If you’ve ever navigated the rental market as a tenant, then you would be all too familiar with the steps involved - from property viewing, application, reference checks and approval. It’s a lengthy process that can leave prospective tenants pulling at hairs, especially with the rental market being as tight as it is today. Recently, comedian Tom Cashman conducted an experiment to flip the script and showcase the addition of another step, this time attempting to place some power at the hands of the prospective tenant.
Having had several negative renting experiences in the past, Mr Cashman put the question to a Sydney real estate agent following property approval asking if the property owner could provide references from previous tenants confirming the owner was a good landlord. Confused, the real estate agent rebuffed the request, stating the owner was no longer in contact with past tenants and was under no obligation to contact them. Mr Cashman later received a notification to inform him his approved rental application had now been withdrawn.
For renters, providing references is a requirement to help the landlord determine if you are dependable and ultimately can be trusted. So shouldn’t renters expect the same from a landlord?
Tenants Union of NSW CEO Leo Patterson Ross said although uncommon, asking for a rental reference from a landlord is a perfectly legal thing to do in the same way that landlords ask this from tenants.
“The interesting discussion is that while there is no requirement to provide, it is perfectly reasonable for people to want to know about the person they are entering into a contract with,” Mr Patterson Ross told Your Investment Property Magazine.
“Most tenants don’t really have that many choices as it is a landlord’s market, meaning the real estate agent and landlord have many more options to choose from than the tenant does.”
With REA's PropTrack Rental Report for January 2022 revealing rental prices are 10.5% higher year-on-year, Mr Patterson Ross says it can be in the tenant’s best interest to ask for a reference because at the end of the day they are going to hand over thousands, if not tens of thousands of dollars in rent over the life of the contract.
“We don’t often talk about rent as an annual figure, so it’s a wonder we don’t talk more about asking landlords for some form of certainty to confirm their reliability as it’s a significant expense,” he said.
Mr Patterson Ross says there has long been this fallacy that landlords and tenants are on opposite sides of political boundaries, so to overcome such tension, he believes it’s about how we create a system where information is being shared between landlords and tenants, encouraging appropriate property investing.
“There have been attempts at review sites, where tenants would rate the landlord on a scale, but it doesn’t work as there is generally only one tenant in a property at a time and by the time the property is up for rent again, the review is out of date,” he said.
“For a landlord wanting to get references, it’s about building rapport and having a social contract within the community, yet you’ll find people don’t like to put themselves and their reputations on the line.
“It’s important to note a lot of money could be made from alternative investment methods like shares, so landlords need to understand what they are providing in terms of stability through housing is an investment to society.”
Despite the attraction for immediate returns from the likes of shares, ETFs and cryptocurrencies, Head of Finance and Wealth at the ABS Amanda Seneviratne said investor lending has seen growth over the past 14 months and accounted for around one-third of the total value of new housing loan commitments in December 2021.
“The total value of new investor loan commitments rose 2.4% to a record high of $10.3 billion in 2021, with strongest rises in investor loan commitments recorded in Victoria up 3.4%, New South Wales up 1.1% and the Australian Capital Territory up 10.4% with all other states falling,” Ms Seneviratne said.
Industry head not opposed to references
Real Estate Institute of Australia President (REIA) Hayden Groves told the ABC landlord references are not something property managers typically receive, but agreed with Leo Patterson Ross that they are in fact reasonable.
“It’s quite a reasonable request for a tenant to get a feel of how the landlord is,” Mr Groves said.
“For example, the tenant might like to know if they are popping in all the time unannounced, purporting to be looking at the garden, things like that,” Mr Groves said.
Scotland recently implemented a landlord licensing scheme, mandating landlords obtain a licence from their state body at a cost of around $120. Such a scheme provides the Scottish Government with an indication as to how many landlords are in the market. Further, tenants can see if there are documented issues with their landlord, yet most importantly it contains a component of education to bring a greater level of professionalism and awareness of standards to the role of being a landlord.
Closer to home, Victoria passed legislation in 2020 launching a rental non-compliance register which enables Victorian renters to check whether a rental provider or agent has been handed a compliance or compensation order for a breach of Victoria’s Residential Tenancies Act or been convicted of an offence under the Act.
Despite this, Mr Groves says the system of landlord references should not be formalised here in Australia as he believes it would place real estate agents in a difficult legal and ethical position, given they are required to act in a landlord's best interests.
“Tenants' rights are already very well protected, so well protected in fact, that we're seeing landlords choosing not to buy residential investment properties in some jurisdictions because the weighting of residential tenancies laws that are too far in favour of the tenant right now,” Mr Groves said.
Extra pressure for already burdened property managers
Real Estate Institute of Queensland (REIQ) CEO Antonia Mercorella echoed the views of REIA President Hayden Groves, noting there is no reason tenants can’t request references about the property owner from previous tenants, yet they are certainly not common.
“This could be in part because in Queensland, nearly 90% of investment properties are managed by professional real estate agents, working as property managers, who act as the conduit or facilitator between the property owner and tenants. This means neither party is likely to interact directly with one another and therefore lessens the relevance of a landlord reference,” Ms Mercorella told Your Investment Property Magazine .
Given the cyclical nature of the rental market, Ms Mercorella says market conditions benefit the property owner, and other times, the tenant – however in either extreme, they add pressure for property managers who as a result, are currently in short supply.
“Due to historically tight vacancy rates being experienced across Queensland, property managers are receiving high volumes of tenant applications for each advertised property. While they would like to have a property for everyone, the sad reality of the situation is that only one application can be successful each time,” she said.
“In a competitive and busy rental market, while there is nothing stopping applicants asking for a property owner reference from previous tenants, it could add to the incredible administrative load of property managers, at a time when applications should be as easy to process as possible.”