address in Australia for information on its estimated rent and sale value, as well as its history on the market. It was presumably constructed using the mass of property sales data the NSW Government pledged to release earlier this year.

It certainly has novelty value. Search your friend's place. Search your neighbour's place. Search Kirribilli House. And did you know the tiny inner city terrace your correspondent's mum bought for thruppence and a rusty nail in the 80s could now get you a medium size island?

Rent this charming sandstone mansion with 180-degree city views for only $1140 a week (estimate)!

But beyond snooping, renters should note that the Domain tool, and the clones we're sure are in the pipeline, could change the issues relevant to rent increases.

This Leichhardt two bedder provides a fine example. The property history shows that it was let for $550 a week as recently as July 2015. As one might expect for a property that is a fixture on the rental market, this is the end point of steady increases in recent years. The current price is $80 higher than in 2012, $100 above the 2010 mark, and a full $175 more than the going rate back in the Bronze Age of 2007.

So $550 is a reliable marker for current market rent, right? 

Wrong - at least according to Domain. The price tool estimates with "high confidence" that the going rate should in fact be $650 per week. This is based not on data concerning the property itself, but on advertised rent prices for similar properties elsewhere in Leichhardt.

So if a hypothetical tenant's hypothetical landlord were to issue a rent increase of $100 per week, citing the price tool as evidence of a property being rented at well under market value, would our hero be advised to dispute the increase as excessive? There are of course a great many variables this scenario cannot consider.

But it does raise interesting questions. Isn't 'market value' just the price a consumer is willing to pay, rather than what a vendor is hoping to collect? If so, the fact this property has consistently gone onto the rental market, and is currently fetching $550, suggests that this is indeed market rent. Or is the whole of market picture, suggesting a similar place in the same suburb goes for $650, in fact a more reliable guide to 'true' value?

There are also obvious problems with Domain's use of advertised rather than actual rents in coming to its figure of $650. There is absolutely nothing to suggest the agents of the inner west were able to obtain the advertised prices on the properties used to calculate the price tool's estimate. This is something we've discussed in earlier conversations on the the Brown Couch.

These may well form the parameters for landlord-tenant deliberations and confrontations to come. For what it's worth, we think our tenant stands on solid ground. But a result the other way is not out of the question, particularly if the case winds up at a Tribunal hearing. These are notoriously difficult for tenants to win, and the Residential Tenancies Act affords Members substantial leeway to come to their own conclusions about what is and is not relevant in contemplation of an increase. 

As we've noted elsewhere, the Minister responsible for Fair Trading is required to undertake a review of the Residential Tenancies Act 2010 this year. We believe the rules around dispute of rent increases as excessive need reform. Particularly relevant to our hypothetical is that the evidence burden for rent increase matters is always on the tenant, who must show that the disputed increase is in fact excessive. We say that where an increase exceeds the CPI - as would be the case in our scenario - the burden should be on the landlord to show that the increase is not excessive. This would put our tenant on much safer ground, and prevent increases of dubious merit from happening.

We note finally the the price tool may also struggle outside the confines of the city, though for different reasons. With far less data, both area and property-specific, available for regional housing, it's not hard to see that the program will produce estimates based on very little information. This is likely to produce further anomalies and inconsistencies, and therefore arguments of its own. 

Read the Tenants' Union's full submission on reform to rent increase provisions here.