2018 Renting World Cup - Group Stages

Australia has been performing better than expected at the FIFA World Cup in Russia and we've been watching, cheering and hoping we'll find a path out of the group stages. But how would we perform if countries were being judged on the way renting works in each country? We decided to try and find out!

There is not a lot of information for many countries in the World Cup, so sources are a little sketchy. We apologise in advance for any errors. For a more serious comparison of Australia to other countries, check out this recent AHURI guide. We've based the group stages on the rating given by property investor website Global Property Guide, which judges almost all 32 countries on a scale from "Extremely Pro-Landlord" to "Extremely Pro-Tenant". We have converted that to a number scale of 1 to 5. For tie breakers we've referred to the amount of public housing in the country. The full groups stage list is here. We don't necessarily agree with every referee's decision here, but that's the fun of sport!

Click for full-size!

Here is each group, zoomed in for easier reading.
Group A: Russia and Egypt make it through, leaving Saudi Arabia and Uruguay behind. Russia with a strong public housing presence looks like they may go far in the tournament.

Group B: Spain was the clear winner out of this group, with Iberian rivals Portugal only a point behind. Morocco and Iran both left to consider whether pro-landlord systems was the right playbook.

Group C: Denmark and France dominated this group, with Australia left at the bottom of the group behind Peru. Hopefully in 4 years time we'll have sorted some of the problems that kept us down this time!

Group D: Iceland and Croatia shared top spot in this low-scoring group, Iceland taking the number one spot with a relatively high 12% public housing. The group also saw the first 1 - Extremely Pro-Landlord score for Nigeria. The country actually has some strong protections on paper, but they fail to deliver when it matters.

Group E: 3 teams competed for the top spot in this pro-tenant group, but Serbia and Switzerland's higher public housing meant they edged out Costa Rica. Football powerhouses Brazil were left in last place with very few protections for tenants.

Group F: Sweden dominated this group beating out the more famously pro-tenant Germany for top spot. Mexico equaled Germany's score but Germany scraped through to the round of 16 with a higher public housing. South Korea was left behind perhaps judged unfairly for their unusual jeon-see system which sees tenants pay rent for 10 years up front.

Group G: Belgium easily won this group, with England only just holding off Panama and Tunisia. England managed to scrape through on their significant public housing numbers, but with this stock under threat, will they do the same next time?

Group H: Poland and Colombia were lucky to make it to the next round in another low-scoring group. Senegal managed to beat Japan to avoid bottom of the group status. Japan has fallen a long way since the turn of the century with GPG moving them from pro-tenant to extremely pro-landlord in the last two decades.

See you next week for the finals, tenancy fans!

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NSW Budget week 2018: Ain't nothin going on but the rent?

With $3.9 billion surplus, this week the government splashed out with a budget they described as one 'for everyone'.

If only it were true. In reality it is very much a decision to keep on the same path when it comes to housing, and that's really a decision to help property investors at the expense of the rest of us. As Professor Peter Phibbs points out in one article there is little support for people renting on lower incomes:

“If you claim to be pushing a people’s budget, they’re the people that are in pain,” Mr Phibbs said.
“If you’re someone aged in your late 20s the fact house prices have gone up more than 70 per cent means that even if they have come back 5 per cent, you’re still not going to be out there celebrating,” he said.
“The state government has made a fortune out of stamp duty … they should be investing more of that money back into the supply of housing.”

Since we're talking about that fortune, now is a good time to think about whether stamp duty should continue to be relied on as a revenue stream. The budget papers described stamp duty as a “highly volatile revenue source” and numerous people, including the NSW Treasurer, accept that there are better alternatives - such as a broad-based land tax, the fairest tax.

We need a good supply of housing which is truly affordable to those that need it most. The Government's current plan which mostly centers on transferring public housing to community housing and the private market is not sustainable. Though it might be true to describe NSW's Communities Plus as Australia's largest social housing building program, this is more of an indictment on the country as a whole rather than something for NSW to be proud of. Public housing remains one of the best investments a government can make. Community housing can and should also be expanded, though this should not be at the cost of a well-run public housing system.

There is a clear need to shift from a reliance on property ownership to house the population. An innovative and forward-looking government, flush with cash earned from a property boom that creates winners and losers, should also be exploring ideas like expanding and encouraging community led housing models like co-operatives.

While nothing much happened for housing in the Budget, plenty happened in and around parliament  this week.

On Wednesday, the day kicked off with a renter's rights assembly out the front calling for an end to no grounds evictions.

Later that day inside the Lower House, debate began on the government's short term holiday lettings bill. The TU was mentioned a couple of times, with the ALP's Shadow Minister Yasmin Catley and Alex Greenwich both referring to concerns we have with the current proposal and flagging amendments.

On Thursday two things of note happened in parliament. The government introduced a bill to apply a range of new and harsh measures to public housing tenants, including bonds for public housing tenants. Minister Goward went on TV in the evening to repeat the claim that public housing is a privilege not a right.

Ch 7 News, 21/06/2018

However earlier that day NSW parliament had passed the following motion, introduced by the Greens MP Jenny Leong, and with members of the Coalition, Labor, and independent Alex Greenwich speaking to it:

The Hansard for the motion is well worth a read.

On the one hand we had a budget that did little to alleviate the housing crisis, and social housing legislation proposing to make life much more difficult for the people government is supposed to be assisting. But there are positive signs of changes afoot. We have a parliament who has officially recognised that housing is a human right and that it is government's role to ensure safe, secure habitable and affordable housing and a growing movement to ensure they deliver.

A longer lease on life: issues for older renters

With a surplus of $3.9 billion for 2016-17, the 2018 NSW State Budget had its winners and losers. The latter include seniors and renters. This blog examine some of the issues confronting older renters.

How does one define 'older person'. There is a helpful discussion of the definition of 'age' in the Australian Law Reform Commission's Discussion Paper on 'Elder Abuse'. Paragraphs [1.33] and [1.36] read:

The idea of someone being an ‘older’ person is a relative concept — chronologically, medically and culturally. It does not have a precise definition and specific ages may be used for particular purposes. For example, the Australian Bureau of Statistics (ABS) groups people into population age cohorts, and differentiates between ‘15 – 64’, ‘65 years and over’ and ‘85 years and over’. People over 65 are generally classified as ‘older’ for ABS purposes.

Family and Community Services’ NSW Ageing Strategy 2016-2020 (pp 26-28) identifies older people’s ability to live in affordable, accessible, adaptable and stable housing as a priority of the NSW Government. It asserts:

... older people increasingly prefer to ‘age in place’ and grow older in their own communities – close to friends, family and services.

The NSW Government does not have an explicit ‘ageing-in-place’ policy. Certainly, it would be worthwhile implementing an explicit policy and, further, establish benchmarks against which wider Government policies can be measured regarding consistency. The value of this will become obvious further into this blog.

Nevertheless, a number of significant documents commissioned as part of the NSW Ageing Strategy refer to it, where a basic principle underlying it being that older people know what is best for their own lives and have the right to make decisions on their own behalf. An ‘ageing-in-place’ friendly policy provides the incentives for individuals to remain living in a community to which they have a strong attachment, either in their existing residence or alternate accommodation, with service supports.

Dire circumstances

Alan Morris’s book entitled The Australian Dream: Housing Experiences of Older Australians draws on the stories of 125 Australian pensioners and compares their experiences with the trends and needs of an ageing Australia. He probes the growing divide between older private renters, those who live in social housing and pensioners living in their own home. Here's an excerpt about private renting:

It's like a pressure cooker. You don't know where to go or what to do.' ... 'It was so desperate, the search for affordable accommodation, that I went down with a heart thing and was rushed to hospital.

On 26 October 2016, quoting from Alan Morris's publication, Jennifer Duke says that at least 100,000 older Australians in the private rental sector are living in 'dire circumstances' ... and this figure is expected to grow substantially if current policies and approaches to housing affordability aren’t changed.

On 12 December 2016, Alan Morris penned an article for The Conversation entitled ‘Why secure and affordable housing is an increasing worry for age pensioners’. He writes:

An increasing proportion of older Australians on the age pension will be dependent on the private rental sector in coming decades ... and the prospects for this group are grim.

An increasing number of older women in the private rental market face homelessness and have been described as ‘the new face of poverty. Read an article called ‘Older renters: the new face of poverty’. It reads:

The evidence mounts. The number of older, single women in the private rental market increased by a massive 50 percent between the 2006 and 2011 ABS Censuses.

The private rental sector across Australia has grown in size and significance in the last 30 years. Between 2001 and 2010 about 1.7 million Australians dropped out of home ownership and shifted back to renting. More than one in three did not return by 2010.

Private rental now provides long term tenancy for a growing and diverse number of Australian households. If large numbers of long term renters aged 45-64 years remain in the rental sector, they could swell the number of long-term private renters aged 65 years and above quite substantially in the coming decades.

Many older women experiencing a housing crisis or homelessness have led conventional lives and never previously had a housing crisis. As private renters, especially in tight housing markets like Sydney and some regional centres, they are at great risk of unaffordable rents, insecure housing, eviction and homelessness.

Also, an excellent essay by Anwen Crawford picks up this same theme. She writes about 'Nowhere to go – older women and housing vulnerability’ and finds:

The number of older women who are rental tenants in Australia is growing, and these women ... are increasingly vulnerable to poverty and homelessness ... Housing affordability and security for rental tenants will only become a more pressing issue as Australia’s population continues to age. And with more people unable to afford to buy a home, changes to housing policy now will help to determine the living conditions of tenants in the future.

2016 Census

The 2016 Census found a significant increase in the number of people renting in New South Wales. Indeed, there was a slight shift away from home ownership towards renting. There were 826,922 renter households at the 2016 Census, which was 83,870 more than there were in 2011. To put this into context, that's almost double the increase we saw between 2006 and 2011. It also means our renting population has gone up in percentage terms since 2011, too - from 30.1% to 31.8% in 2016. It also means that more people are renting for longer. Read more here. On top of this, Australia’s population is ageing. Those aged 65 years and over now account for 16% of the total population, compared to 14% in 2011. The median age has increased to 38 years, after remaining at 37 years for the past decade. Read more here.

Following the release of the 2016 Census, there have been a number of reports highlighting the problems of life-long renters.

In March 2017, The New Daily examined the most recent population statistics. Australia is ageing and life expectancy is greater. The stats show that from 2012 to 2016, the proportion of the Australian population aged 65 and over increased from 14.14 to 15.27 per cent.

Kirsten Robb writes: 'Life-long renters face financial stress in retirement'... according to a paper by Swinburne University, which found more Australians are renting in retirement and facing financial stress. The report that she refers to is one by Andrea Sharam, Liss Ralston and Sharon Parkinson of Swinburne Institute for Social Research. They found:

The proportion of aged persons in Australia is set to increase significantly, posing many challenges. Amongst these is the growing number of households who lack housing security in retirement. ... Our findings indicate that social change, and adverse ‘critical life events’ have significant impacts on households by and at midlife, and beyond. Of particular concern is that the housing market itself is a key source of wealth accumulation and dispossession. A very marked outcome is that to be private renter at 45 years of age is likely to mean being a renter and highly impoverished, in retirement.

Teresa Somes of Macquarie University writes for The Conversation: 'More and more older Australians will be homeless unless we act now.'

Eileen Webb and Gill North write: 'Suitable, affordable housing is key to our population ageing well'.

Ben Phillips of the Australian National University writes for The Conversation:

... the more pressing social problem for Australia remains the lack of affordable rental housing for lower-income families that is close to jobs and services in our capital cities. ... An ageing population with potentially lower home ownership rates will add to this problem in future years.

And Ned Cutcher of Shelter NSW writes that more people are renting much later into life.

More recent media

You will find recent media coverage, reports and publications on older renters in this document.


What is the reality for older renters?

Various words have been used to described the plight of older renters: Overlooked, A distinct financial disadvantage, Condemned, Vulnerable and Financial stress … and that’s just for starters.

As discussed above, there are many issues confronting older renters. So here's my summary:

• Shortage of affordable housing in well serviced locations. True for all renters, but compounded if you are older ... Check out Anglicare’s annual rental affordability snapshot ... and National Shelter’s Rental Affordability Index, published in May 2018.

• Weak security of tenure. True for all renters, but compounded if you are older ... check out Choice’s publication entitled ‘Unsettled’. Read about it and find a link here. Also, check out the ‘Make renting fair’ campaign. Indeed, Australia fairs poorly in an international comparison of security of tenure for renters.

• Only token acknowledgement of ‘ageing in place’ ... The redevelopment of old public housing estates poses real hardships for many older tenants. The forced relocation of residents of Millers Point in inner Sydney highlights the failings of Government when only lip service is given to ‘ageing-in-place’. Read the blog in The Brown Couch here. In 2015 and 2017 the Tenants' Union of NSW made submissions to Elder Abuse Inquiries of both the NSW Legislative Council and the Australian Law Reform Commission (ALRC) here and here. We argued that a government policy, in itself, may constitute a form of elder abuse. We submitted that the NSW Government’s decision to relocate all the social housing tenants in the suburb of Millers Point is an example of systemic elder abuse.

• Restricted access to home modifications ... private landlords have little incentive to modify properties to suit the needs of older tenants. Older renters are forced to move as dwellings are no longer appropriate to their needs and residential tenancy legislation fails to adequately address this. Here’s the current state of play.

• Residential land lease communities (also called ‘residential parks’) as an alternative for older people ... Today business is viewing residential parks as money-making ventures, with some being promoted as an alternative to retirement villages. But, homes in residential parks, once seen as a cheaper option, now are regularly sold for amounts over $300,000. Indeed in 2016, two on the North Coast of NSW sold for over $1 million. Residents may own their home, but they do not own the land and remain vulnerable should the park be sold from under them.

• Pets is an issue with particular meaning for older tenants. Check out this site. Recently, there has been increased media coverage of this issue in Australia. Read Wendy Squires’ article called 'Landlords, have a heart and let your tenants have a pet'. The Tenants Union of NSW wants to see the decision to keep pets to sit with the tenants rather than the owners.

What can we do?

For an excellent discussion on what to do in order to address the more dire needs of older renters, check out the 'Ageing on the Edge’ report released on 29 November 2017. It contains thirteen recommendations that the NSW Government can act on now. The Tenants’ Union of NSW is represented on the ‘Ageing at the Edge’ Working Group in NSW. You will find a summary of the report here and the full report here.

Postscript on 26 July 2018

Here's three new links which are food for thought ...

Allison Worrall writes: 'Choice of food or rent: Housing crisis deepens.' Read her article here.

Isabelle Lane writes: 'Older Australians are falling off the housing ladder and face spending their retirement as renters, with the situation expected to worsen for coming generations.' Read her article here. You may check out Grattan Retirement Incomes Model (GRIM) here.

AHURI provides an excellent analysis of the situation facing older low income tenants in the private rental sector. This link also points to some current research. Check it out here.

The numbers near the end of the Millers Point struggle: 28, 42 and 200 million

Backyards in Kent Street, Millers Point: Mrs Mac feeding cats, washing blowing on the line, 1985 © Susan Dorothea White

Our title juxtapositions the numbers 28, 42 and 200 million! What is the significance of these numbers? Well, these are the end days of the Millers Point struggle and, in a recent article, Patrick Begley (The Sydney Morning Herald, 11 June 2018, p1) headlines his electronic copy: 'Sally has 28 days to leave her home of 42 years.' But he uses a different heading in the hard copy: '$200m bonus from Millers Point sale'. Let's tell the stories behind these numbers.

28 and 42

In March 2014, the NSW Government decided to evict all the social housing tenants in Millers Point and the Sirius building in The Rocks. To date, 578 tenant and household members in 398 tenancies have been forced to vacate their homes, with one lone surviving tenant. On 7 June 2018, the Supreme Court ordered this tenant, Ms Sally Parslow, to vacate her home within 28 days (by 5 July 2018). Having rejected Ms Parslow's claim to a life tenancy on her home, Justice Guy Parker found that he had no option but to give her only 28 days to vacate her home. (See Paragraphs 203 to 207 of his published decision.)

The time period of 28 days is a by-product of the Government's anti-social behaviour legislation. The short time period is due to the operation of s154G of the Residential Tenancies Act 2010. This section was an amendment which formed part of the Residential Tenancies and Social Housing Legislation Amendment (Public Housing - Antisocial Behaviour) Act 2015, but it flows on to all social housing (including community housing) tenants before a court or Tribunal, even though their eviction has nothing to do with anti-social behaviour. This section requires a possession order to take effect in 'no more than 28 days', unless there are 'exceptional circumstances justifying a later day'. At law, the words 'exceptional circumstances' have a very high bar. This phrase occurs nowhere else in the Residential Tenancies Act 2010 nor its Regulations. It is most commonly used in criminal law matters.

The home had been Sally's for 42 years but speaks to the much longer history of the area and property Sally lives in and others in the area. The judgment describes the history in some detail, and is worth reading. Briefly, the home had been built between the 1840s and 1860s as accommodation for wharf workers. At the turn of the 20th century the government acquired the properties and for nearly a century, first under the Sydney Harbour Trust and later the Maritime Services Board, there were 60 boarding houses run as commercial enterprises. People like Sally used the premises as their home, but also took on both management and risk of running the business. Here's the story told by one daughter of Millers Point. The cost of building the premises never touched the government purse, and even maintaining the premises was with the resident boarding house operators like Sally until 1985.

$200 million

At today's date, there had been 180 sales raising $570.7 million, plus stamp duty of $30.8 million. You can check these sales here. In keeping with requirements outlined in the Government Information (Public Access) Act 2009, NSW Property keeps a record of all contracts, including property sales over $150,000 in a Property NSW Contracts Register. These are published and details must remain on the register for 20 working days, or until the contract is complete, whichever is longer. Go to here and click 'PNSW - Government Contracts Register'.

Altogether, 26 properties are still to be sold. 16 properties (comprising 4 sales) in High Street are currently on the market. A further 2 properties in Lower Fort Street are yet to be placed on the market. 8 properties (comprising 2 sales) in Dalgety Road apparently have been withdrawn from sale. The Sydney Morning Herald article refers to 'a final 11 lots are due to be sold this year, including the historic apartment building Sirius'.

In November 2015, the then Minister for Social Housing, Brad Hazzard, set aside 28 properties for remaining tenants and household members.  By late February of this year, 21 were occupied by 19 tenancies. Of the remaining 7 units, 1 is on hold and 6 remain unallocated. The Government will receive a big thank-you if it gives some of the previous residents, who were relocated but now isolated and lonely, the option of taking up the unallocated units.

But Millers Point has changed forever 'from struggle street to billionaire’s row'. You can read the promotions for the 'Workmen's Dwellings', one of the refurbished block of apartments, here (Domain: New Living, The Sydney Morning Herald, 18-19 May 2018 pp 14-15).

A conservative estimate of the total funds from sales to date (which excludes the Sirius building and 28 units where sales have been deferred) is $596 million. The real estate industry estimates $120m plus from the sale of the Sirius building. This provides an estimate, all round, of $716 million. Patrick Begley writes:

When the government announced in 2014 it would sell off social housing in inner-city Sydney, it predicted sales of about half a billion dollars. But Justice Guy Parker, summarising evidence from two [NSW Land and] Housing Corporation witnesses, found "the revised estimate is that $700 million will ultimately be received."

(This quote comes from Paragraph 145 of the published decision.)

You can check an update of FACS Housing webpage for how the proceeds have been spent. We previously wrote an article about delving behind the figures for new social housing dwellings here. Hal Pawson from the City Future's Research Centre at the University of NSW provides a critique, arguing that Housing NSW is overselling its social housing commitment. You can read his analysis here. He concludes:

Thanks to the property boom of the past few years, government has enjoyed a massive revenue bonanza through stamp duty income ... the actual stamp duty income recorded in recent years has amounted to a windfall of no less than $18.25 billion in excess of that “counter factual” revenue. And yet none of this booty has been channelled into expanding social and affordable provision ...

Returning to the title of this article. The Supreme Court gives the sole surviving tenant of Millers Point 28 days to vacate, after 42 years in her home and the Government stands to exceed its expected takings by $200 million. Millers Point changes forever. New social housing dwellings are being built using these monies, but in nearly all cases, they are not close-by. None of the Government's bonanza from stamp duty income has been channelled into expanding the provision of social and affordable housing.

Thankyou to Susan White for kindly allowing us to use her watercolour and pen print called 'Backyards in Kent Street, Millers Point: Mrs Mac feeding cats,washing blowing on the line'. 

The bond is too damn high

Paying the bond is a real hardship for many tenants. Tenants move on average every 2 years, and for many its much more frequent than that! NSW Rental Bond Board data shows of tenancies ending in 2016 and 2017 more than 50% of tenancies ended after less than 18 months, and a full third ended in less than 1 year. That is a lot of people moving home!

To make matters worse, there is often a cross over period between tenancies where a renter has had to pay a bond on the new place, before the bond from the previous home has been released. Tenants also run the ever-present risk that an agent/landlord will make a claim on their bond - whether or not there appears to be any merit to the claim.

However, it is also important to note that the stats suggest that most tenants receive their bond back in full, or with very minor payments to the landlord. Over the two years 2016 and 2017 there were more than half a million bonds released from the Rental Bond Board - 57% of them returned to the tenant in full and 75% of tenants received more than half the bond back.

Of the bonds where some amount was claimed by the landlord, 41% were for an amount of less than $500.

Several companies have recognised the issue of bonds as a pain point for tenants and are pushing the boundaries of the law and math to try and work out how best to insert themselves into this process. For people who don't have the money for the bond there are currently pay day lenders, bond loan specific companies, and bond insurance products. Now come bond “surety” (or “guarantee”) products where the company promises to pay the landlord if there is a compensation claim at the end of the tenancy. Though not technically loans they function in the same manner - you have money in your pocket that you would not have had before, and you pay fees which effectively constitute interest on that amount.

Some bond surety companies have even attempted to promote themselves as a response to housing affordability. The ACT government has apparently rushed to allow at least one such company, Snug, to operate their BondCover product, to the dismay of some in the territory. We examine Snug’s BondCover in a companion piece also published today looking at whether BondCover works well for tenants. In this piece, we’ll focus on the broader issues raised.

Are bonds a tax?

Snug has taken to pointing out recently that bonds are an extra tax on renters. This is true. Bonds do create a kind of tax - but they are levied by landlords who require their payment as a condition of securing a home. While their stated purpose is to act as an assurance for the landlord, the effect of that payment is to cost the tenant the potential benefit of doing something else with the money. As bonds are refundable, strictly speaking the tax is 100% of the potential for using that money for something else rather than the bond itself.

These are known as private taxes – a cost which someone with no alternative is forced to pay to a private entity. For a further introduction to the concept of private taxes, we recommend this article on the subject from economist Philip Soos.

It is clear to us that Snug’s BondCover makes this private tax burden heavier, not lighter. The current rental bond board system doesn't solve the problem, but does change the private tax to something approaching a public one, which allows the benefit of the tax to be shared beyond only the landlord.

Snug's BondCover seeks to convert this back to a private tax, with the benefit mostly flowing to them. In the companion piece we meet a tenant, Jen, who finds that she is even worse off than if the landlord kept the bond themselves - here is a simplified version of a chart showing by how much Jen is worse off if the bond is in the Rental Bond Board or under BondCover.

So what does this bond tax currently pay for? The Rental Bond Board in NSW has $1.4 billion in bonds, which is then invested in a portfolio by TCorp, NSW Treasury’s investment arm. The interest the Bond Board earns on these bonds is spent on various aspects of infrastructure around renting – mostly Fair Trading NSW’s tenancy-related activity such as administering the Rental Bond Board, and administering complaints as well as funding the tenancy-related parts of the NSW Civil and Administrative Tribunal.

A small portion (about $6million a year) is used to partially fund the Tenants’ Advice and Advocacy Program which assists more than 25,000 tenants a year, and we at the TU receive some of that funding for our role in supporting the services.

We might spend the interest earned on tenants’ bonds differently if it was up to us. There are legitimate questions about the benefit tenants receive from this investment. But it is unquestionably better value than the traditional alternative which gave all the benefit to the landlord. Giving it and more to Snug instead doesn’t seem a better deal for renters.

Tenants will generally be distinctly worse off. Rather than the landlord demanding a fully refundable bond paid to the Rental Bond Board which costs the tenant potential interest, BondCover is an non-refundable amount which costs the tenants both actual fees and potential interest.

So, are there any other ways to reduce the hardship caused to tenants by bonds?

The NSW state government, and other state and territory governments, already has a solution available to them. For several years now, people who are eligible for social housing have been able to pay for their bond in installments over 12 months or more on an interest free loan.

Word from Family And Community Services who administer the program is that this is a highly successful program. It is a low cost, high impact program that effectively reduces the strain on households during their too-frequent moves.

We could consider this a pilot program, and expand its eligibility to every tenant in the state. Most tenants will not need it, but for those that do, it would be a very simple solution. With modern application processes the administrative costs for government are minimal and even if they are passed on to tenants it would be at a fraction of the cost of Snug. Fair Trading NSW could even use the money already sitting in the Rental Bond Board accounts to cover the loans – a true win-win.

Of course, we could also reduce the number of moves by ensuring the private rental market is not the insecure nightmare many experience (by the way, we've got a pretty good idea how to make that fairer too) – or even expand our public housing stock to ensure everyone who needs a home, has one.

Now that would be a real market disrupter.

Disclaimer: As discussed in this piece, the Tenants' Union of NSW receives some funding from the interest the Rental Bond Board earns on tenants' bonds. Details of what the bond interest money is spent on are detailed in the Rental Bond Board's annual reports.

Does BondCover have you covered?

In this article we take a look at a product known as bond surety, or bond guarantee – Snug’s BondCover – and whether it is a good deal for renters. The ACT government has apparently made regulation to allow Snug and other products lawful in that territory, to the dismay of renting experts there. See our companion piece also published today which discusses the rise of these products and offers some ways of thinking about the issue of bonds.

What is Snug’s BondCover?

In Snug's BondCover model the landlord agrees for there to be no 'bond' for the tenancy. Instead, the tenant pays between 5% and 9% per annum fee either as an annual, monthly or weekly fee to Snug (along with an initial administrative set up fee). In exchange for that fee Snug issues a certificate guaranteeing to the landlord that if there is any breach at the end of the tenancy for which a bond claim would ordinarily be made, Snug will pay it out.

To receive coverage by Snug, they must judge you as having a good tenant history and the landlord must also agree to the arrangement.

At the end of the tenancy, if the landlord makes a claim which the tenant doesn't agree with and it's under $500, Snug will assess the claim by the landlord and pay out if they think it's appropriate. It is not clear what expertise Snug has in assessing these kinds of claims. They are backed by IAG insurance though in our experience insurance companies aren't necessarily well-versed in tenancy law either.

If the landlord’s claim is over $500 the landlord will need to make an application against the tenant in the relevant court or Tribunal (in NSW the Civil and Administrative Tribunal or NCAT). Snug will pay the landlord according to the orders made by the Tribunal.

If Snug pays out to the landlord, they will attempt to recover the money from the tenant. If the tenant disagrees with Snug's assessment for under $500 Snug would need to take the tenant through the Local Court. Dealing with disputes in the Local Court tends to be more costly and difficult than dealing with disputes in the Tribunal – which is designed to be more accessible and less formal for tenants.

We understand the Snug contracts attempt to ensure that if they pay out money to the landlord you will owe them the money, even if it can be proven that they paid out incorrectly. For instance a landlord might apply to the Tribunal and be successful initially, but after Snug pays out the Tribunal decision might be overturned. It will be interesting to see how that pans out in practice.

Snug's selling point for tenants is that they will have their money in their hands, to do something more productive with it. Snug asked its potential customers what they would do with the money. 68% said either save or invest. 6% said spend it on a holiday. The other 27% of responses weren't made public.

Material on Snug’s Facebook page appears to encourage people to spend their bond money instead on very risky investment strategies like trying to find the next Amazon. This would be astonishingly poor financial advice for anyone who needs to be concerned with the affordability of their housing.

There are some transparency issues with Snug’s product. When using the example given on Snug’s website (a bond of $1,500), two different prices are given for the same bond amount. The first, static pricing example says $110 for a 2 bedroom. But when you start getting a quote in the second its jumped up to $140 for a 1 bedroom. We haven’t attempted to gain a full quote.

The fee is between 5-9% which is really a large range. It would be good if there was some transparency on how these fees are actually calculated. Clearly the number of bedrooms makes a difference. What else does?

The fee reduces over time as various loyalty bonuses are applied - but note the fine print: you appear to start with an all new administration fee and the higher cost, except for a 5% “no claim” discount, with each new property.

So is Snug’s BondCover worth it?

Let’s take the example from the website and use the example of a $1500 bond for a 2 bedroom apartment that a tenant, let's call her Jen, is going to move in to. To give Snug a bit of help, let's also assume we know Jen is going to get to stay for 3 years (a very long period for most tenants at present – only about 20% manage to stay for 3 years or longer). Jen takes her $1,500 and instead of putting all of it in the Rental Bond Board, she gives $110 of it to Snug. Now she starts the tenancy with $1,390 in her pocket. How much would Jen have to earn on the $1390 to avoid being worse off with Snug?

Assumes interest compounds daily, and tax is paid on interest earned at 2017-18 rates on additional income for a lone person household earning $60k pa - just under the income needed for rent to be considered affordable at $375 per week

After 3 years, Jen would have needed to have achieved returns of 8% a year just to cover the snug fees. In various parallel universes, some Jens who put their money into managed investment funds tied to the stock exchange will have achieved that – but many won’t have. They aren’t at all reliably performing at above 8% returns per year. The Jens who kept their money in high interest bank accounts would be topping out at about 3% pa at the moment, so those Jens are more than $100 worse off. The 6% of Jens who went on holiday effectively paid $223 extra for their tickets.

To explore the issue fully, we also ran the numbers where Jen would be with the money without having to pay a bond at all, and if the landlord held the bond (as they used to before the Rental Bond Board was implemented).



Jen is actually worse off in terms of productive use of her $1500 using Snug than just handing the whole bond over to the landlord.

Who is the real customer of Snug’s BondCover?

So, apart from Snug, who really benefits from this BondCover scheme? Ultimately, BondCover will need to be of benefit to either landlords or their agents if Snug is to run a successful business. It is landlords, not tenants, who choose whether a bond is taken and thus whether BondCover is required. Consider - if a landlord says they want BondCover and the tenant says they don't, the tenant might choose not to move in but you can be pretty sure someone else will. If the tenant says they want BondCover and the landlord says they don't - then there is no BondCover for that tenant.

You might think it could prove difficult to convince landlords to trust a start-up merely promising to have cash available, since landlords already have ready access to cash set aside specifically for the purpose of reimbursing them for any costs at the end of the tenancy. There are two clear advantages for the landlord and their agent.

Unlike a Tribunal member, Snug needs to consider its relationship with the landlord in order to ensure return business – the customer is always right and in this case, landlords are the real customers, even though they are making tenants cough up to pay for it. There will be a real incentive for landlords to make even more claims that come in just under $500, since that avoids the need for Tribunal scrutiny. Even if the claim is unsuccessful it saves real estate agents and landlords both time and money. We would expect to see more, not less, claims made on tenants’ bond money.

The second is that it appears Snug now pays referral fees equal to the first year's fee to real estate agents who sign their landlords up. This has code of conduct implications for real estate agents who need to disclose this kind of payment system in NSW, but it certainly could be enough to grease some wheels.

Is BondCover legal?

No. Not in NSW.

You don’t even need to take our word for it. The Snug website claims that BondCover is legal in all states where it is offered. It isn’t offered in NSW, and there’s a lobbying attempt to have government change the law, so you can be pretty sure it isn’t legal here.

There appears no good reason why a government would make a product like this legal – the math just doesn’t work out for tenants.

Disclaimer: As discussed in the companion piece, the Tenants' Union of NSW receives funding from the interest the Rental Bond Board earns on tenants' bonds. Details of what the bond interest money is spent on are detailed in the Rental Bond Board's annual reports.