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Risk-assessment practices in the private rental sector

Summary

Project Number: 20346
Research Theme: Private_rental, Housing_affordability
Project Leader: Short, Patricia
Funding Year: 2006
Research Centre: Queensland

Research & Policy Bulletin

Issue 102: Risk assessment practices in the private rental sector: implications for low-income renters

Risk, whether perceived or actual, is a critical factor for property managers in deciding who is allocated housing in the private rental market, and how the allocation process occurs.

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Description

This research involved selecting six local areas across metropolitan and regional Queensland, New South Wales and South Australia as case study localities. The main body of research data was collected through 29 interviews with property managers in the six study localities. Interviews were conducted in three steps:

1. Describing the real estate agency's system for processing tenancy applications.
2. Developing a low-cost rental property profile for the local market.
3. A scenario wherein participants were asked to 'process' a set of hypothetical tenancy applications.

The research was also informed by interviews (face-to-face or telephone) with representatives from Real Estate Institutes to document 'industry perspectives' on perceived risks, risk assessment and risk management, and tenant advocates and community housing managers to document local rental housing conditions, and the movements of low-income households into, around and away from local rental markets.

The key findings of the research are:

• The main markers of risk in tenancy allocation are the '(in)ability to pay' and/or '(in)ability to care' for the rented property. Ability to pay is generally determined using a 30 per cent rent to income ratio as an affordability benchmark, whereas ability to care is often based on less quantifiable assessments.
• Risk assessment and allocation strategies are formal and informal: sorting and ranking of applications; 'lawful' discrimination in determining the most appropriate tenant; and 'handing over' responsibility to the owner to make the final decision to avoid providing reasons for rejecting certain applications.
• 'Suitable' tenants are resourceful, reputable, competent, strategic and presentable.
• Factors that limit risks to the landlord and/or property manager include: local experience; available social and/or financial supports; financial responsibility; a preference for long-term rental and/or preparedness to agree to specific conditions of contract.
• Low vacancy rates are a fundamental parameter in the current market. Low-cost private rental housing is in short supply, and low-income households are currently not competitive at the moment of allocation.
  

More Information

Research and Policy Bulletin: Issue 102: Risk assessment practices in the private rental sector: implications for low-income renters
172 KB PDF Document

Final Report: No. 117: Risk assessment practices in the private rental sector implications for low income renters
572 KB PDF Document

Positioning Paper: No. 100: Risk-assessment practices in the private rental sector: implications for low-income renters
405 KB PDF Document