Caveat Rentor 2 - Tenancy Economics

Today's post is a guest entry from our Principal Solicitor, Grant Arbuthnot. Grant has more than 20 years experience advising tenants, their advocates, and has worked for the Tribunal and community legal centres as well as the Tenants' Union. Here are his thoughts on tenants as consumers.

Economists and accountants both agree this joke stinks. 

The assumption a healthy consumer market has suppliers competing on price, quality and service for the business of consumers allows another examination of our rental market.

At present, there is a shortage of supply of affordable premises for rent. Competition between prospective tenants for available premises is understandable.

Consumers competing for the business of suppliers is not healthy. Consumer competition means that pricing favours the suppliers, and that quality and service are not significant issues.

Tenants might expect that once a tenancy has been secured the competition will cease. However, this is not the case. Sitting tenants compete with prospective tenants to retain their tenancy.

In a fixed term tenancy, tenants are aware that they can be required to leave at the end of the fixed term. Fixed terms are rarely greater than a year. In a periodic tenancy the vulnerability is present and constant.

This is because the law allows landlords to dispose of tenants without having to give a reason.

Tenants who demand contract performance by the landlord risk being replaced from the surplus of prospective tenants.

This is usually about repairs. It is the most popular breach of contract by landlords. The likelihood of receiving a termination notice (without grounds) is increased by demanding repairs.

It is not surprising that many tenants put up with expensive and substandard premises to avoid the stress, cost and inconvenience of having to move house.

Amending the Residential Tenancies Act cannot undo the problems of supply and demand. But abolishing no grounds termination can relieve sitting tenants of the constant competition with prospective tenants. They might even get some repairs done.

To find out more about how tenants are affected by unfair evictions, visit Make Renting Fair.

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.