Behind the scenes of Australia’s rental crisis: How decisions are made by landlords and property managers about what you pay

 In Home News Section, Uncategorized

Each time real estate agent Elizabeth Sargood sees a headline about a tenant being slapped with another massive rental increase, she braces.

The property manager of more than 20 years runs an agency in Sydney’s eastern suburbs, showing properties, securing tenants and managing maintenance requests.

But recently something else is taking up her time. Whenever there’s a story about another tenant hit with an increase in the hundreds of dollars a week, she returns to work on Monday to a backlog of calls.

On the other end of the phone, she says, are landlords asking — or, in some cases, demanding — they get a similar increase. “And then I’ve got to sit down with them, and educate them on how it works, and it’s frustrating because it takes up a lot of my time,” Sargood says.

Typically, however, it’s property managers who are keeping a close eye on the market and relaying to their landlord clients when there’s an opportunity for more money to be made.

Record-low vacancy rates across the country have created a gaping power imbalance between landlords and tenants. In the March quarter, all capital cities hit record highs for advertised house rents, according to Domain. And it’s not just those on the rental hunt that are feeling it; Australians already in properties are reporting widespread rental increases, often in excess of $100 a week.

These increases are harder to capture in data, as they are not publicly advertised, but the Australian Bureau of Statistics collects rental price data from property managers that better illustrates the toll of rent increases on existing tenants.

It found almost three-quarters of properties had experienced a rent increase in the year to February, up from about a quarter each year pre-pandemic. About a quarter of these properties had experienced an increase of more than 10 per cent.

While sometimes these increases are at the behest of owners — themselves grappling with rising interest rates and growing property costs — the property managers ABC News spoke to said that’s not the usual story.

Life of a property manager

Sargood sees her role as a go-between, skilled at managing the relationship between landlord and tenant, who may never meet. But she’s not acting on behalf of both parties equally.

“Ultimately, it is our job to work in the owners’ best interests,” she says.

Her role begins before the property is listed — by informing the owner what changes need to happen to the property to get it up to a listable standard, and ensuring that those things get done — and lasts until after the agreement is terminated.

When the property is up for lease, she screens applicants, checking rental history and that the rent they would be paying is no more than 30 per cent of their income. Once someone is in the property, she becomes the point of contact for any issues and is responsible for making sure both parties are acting in accordance with their legal obligations.

Owners pay for a property manager’s service through commissions that typically range between 5 to 12 per cent of the weekly rent (the percentage tends to be lower in areas where rents are more expensive). This means real estate agencies also have a financial stake in rents going up, if only a comparatively small one.

Despite this, Sargood is adamant that most property managers are eager to secure agreements that work for both parties while conceding that not all her peers are “Mother Theresa”.

Earlier this year, an email from Ray White Bondi, a Sydney real estate agency, to its clients advised that the quickest way to “achieve the maximum increase possible” was to evict long-term tenants, tidy up the property, and re-lease it at a higher rate, reigniting calls to ban no-fault evictions.

Months later, a Sydney landlord was referred to the consumer tribunal after they attempted to raise the rent on every tenant in an Eastern Beaches apartment building by up to 70 per cent, the Sydney Morning Herald reported.

“I do think that you can treat tenants with a level of respect, it doesn’t need to be an us versus them mentality,” Sargood says. “And I think that’s often the case, which is sad.”

Behind the scenes of a rent increase

Samantha Eason runs her own property management agency in Brisbane. Before a rent increase notice is issued, she says there’s a usual process to be followed.

It goes something like this: In the months leading up to a lease renewal, agents are keeping tabs on where the market is going. Then they’ll complete what’s called a “comparative market appraisal” — a search that looks at properties of a similar quality, of a similar size, with similar amenities in the same area and the rate they are going for. From there, they establish the median price range.

“If you’ve done your job in the last 12 months, that shouldn’t be a ginormous increase,” Eason says. At this stage, the agent will typically take this research to the landlord and determine what price they are comfortable with, before beginning negotiations with the renter.

“There are owners out there that will literally pick numbers out of thin air, and there are probably agents that would do the same thing,” she says. “But this is how you should be doing it.”

Leo Patterson Ross, a spokesperson for the National Association of Tenants Organisations, says there’s a lack of transparency around increases. While some agents, like Eason, share their market research with the tenants, for most renters, “there’s no real way of testing whether an increase has been proposed, or even put forward, in a valid, rigorous way”.

“It’s very murky, unlike other essential services — like healthcare or energy — where there’s a lot of scrutiny of the pricing all the way along and you can know broadly when things are changing and why, you don’t get that in renting,” he says.

There’s also another element to consider in the current crisis. “When we’re seeing people say, ‘Oh these rents are being increased by $200 to $300 a week,’ that’s the anomaly and it’s mostly coming from a very low base,” Sargood says.

That low base was during the COVID-19 pandemic, when a snap end to migration and a wave of people leaving the capital cities pushed vacancy rates up and rents down.

In the area she works, mostly affluent suburbs near Sydney’s centre, Sargood says that’s why the rent increases seem so massive — because they’re returning to what they would have been had the market not slowed.

“Don’t get me wrong, I’ve got some very greedy landlords at the moment … but on the whole, most of my owners, they’re not going for huge rent increases,” she says.

Not all landlords are raising rents

Helena Lister is one landlord forgoing rental increases. She was horrified when her real estate agency sent out a newsletter late last year informing owners they were pursuing rent increases “relentlessly” in the wake of COVID restrictions.

An earlier email — with the subject line “GOOD NEWS — RENT INCREASES!” — advised owners the agency was planning to conduct “blanket rent increases across the entire portfolio”, with the aim of increases between 5-10 per cent.

“There was nothing about the impact on tenants, it was all about money, money, money,” says Lister, who opted out of increasing her rent. “I thought this is actually ridiculous, the tenant is just a means for investment, they’re not a person with an identity or feelings.”

Lister has been an almost life-long renter and currently lives on the road with her partner. She inherited the Sydney studio apartment that she now rents out when her mother died last year.

It means she doesn’t have a mortgage, nor increasing costs of her own to worry about, which she acknowledges puts her in a unique position where she doesn’t need additional income. For many other landlords, increasing property taxes and skyrocketing interest rates have left them with few options beyond raising rents.

Ultimately, however, Lister says her decision to keep the rent below the market rate stems from her experience as a tenant.

“It might be my investment, it might be the landlord’s piece of property, but it’s the tenant’s home,” she says. “I don’t want to violate that in any way.”

Sargood says there are also good reasons that landlords might want to keep properties below market rate.

“It’s better the devil you know than the devil you don’t,” she says. “If we’ve got good tenants, it’s our interest and the landlord’s interest to keep them.”

For landlords, it costs money to replace tenants; there’s a letting fee of two weeks’ rent, advertising fees, and in most cases, at least a week where the property sits empty — costs that can quickly eat up any financial benefit gained from raising the rent.

As for tenants, Sargood says the vast majority of those she works with are opting to stay in the property and negotiate or accept the increase, because “they can see that even though it is a big jump, it’s still below market — and if they were to move, they’d be getting less for more”.

What about maintenance or the lack of it?

While property managers are tasked with looking after an owner’s investment, there’s little they can do to force them to respond to maintenance requests in a timely matter — especially when the landlord doesn’t want to pay up.

“We’re not allowed to spend the owner’s money,” Sargood says. “It’s our job to bring them the problem, the next steps, and remind them of their responsibilities … If you do that, nine times out of 10, you’ll get them to where they need to be — but it’s not always a fast process.”

For renters waiting months for mould, broken appliances, and water damage to be dealt with, knowing how few other options are out there, this is likely of little consolation. Complaints can be lodged with state and territory-based tribunals, but it’s a process many don’t have the time or resources to endure.

In some cases, Eason says, delays in repairs stem from the property manager’s lack of training, like knowing whether it’s more economical to order a repair or replacement of an appliance the moment a request is lodged.

“If a dishwasher is older than eight years, I recommend straight away to replace it … if it’s a four-year-old dishwasher, you send a trade,” she says. Being able to communicate clearly with the owner about the best course of action speeds up the process, she says, because it cuts out unnecessary visits from tradespeople.

“You cannot tell me that someone who is 18 years old, who has just got their [real estate agent] certificate, has any understanding of how the oven, fans, fireplaces, pools, anything works … unless they’ve got hands-on experience.”

She believes this is becoming a bigger problem as experienced agents abandon the industry in droves. Research conducted by tech company MRI Software last year found almost a quarter of property managers planned to leave the industry, with 60 per cent citing aggressive or abusive landlords or tenants as the biggest challenge.

Property managers are often responsible for hundreds of properties at a time, with an average salary between $65,000 and $80,000, according to SEEK.

“Most of these property managers have done a three or four-month course, they’ve been thrown in the deep end, they get paid a pittance, they’re expected to work long hours, they’re expected to be available all the time,” Sargood says.

It’s worth noting that both Eason and Sargood left bigger agencies to start their own boutique businesses, where they have more control over the clients they take on. Sargood might soon be leaving the industry altogether.

“I’ve worked with agencies that literally just care about the numbers they have on their books,” Eason says. “They don’t care what the rent is, how low of a demographic property it could be, they just want numbers.”

Jeremy Goldschmidt is the chief executive of Rent Better, a platform that supports landlords to self-manage their property without the need for an agent. He advocates for self-management and believes the role of a property manager has become increasingly unclear.

“It’s a bit like a gym membership, where you have all these people on [the books] and you assume that some of them will, or some of them won’t, have questions or concerns [at the same time], and you end up in the situation where you are just trying to get as many properties as you can to one property manager so you can make a margin,” he says.

“And therein lies the problem, because it’s too much … is there actually even physically time to provide the service that they’re selling?”

Are you a renter, landlord or real estate professional? Tell us your story about dealing with the rental industry

If you’re unable to load the form, click here.

(Original ABC Article)