Rent bidding legislation could prove problematic

Proposed legislation aimed at eliminating “secret rent bidding” is currently before NSW Parliament, but the head of the state’s leading real estate industry body fears it could be difficult to manage in practicality.

Real Estate Institute of NSW Chief Executive Officer Tim McKibbin praised the government for wanting to bring more transparency into the rental process but questioned how agents could advise renters a higher offer had been made for a property without encouraging rent bidding.

NSW Premier Chris Minns said the legislative Bill, which entered NSW Parliament this week, would close the loopholes in the existing ban on solicited rent bidding to include owners and third parties, not just agents.

It would also eliminate “secret rent bidding” by requiring owners and their agents to notify applicants of other offers from prospective tenants which are higher than the advertised price.

“These changes will create a fairer rental regime in this state by providing greater certainty as well as flexibility for both renters and owners,” Mr Minns said.

But Mr McKibbin said the process may not be a simple one.

“I think what the government’s trying to do is to say, ‘There are other people interested in this property, and those people are offering more’,” he said.

“The challenge, however, for the agent in this process is to be able to communicate the number that has been offered without encouraging rent bidding.

“That’s going to be the difficulty.”

Mr McKibbin said his understanding of the proposed legislation was that it would still be ok for a prospective tenant, once notified of the higher offer, to increase theirs as well.

“If we pursue the transparency angle, I think what we have to be saying to the other applicants is, ‘You are not prohibited from making another offer for the property, I am prohibited from encouraging you to do so’,” he said.

“That’s where it’s going to be very very tricky.”

Mr McKibbin said he was looking at building a document for agents to send, potentially via email or text, to the relevant parties to notify that a higher offer of rent had been made. 

He said the exact details of such a document was still in its very early stages.

“I suspect what I will pursue is to have one of those documents that will enable the agent to put in the sums of money, and then have one of those little stars we often see next to various things, and then down the bottom of the page I’ll make references to legislation and that people should go and have a look at the legislation,” Mr McKibbin said.

“I’ll make the point that the agent can’t solicit further bids but the applicant can make another bid.

“This is all new and with anything new there will be teething problems but we will work through that and we will assist agents with their compliance obligations.”

Dr Chris Martin, a senior research fellow in the City Futures Research Centre at UNSW, said the reforms were worthwhile but that people should not expect them to cure the rental housing crisis.

He said some advocates worried the changes would further facilitate rent bidding but he wasn’t so sure.

“I wonder if some agents and landlords might find the prescribed process of issuing written notices cumbersome and not worth the hassle,” he said.

“It might be easier for them simply to not worry about the higher offer and give the tenancy to their preferred application at the advertised rent.

“It will be challenging for regulators to have any visibility of these things.

Dr Martin, who has participated in numerous inquiries and research projects for the Australian Housing and Urban Research Institute and was previously the senior policy officer of the Tenants’ Union of NSW, also said these measures would not solve the supply crisis.

“We need to look at other policy settings to bring more supply to the rental sector,” he said.

“This would include greater use of land tax, including an owner-occupier property, to spur property owners to bring unused, or underused land and housing to the market.

“And resourcing our non-profit community housing providers to provide more affordable rental housing, outside their traditional low-income social housing segment.”

The Bill also includes measures to ensure appropriate powers are in place to design and enact a portable bond scheme that reduces the strain on renters.

It would mean that tenants could transfer bonds from one property to the next.

Minister for Better Regulation and Fair Trading, Anoulack Chanthivong said portable bonds would make things fairer for tenants.

“In the existing system, a renter paying $550 per week faces a bond cost of $2200 if they want to move, the equivalent of 11 week’s groceries,” he said.

“A portable bond scheme will free up cash and make life easier for renters.”

But Mr McKibbin said it could pose problems at the end of a lease if the existing landlord made a claim on the bond for damages as the tenant was transferring to a new property.

“If that sum of money is being transferred across to the new landlord, prior to the first landlord having access to it, then you can see that’s a problem,” he said.

The Bill is still to have its second reading in the Legislative Assembly of NSW Parliament before moving to the Legislative Council.

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.