Companies spy a way to exploit tenants
By Philip Soos and Paul Egan
Suspend disbelief for a moment and imagine you are a residential landlord with a property for rent, seeking prospective tenants through a property manager. After advertising, it later comes to your attention that many potential tenants have assessed your suitability as a landlord and that of your property manager, via online databases that record wide-ranging personal information.
To your horror, you discover tenants have the same level of informational awareness as you have of them, finding recorded instances of ‘objectionable landlord/property manager behaviour,’ delays in completing repairs/faults and to a satisfactory standard, failures to abide with relevant state/territory regulations such as attempting to significantly raise the rent without sufficient notice, a full record of adverse findings at the relevant Civil and Administrative Tribunal, failures to reasonably refund security deposits, and alleged harassment of tenants.
With one simple search in a landlord/property manager database, tenants are easily able to find all instances of recorded bankruptcies and court judgements against you, as well as verify your identity and current visa arrangements (if applicable). Indeed, such a possibility is a nightmare for landlords and property managers, given the entrenched power they wield over tenants.
Landlords need not fear this scenario, as the unfortunate tenants in Australia’s private rental market have no such power.
The rising use of tenancy databases over the last two decades is well known. Property managers (and self-managed landlords) can access databases to assess whether a potential tenant’s application should be granted or denied, examining their prior rental history and if any blacklistings have been recorded.
If tenants have caused trouble and violated the law (rent arrears or property damage), they can be blacklisted so that other property managers may choose to exclude them from potential tenancy. Fair enough. But where are the databases to track the histories and blacklistings of landlords and property managers? Unfortunately, this poorly regulated system has historically resulted in malicious and unjustified entries being recorded against tenants – often without their knowledge – adversely impacting their ability to secure future rentals.
Amendments to rectify this state of affairs have been slowly implemented to redress often draconian outcomes, requiring tenant notification of an intended blacklisting and then only for specific reasons. Yet the system remains biased towards landlords. For instance, in the event of blacklisting, a person’s name often cannot be removed without either the consent of the landlord or a formal application to the CAT, seeking that the record be corrected.
Feeble privacy laws have enabled the compilation of vast information within an Orwellian private depository to satisfy the desire of landlords and property managers to risk-manage tenant applications in an overbearing manner.
Many of the 25.4 per cent of Australian households that rent (1.8 million households, 4.5 million people) and previous renters will have records held with two of Australia’s largest tenancy database providers: TICA and National Tenancy Database (NTD).
Over the past 20 years, these firms have used their access to millions of public record files in addition to maintaining a total of around 8.5 million tenancy records between them – 7 million forTICA and 1.5 million for NTD. Providing property managers with daily access to in-depth information on rental, court and visa histories is overkill, particularly when there are millions of older, subjective entries on tenants predating amendments to recent tenancy laws.
Due diligence in the form of proper checks of recent references should suffice in the vast majority of cases. Sinisterly, the Virtual Manager service established by TICA allows property managers to flag their clients on an internal system. In the event an application is made to another agent registered with TICA, the current real estate agent will be immediately notified by email of the details of the agent who took the application.
This is a gross invasion of privacy, as this system indicates your future intentions and geographical movements to a third-party without your consent. It also bypasses the normal means for a tenant to end a lease – a termination notice. Consequently, tenants may be subject to repercussions from current landlords and property managers, particularly if they are unsuccessful with their new rental application.
Perhaps of greatest concern is TICA’s proud claim that “A TICA Virtual Manager is your own internal database, which means it is not subject to any state legislation that governs Tenancy Databases or its users. This innovation is another step TICA has taken to continue to Empower the Industry.”
Presumably by ‘empowering the industry’, TICA appears to refer to the use of loopholes to bypass regulation explicitly preventing tenant listings within databases – except under the strictest of circumstances. By default, TICA appears to have created an enquiry database in the Virtual Manager program. It provides little additional potential benefit to the landlord, but poses harassment, safety and security risks for tenants.
These private databases unnecessarily intrude into the private lives of the large and growing tenant population. It seems that ‘mum and dad’ investors who provide the bulk of investment properties believe the mostly false idea of a sizeable and marauding cohort of unruly tenants, posing a serious risk to their assets, peddled by tabloid television serials.
Research has dispelled this idea, as only a tiny minority of tenants commit property damage or fail to consistently pay rent on time. Fewer evictions are the outcome of using these databases, filtering out candidates with a troublesome history. Ironically, the greatest problem faced by property managers today is ensuring landlords undertake maintenance and repairs as required by law.
One explanation for the perpetuation of overstating the risks caused by tenants is the obvious financial benefit to firms operating the databases. Another is ensuring the landlord class maintains power.
The operation of databases with millions of unregulated records used in property management decision-making is of concern.
While the scope of both recordable tenant information and gross violations of privacy should be curtailed, pre-existing information recorded prior to privacy or tenancy amendments may need to be expunged or modified so that a potential tenant’s housing prospects are not unfairly impacted by false or misleading information.
Recently, the Grattan Institute noted Australian tenants’ lack of rights compared to international peers. Tenants have less stability and security in tenure due to shorter lease terms (six to 12 months on average), lower rental vacancy rates that favour landlords during contractual negotiations, termination of lease within short time periods (30 days’ notice) and for any reason. In addition, the permission of the landlord is required for minor alterations and the ownership of a pet.
The information asymmetry between landlords and tenants can be rebalanced via significant regulatory reform of the tenancy database system to strengthen rights to privacy and the quality of information recorded. This would also include the establishment of databases to track the history and blacklisting of rogue landlords and property managers.
The more balanced tenancy systems in Scandinavia and Western Europe provide a useful guide for reform: leases lasting for a minimum of two years or even indefinite in length, several months’ notice to terminate a lease, termination would require strict and narrow reasons, and a presumption to own pets and carry out minor alterations without consent. Germany provides a sterling example of strong tenancy rights while not unfairly impinging upon landlords’ ability to operate.
The establishment of a database to track landlords and property managers, accessible to potential tenants for a small fee, would go a long way towards reducing the information asymmetry that exists in the private rental market, and decrease the incidence of predation upon tenants by slumlords and rogue property managers. This information system provides opportunity to an enterprising entrepreneur, and could potentially benefit almost two million households. As research suggests, some of the most common complaints in private rental dwellings relates to rental cost, responsiveness to requests for repairs, the security of the dwelling, security deposit refunds and landlord/property manager harassment, it appears there is significant market demand for such a system. Unfortunately, this straightforward reform is unlikely to be forthcoming, given the power of the housing lobby over the democratic process and legislation.
Another important, though rarely remarked upon, aspect of the rental market is that landlords are not capitalists. This is a critical point to note as landlords can profit even if they do not offer tenancy by capturing the rise in unearned land prices outside of improvements. No firm can make revenue and profit without offering a product or service to the market; it would become bankrupt. The business model for landlords is vastly different, revealing their ultimate power: the ability to withhold property from the market, giving them unjustified power over tenants by lowering vacancy rates and raising market rents. Eliminating the capacity of landlords to do so would go a long way to balancing the playing field, along with the establishment of a landlord/property manager database.
Paul Egan is a former state government policy officer. Philip Soos is a researcher at Prosper Australia.