Monday, May 1, 2017

Caveat Rentor - Tenants as consumers Part 1

Last month Jessica Irvine, senior economics writer for The Age and the Sydney Morning Herald, delivered the Ruby Hutchinson Memorial lecture hosted by the ACCC and Choice. It is worth listening to the whole speech as Irvine addresses the need for changes in housing, childcare and disability care. Today however, we'd like to extend and explore one of the most important lines of Irvine's speech.

"Renters are consumers too. They're consuming a service and they're getting a very poor one in many cases"

Jessica Irvine is absolutely correct - renters are consumers. However, a large part of the problem with our renting laws is that they consider renters to be just like other consumers. This means the legislation makes assumptions about relationships between landlords and tenants - as service providers and consumers - that lead to really unfair situations.

Part of the reason renting isn't like other consumer transactions is the scarcity of the service being offered. If you need some food, or some clothes, or white goods, you have many alternatives and probably a range of products to choose from. It is a rare grocer who only has one banana on the shelf, but tax data tells us about 70% of landlords only own one property, and 90% own two or less.

You might say "but there are over a million landlords, which means there must be over a million properties in the rental market - how can that lead to scarcity?" Even if we take all the properties as a whole, they are not all in the same place, of the same configuration, or the same quality. Remember the last place you rented? There is only one property like that property in the world. Whereas you could go to a competitor of your nearest white goods store and find another fridge just like the last one you looked at, you can't do that with a home.

The other factor is the importance of the service. It's much easier to make do when some of the food in your fridge goes bad, or you get a really bad rip in a pair of jeans, than it is getting by without a home. For instance, you have the right to a refund for a fridge if it's faulty. The shop or manufacturer might give you a new one (just like the old one), or the cash value of the entire purchase price so that you can go and buy a new one. This is true regardless of whether you bought it last week or 6 months ago. If your rented property is faulty you don't get an exchange or a full refund, because the landlord knows two things. First, there isn't another home in the warehouse for them to simply hand over. It will be significant effort on your part to find a new home. And second, you would generally rather stay in the faulty home than sleep on the street.

In many ways this is why our tenancy laws are so inadequate. Assumptions are made about the way parties interact which assumes a regular consumer - business relationship, and that all is required of the law is to "balance the interests" of these parties. But landlords are not like other businesses. They generally only own one or two rental properties, so they are not transacting with their "consumers" with much regularity. If they're really churning through tenancies they might be transacting on average once every six months or so, but given most tenancies last for at least couple of years it's likely to be far less frequent than that. They have no concern for branding, or public relations because they have so few interactions. They are not concerned about moving product because they don't really have much of it to move. They know their "consumers" need it so they don't even really need to promote themselves as a "business". Even their agents - who do provide a service but not for tenants - are more concerned about how landlords perceive them because of the low number of interactions compared to potential "customers".

Added to this, consumers in the private rental sector don't even have the same ability as other consumers to enforce their rights.  Imagine going to fast food restaurant, like McDougall's and they refused you service because one time you took their competitor, Starving Jill's, to the Tribunal for serving a mouldy burger. Bizarre yes? But this is exactly what tenants face:

Ultimately, we need tenancy laws that recognise that tenants are consumers, but at the same time that renting your home is a special kind of consumer service. Renters are consumers, but at the same time, they are families, workers, and community members. The inadequacy of the service is in large part due to the failure to recognise this dual role - which doesn't exist when you buy a new fridge or choose to eat a different type of apple. Changing this will mean having the courage to stand against the claim that the property owner's investment decision is more important than the tenants' home.

We also need to rethink the assumption that a landlord is not "in business" for the purpose of the Australian Consumer Law. There is need for a bit of guts to stand against the sad puppy-dog eyes of investors who are only too happy to receive the benefits of negative gearing (a tax deduction for making investment in your business), but not submit themselves to the consumer protection that should come along with it.

1 comment:

  1. It often seems to be the case that tenants are thought of as second class citizens, why is this? Is it because they don't make the grade as earners, their income too low to cast them as worthy (wealthy) citizens? These people can't afford to buy a home, why, because they are incapable of earning enough? This kind of discrimination isn't worth of a modern culture.
    Controls on rent prices are non existent, private enterprise (real estate agents and developers) set the price and encourage the rises in rents. Landlords are only to willing to comply.
    Shelter is one essential need along with food and clothing. The cost of shelter has risen out of all proportion to earning capacity.
    The only reason that we have need of social housing is because of uncontrolled greed.
    No politician has the courage and insight to back rent controls, that would be (shock horror) socialism! Or socially responsible.


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