Greedy landlords lose out in the end

If you are a renter in Victoria, the landlord can only increase the rent under certain circumstances – not more than once in any six-month period, and never while a lease is current. So what happens when a landlord tries to jack up the rent as much as then can?

Welcome to the 1970s

Back in January 2010 I moved out of the family home in Geelong, taking up residence in the inner northern suburbs of Melbourne. Rent was $290 a week for my two bedroom flat, with the only downsides being the original 1970s kitchen and crudtastic electric stove. Despite that, I liked the location and the large balcony, so I spent the next two years living there.

After the initial one year lease ended in January 2011, I received a letter from the landlord signalling their intention to put the rent up to $310 a week, and at the beginning of 2012 I received notice of another rent increase – this time to $320 a week. With a kitchen too small to accommodate two people and me wanting to move in with my girlfriend, forking out more money for my dated kitchen was the last straw – I began the search for somewhere new.

By October 2012 I had handed the keys back, when I found my old place advertised online to rent for $330 per week – a $10 increase above the inflated price I had just been paying. I’m guessing the landlord figured they’d see why the market could bear.

Moving out

Fast forward to today, when I checked the real estate websites – turns out my old place is still available to rent, but the asking price has now plummeted to $290 per week. With their investment property having sat empty for three months, my former landlord is already down $4000 in rental income – I guess their optimism regarding what the market can bear was misplaced!

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11 Responses to “Greedy landlords lose out in the end”

  1. enno says:

    That’s how markets work. Any vendor, whether it is a fruit shop, or a fashion clothing shop, or an electronic products shop, or a flower shop, will offer the latest products at the highest price, and then reduce the prices later until it sells. It’s called “price discovery”.

    • Marcus says:

      Setting rent for a property is probably a bit more complex that that – every month you have it sitting there without a tenant is a month you don’t get any rent. With a product on a store shelf that is less of an issue as you can have it sitting there for a month and make the same profit on it – the exception being fruit, fashionable clothing, or the latest electronic widgets – they drop in value as time goes on.

      If you have an existing tenant, the landlord can keep on jacking up the price in small increments and there is a good chance the tenant won’t complain – moving house is such an inconvenience, it makes paying $10 a week extra rent bearable. But when you place the property back on the market things are different – set the price too high and you prospective tenants will say “tell him he’s dreaming”.

      In the case of a landlord they want to maximise the rent they receive, so start out high so they get the most rent possible during the lease is a good idea. But if they don’t get any takers, what is the best option: hold out for a taker at the high end, or start dropping the price to get anyone in there. I’m sure it is a balancing act that many landlords have had to consider.

      • Marcus says:

        I’ve just found an internet forum where someone describes the different strategies a landlord can use for setting the asking rent of a property:
        http://forums.pagepearce.com.au/viewtopic.php?f=6&t=37

        They describe them as:
        - Ask a high rent, and induce enquirers with sweeteners up front
        - Ask Market Rent
        - Tactical Retreat/Escalator
        - Test $10 a week
        - The Hope Method

        They also link to a “cost of waiting” calculator.

        It looks like my former landlord is using the “Test $10 a week” strategy!

  2. scott says:

    Yeah it all comes down to price and demand. When I moved to a small 1 bedroom apartment in West Brunswick 11 years ago, the rent was just $125 per week. I moved out of the property a couple of years ago, but now the rent for the same property is now $240 per week. It shows how expensive Melbourne is becoming.

    • Marcus says:

      That’s a massive change! My girlfriend was lucky with her old place – $300 a week in Carlton. She rented directly from the owner, which probably explained the lack of rent increases in the four years she lived there.

  3. Andrew says:

    While ultimately it is up to the owner, they are quite strongly advised by the agent about rent levels. Maybe our own agent was unusual but once they advised us to not increase the rent, and another time advised us to increase it substantially. They knew the market better than we did, and so we followed their advice.

    • Marcus says:

      If you’re a landlord and have a real estate agent taking a cut of the rent in return for managing the property for you, you’d hope they’d know more about the market that you do!

      • Andrew says:

        And of course agents don’t always know better. One tenant wanted a second 12 month lease and we agreed and he agreed to the rental figure, but then he would not sign the lease. The lease did not begin until it was signed, so by delaying as long as possible, his rent would fixed for a longer period. After a decent period, we decided we would not sign the lease. Our agent told us we had agreed and must follow through. We replied that we had signed nothing and nor had the tenant. Given Shocking Stupid is a very large and well known firm, it is hard to believe that they weren’t aware of such a tactic. Real estate agents don’t act for the owner nor the tenant, but purely themselves.

  4. Adrian says:

    My sister has rented in Richmond for about 12 years now and her rent is very reasonable and has gone up a few times. About 18 months ago the real estate agent asked for a significant increase, but about a week later the landlord called and told her he’d over ruled the real estate agent and rent would stay the same. There is a lot to be said for a steady, reliable tenant. I personally rent directly from my landlord and he’s a top bloke with slightly better than market rate rent. I’ve been in my place for 5 years now.

  5. Tim says:

    I am lucky that my rent has only gone up $25 in the 10 years I have been in my flat. It’s a pretty crappy place though but in a good location, don’t have to drive anywhere as I have the Caulfield Junction tram intersection going past the front door. 10 minutes walk to Caulfield Station. One street back from Balaclava Rd and Caulfield Park. If I get the arse I don’t know where I would go though.

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