Sunday, January 08, 2006

Paying the rent

So, twenty 06 begins. Time for some new projects, like this one...

According to the SST, the Real Estate Institute is helping landlords with a database to blacklist tenants. Rental contracts used by property managers apparently include a clause that allows information to be added to the database, so its all legal. Theoretically, potential tenants could just delete that clause by hand, but the landlord might then prefer to rent the property to someone less troublesome.

Any randomly selected bit of information in the database might be accurate but its hard to tell for sure. Tenants can check their entry for accuracy, though the checking process seems to either cost $15 or involve waiting 2 weeks. So basically, if your landlord gets vindictive, there’s a fair chance you’ll end up collecting negative press in the database, you probably won’t even know about it until after you start finding it tough to get another rental, and then it’ll cost you to get it put right. This kind of thing led the NSW government to regulate the databases, including through fines for malicious use by rental agents with a grudge.

Tenancy databases are an answer to an important question: how can an honest landlord tell whether her potential tenant is also honest? Suppose I’m prone to defaulting on my rent. If we’re discussing a rental agreement, why should I tell you that? And if I don’t tell, how will you know? There is a real asymmetry of information between us.

Of course, it goes both ways. A nightmare landlord is big trouble for any tenant that blunders into their clutches, and its just as hard to spot them coming. Tenants don’t have a landlord blacklist though, so its harder for them to spot bad deals when they turn up. In fact, tenants look to be pretty much on their own in such matters.

There is a Tenants’ Protection Association, but they came across in the SST as being pretty useless. They know of bad landlords apparently, but will not publish a list because that would create ‘bad faith’. More constructive methods are preferred and if a tenant queried a bad landlord they would ‘suggest the renter go elsewhere’.

Maybe they were misquoted or something. Its pretty hard to imagine what could be more constructive for the interests of tenants than getting good information to them. A landlord blacklist would be a preventative measure; it would help people avoid conflict in the first place.

The information problems in rental markets suggest that some kind of blacklist makes sense, for tenants and landlords. Properly designed, such a thing could help the market work better. It should be more subtle than a simple blacklist, closer to a full reputation system that allows both sides of the market record and view ratings from previous counter-parties to their deals. The systems used on auction sites are the obvious starting point.

Yeah right, but how could that happen? Well, the Real Estate Institute is the obvious funder of a proper system, but they seem at present to not recognise any role in helping the buying side of the rental markets. They’d probably see things differently if Tenants Protection was to find a way to publish the views of tenants about landlords and their properties.