“Bad tenants rack up $31m bill” was the West Australian’s recent headline – see https://au.news.yahoo.com/thewest/wa/a/27576259/bad-tenants-rack-up-31m-bill/.
The headline figure is the total amount owed by public housing tenants for unpaid rent, water bills, and damage to property, and is no surprise to anyone involved with rental property.
The startling news is that Homeswest stopped collecting bonds from new tenants from July 1, 2013.
No tenant bond means no initial recourse for unpaid tenant bills, hence the debt will continue to climb.
Think about the normal potential tenant qualification process – in essence we are asking this question of potential applicants – will you be able to pay the rent on time, and maintain the property? All our varied enquiries are designed to answer those two questions. Now compare it to my impression of how things work at Homeswest:
1. Employment – no job? That’s okay. You do have a job? Don’t earn too much, or you will lose the house.
2. Reference checks – I have personally been involved in the management of over 1,600 tenancies, and have never received a request from Homeswest for a reference check.
3. Bond – no money for a bond? Fine, that’s not a problem.
Now lets remind ourselves of why we collect a bond from tenants in the first place:
1. Demonstrate Savings Ability – if someone cannot save four week’s rent, they are unlikely to be able to continue to pay rent for 6, 12 months or longer. A tenant must pay that rent despite job loss, family problems or surprise car repairs. Remember that a tenant is responsible for other costs besides rent, like water bills, utility bills, and damages. If a tenant accidentally smashes a window, they will need to come up with $600 quickly for the repair. Owners need financially-responsible tenants, and saving for a bond is a simple assessment.
2. Protect Against Final Inspection Damage – it is normal for there to be some property damage when a tenant eventually moves out. A cracked floor tile here, a broken window there, it is all part of living in a property. Tenants are responsible to reimburse owners for the cost of property damage (but not wear and tear). The tenant bond is the intended method of payment for those damages. But if there is no bond present, then the owner will need to ask the tenant for payment. But the tenant has just moved into a new property and has all the costs associated with moving (including possibly paying a new bond). It is unlikely that the tenant will have spare cash to pay for damages. Hence in anticipation the bond is set aside at the start of the tenancy.
3. Create an Incentive for Good Conduct – the tenant knows they have paid a bond, and wants to get it back in full. Good property managers want to give the full bond back to the tenant, and will help the tenant during and after the tenancy to keep and return the property in good condition.
The consequences of Homeswest’s no bond policy are obvious:
1. Financially-irresponsible tenants placed into properties.
2. No tenant incentive to maintain the property.
3. Homeswest will have to pay for repairs at the end of the tenancy, and then chase the tenant for payment.
What I would really like to see disclosed is the write-off amounts from HomesWest – in other words, how much debt is written-off, or effectively never collected?
What could Homeswest do to improve the situation? Here are a couple of options:
Easy – require tenants to always pay a bond, and use the Homeswest instalment payment method whereby tenants pay no money up front but can pay it off in affordable instalments.
Medium – require full bond paid upfront – note the private market provides a number of funding solutions to help potential tenants pay their bond.
Hard – stop the public housing program. There is a glut of rental properties in Perth at present, and the private market is completely capable of housing everyone.