Gaming the rental market
Seventy pairs of eyes watch a young woman struggle with a set of keys. It’s 5pm on a warm Wednesday in summer. There are 70 of us, waiting as the real estate agent opens the door. We dutifully amble through the house in Melbourne’s inner north – a mix of young professionals, families and students, looking equal parts bored and desperate.
Sure, we’re composed and polite as we mutter “thank you” and “after you”. But there are no friends here, only competitors – and there is no second prize.
The two-bedroom townhouse is listed for $500 a week – a relative steal for the area, but anyone who’s been in this scene for more than a minute knows it will go for more.
It’s a nice place, if you don’t let yourself get too bogged down in the dimensions. Clean, renovated, tiny.
Despite genuinely doubting whether our sofa will fit in the living room, we present the agent with a pre-prepared application. It includes a spotless rental history, a reference letter from our current agent, work contracts, pay slips, bank statements and a cover letter pleading our case.
A week later, we hear we made the top 10 of 52 applications, but despite offering $200 a month over the advertised price, we haven’t won the lease.
“There was nothing wrong with your application at all – it’s just a really competitive time of year!” the agent writes cheerfully when we request feedback.
If you want to feel the hot sting of rejection, try applying for a lease within five kilometres of inner Melbourne.
But first, prepare yourself for the rigmarole of hoop-jumping, schmoozing and disappointments comparable only to searching for your first full-time job.
Daniel Andrews’ changes to stamp duty might please the small percentage of young Victorians on the brink of affording their first home, but in reality most of us are stuck in a depressingly overcrowded and opaque rental market.
Between 1994 and 2014, the proportion of renters between the ages of 25 and 34 rose from 21 to 30 per cent. And yet the Australian discourse remains stubbornly focused on the Great Australian Dream of home ownership.
My experience is that of a middle-class young professional. The market is much worse for the vulnerable. Trudi Ray, executive director at Haven; Home, Safe, says inquiries for affordable housing at her office in Melbourne’s north jumped 17 per cent between December and January.
“Victorians are experiencing unprecedented levels of housing stress,” Ray says, citing rental bidding and discrimination as key issues.
In the wider Victorian market, rental vacancies fell to their lowest in five years in 2016, while the median house price jumped 10 per cent year on year.
When it comes to real estate, young people are stuck between a rock and an unaffordable place.
Next on our search is another townhouse in Carlton. I hear two applicants immediately offer the agent extra rent.
The same goes for the next inspection in Clifton Hill. Here, I ask the agent whether the landlord is planning to install a pantry or kitchen shelves. The answer is no.
Talk to real estate agents and they’ll tell you rental bidding – the practice of offering to pay more than the advertised price – isn’t a problem for the industry. The president of the Real Estate Institute of Victoria, Joseph Walton, says the practice is “not frequent” and not instigated by agents.
Grant Gifford, of real estate agency Nelson Alexander, says rental bidding is so rare his agency doesn’t even need a policy on it. “We don’t have bidding wars, we don’t play people against each other,” Gifford says. “It gives the industry a bad name.”
But in Melbourne at least, the industry does have a bad name, and everyone I speak to has a version of the same story.
“I got told I would be ‘on the right track’ if I offered more money,” says a 28-year-old marketing manager named Chris. “He might as well have winked at me when he said it.”
He offered more on a Coburg three-bedder, but didn’t get it.
Chris and his housemates were eventually offered a three-bedroom apartment in Collingwood. They accepted the lease, but the agent went ahead with a scheduled inspection two days later, just in case they didn’t come through with the money. No one at the inspection was told the house had already been taken.
Ben, a 29-year-old engineer originally from the Northern Territory, says an agent bluntly told him and his housemates they would have to beat a bid of $750 to get their lease. They did, and it worked.
The problem with rental bidding is that it puts all the power into the hands of agents. Home buyers at least know where they stand when they hear the numbers climbing during an auction.
The Victorian minister for consumer affairs, Marlene Kairouz, admits the practice makes it tough for those without the money to offer more. “We’ve heard the community loud and clear when it comes to rental bidding – it can create added pressure for people trying to secure a roof over their head.”
Yaelle Caspi, of the Tenants Union of Victoria, claims it’s prolific. “It’s not transparent and it happens behind closed doors.”
The union has pushed for minimum standards in rental properties to come from the review being carried out into the Victorian Residential Tenancies Act, a prospect not favoured by agents.
Emily, a 26-year-old sales executive, says her experience with a “bullying” agent over a Prahran property has strengthened her resolve to save up for a deposit and avoid renting altogether. “When we arrived to move in, the place was filthy with random furniture and miscellaneous items everywhere.”
After complaining, the couple returned to the property to take more photos, but found the door had been deadlocked by the agent. “Eventually we just settled to get our bond and half of our first month’s rent back, but they also made us pay re-advertising fees.”
At one point during my property search we inspected a two-bedroom house advertised for $620 a week, only to find you had to walk through the second bedroom to get to the only toilet. The agent said she hadn’t seen the property before the inspection and couldn’t have known.
“Do tenants need more power?” Grant Gifford asks. “No, but tighter regulations wouldn’t hurt.”
He argues minimum standards will push rents even higher. “Owners will have to spend more money, and that will be reflected in the rent price.”
Whatever the outcome of the current review, it seems unlikely legislators will be able to curb what’s perceived by many as a tendency to favour couples and families over single people.
Gifford admits many owners simply feel better with a family in their property. “We tell owners that if they lease a house to three single people, the odds are they will all have partners at some time during the lease,” he says. “If they don’t want that, we suggest they find a family.”
As a result, it’s become common practice for “fake couples” to apply. Sophie, a 25-year-old who works in advertising, recently applied for two-bedroom houses with her best friend Lena and Lena’s boyfriend.
After little success applying as a trio, they decided to pair Sophie and Lena’s boyfriend as a couple – as Sophie earned more money than Lena – even taking fake couple photos for the application.
“It was bizarre,” Sophie says. “The photos looked so fake to us, but they worked with the agent.”
They got the house, and figure they’ll just add Lena to the lease further down the track.
Trudi Ray says without policy changes, the pressures facing renters are only going to get worse – and the reason is simple. “There is an increasing rate of people who simply have no option of buying a house,” she says.
And that is the nightmare of the Great Australian Dream.
This article was first published in the print edition of The Saturday Paper on Apr 22, 2017 as "Lease travesty". Subscribe here.