Costing the Establishment of an Office of Rental Bonds in Tasmania Prepared by Prue Cameron and Kelly Madden Social Action and Research Centre Anglicare Tasmania December 2002 1
COSTING THE ESTABLISHMENT OF AN OFFICE OF RENTAL BONDS IN TASMANIA A key recommendation in Anglicare s submission to the State Budget Consultative Process 2003 04 was the establishment of Rental Bond Board for the purpose of consolidating and regulating the collection and disbursement of private bonds. As all other Australian states apart from Tasmania and the Northern Territory have established Bond Agencies, it was recommended the model adopted be based on an evaluation of Bond Agencies in other states comparable with Tasmania. This supplementary paper draws on the Bond Agency models adopted in South Australia and the ACT and provides costings for the establishment of an Office of Rental Bonds in Tasmania. The need for a Bond Agency is based on research into low income earners in the private rental market which was undertaken by Anglicare in 2002. The findings of the report Condition Report: Low Income Earners in the Tasmanian Private Rental Market indicates that a significant number of tenants experience difficulties having their bond money returned, with many of the research participants commenting that it was rare to be repaid the full amount. This creates significant financial hardship for low income earners who do not have savings to draw on to pay the bond for their next tenancy, which is the equivalent of six weeks rent, comprising four weeks bond and two weeks rent in advance. When added to the substantial costs of moving house, the loss of bond money from the previous tenancy can force low income earners into financial crisis. Because low income earners are more likely to move frequently than their wealthier counterparts (ABS 2000), the return of bond monies is a critical factor in their ability to find suitable accommodation. For example, the participants in Anglicare s research had on average moved house every 11 months. This further underlines the need to provide an equitable and transparent system for the management of bond monies to ensure that low income earners are not further disadvantaged in the private rental market. Concerns with the existing process for the return of bond money The low level of disputes was the principal reason cited for rejecting the proposal for a Bond Board in the Review of the Residential Tenancy Act 1997 (2000). However, Anglicare s research indicates that this was not due to the lack of disputation about the return of bond money, rather it was a failure to use the complaints resolution process. Currently, if the landlord fails to return the bond money the tenant is required to submit a written application to the Commissioner, with details of their claim at a cost of $15. It may take up to four weeks from the time the claim is lodged to settlement. This delay creates further financial hardship for low income earners who will have had to find the additional money for the bond on their new residence. The low income earners who participated in Anglicare s research voiced their sense of powerless and vulnerability when confronted with a dispute of the return of their bond money. 2
There is always this stigma about asking for your money back. And you shouldn t have to. And bond is a big thing, you know, it s a lump sum. It s a lot of money that s yours that you are asking for it back. It s almost like you are not really sure that it is yours, but it is. (Tessa, Dodges Ferry, aged 43) I ve had a lot of trouble getting the bond back in the past. I ve walked away from three or four bonds in the end because of the headaches I was getting in trying to get the money back. You know, with landlords complaining that this crack in the corner wasn t there when you moved in when you know too well that it was. They are a law unto themselves. I did condition reports and everything. (Ron, Glenorchy, aged 29) A number of participants were unaware of the provisions under the Residential Tenancies Act 1997 in relation to return of bond monies. They expressed their frustration that there was nowhere they could go to and no mechanism to protect their rights. Participants who were aware of the complaints procedures did not take their grievances to the Residential Tenancy Commissioner. This is not necessarily because their claims were not justified, but rather due to a sense of frustration, powerlessness and fear of reprisals. The personal resources required to make a formal complaint through a complex system, in which they already felt disadvantaged, were often beyond the means of those interviewed. Most importantly, in a context where the participants were caught up in the process of seeking new accommodation, which in the current housing market is extremely difficult and then moving house, it is not surprising that few people in this situation have the time or the will required to pursue their bond money. Many of the participants in Anglicare s research stated that they simply gave up. Furthermore, as acknowledged by the Office of the Residential Tenancy Commissioner in the Annual Report 2001-2002, the current system of dispute resolution is not working effectively for all applicants. This year three cases highlighted the frustrations experienced by the office when property owners refused to, or were unable to provide the amount of security deposit in dispute to the Commissioner s Office. Two property owners relocated to New South Wales and one declared himself bankrupt. Another refused to answer correspondence and even his solicitor could not obtain instructions. (Department of Justice and Industrial Relation Annual Report, 2001-2002: 80) The role of the Office of Rental Bonds The Office of Rental Bonds provides an effective, transparent and equitable mechanism to regulate the transfer of bond monies. It is a government controlled repository for all security deposits. The 3
Office of Rental Bonds acts as an arbiter in dispute resolution around issues emerging under the jurisdiction of the Residential Tenancy Act. This system provides security for both the landlords and the tenants. Bond monies from all private residential rental properties are lodged with the Office of Rental Bonds. The advantages of an Office of Rental Bonds have been identified as: Providing a neutral, independent and regulated repository for bond monies; Recognition that the bond monies belong to the tenant and not the landlord; The consistent application of rules for depositing and returning bonds; Experienced staff to assist all stakeholders: tenants, property owners, real estate agents with the process; Improvement in the efficiency and transparency of processes in dealing with bond monies; Contribute to housing policy development by providing data to track the movement of individuals and households within the private rental market; After some establishment costs, the Office of Rental Bonds would be cost neutral as the accumulated bond monies would generate sufficient interest for use in administering the requirements of the Residential Tenancy Act and potentially, may return a small surplus. The Recommended Model Following the models employed in South Australia and the ACT, Anglicare proposes that the model adopted is an Office of Rental Bonds (ORB) which would be located and administered through The Office of Consumer Affairs and Fair Trading. All bonds would be invested by the ORB through the Public Trustee, with the interest raised used to fund operations. The Office of Rental Bonds would provide bond administration, a bonds advisory service and a Residential Tenancy Appeals process (through the Magistrates Court (Small Claims Division). Bond monies would be lodged through Service Tasmania offices. For repayment of bonds, release forms signed by both tenant and landlord would be lodged with Service Tasmania, processed through the ORB and repayments made through electronic transfer or cheque. Current funding for the administration of the Residential Tenancy Act Under the existing system, the costs of administering the Act, which includes the costs associated with the functions of the Magistrates Court (Small Claims Division) and the position of the Residential Tenancy Commissioner are funded from the interest raised on bonds held and invested through the Auctioneers and Real Estate Agents Guarantee Fund. This Fund includes bond monies collected by real estate agents and deposits on home purchase prior to the completion of contracts. Additional costs are incurred by the Office of Consumer Affairs and Fair Trading in the provision of information and enforcing the Act. The review of the Act noted that a Bond Board would provide more funds than 4
the current arrangements. As only one-third of private renters use real estate agents 1, the fund pool would be substantially greater if all rental bond monies were managed by the ORB. Anglicare maintains that the additional benefits outlined above make the establishment of an Office of Rental Bonds both a financially and socially responsible option. Current cost estimates The Office of Consumer Affairs and Fair Trading which currently administers the Act is not able to provide a detailed breakdown of the current costs of administering the Act. Based on their advice the current cost estimates are approximately 2. This includes: 2 full time staff for the telephone advisory service Salary component for the Magistrates Court and the Residential Tenancy Commissioner Advertising Information provision (Brochures on renting in Tasmania) Review of the Residential Tenancy Act Cost Estimations for an Office of Rental Bonds based on the current Census data Number of private renters: 31,500 Size of the pool raised: $13.15m This pool size has been calculated using ABS data for weekly rental payments. Bonds are calculated at four weeks ordinary rent based on the assumption that 85% of private renters pay bonds (26,800 bonds under management). South Australian figures have been used as the model for this payment pattern. The pool size is dependent upon the retrospective collection of bond monies currently paid on existing lease agreements. Likely return on investment: $657,000 per annum at an average 5% interest rate Other states, such as South Australia and the ACT use the Public Trustee to invest the funds. The South Australian scheme has returned an average of 8% per annum since its establishment in 1980. This return funds the full costs of the Rental Bond Board and other associated functions. Even in the ACT where the size of the bond pool is relatively small ($19.5m in 2002) an Office of Rental Bonds with 8 staff, the Residential Tribunal and the Tenants Advice Service is funded entirely from the interest raised. 1 Data from the Tasmanian Healthy Communities Survey (DHHS, 1999) shows that of the 36,509 private renters in Tasmania, 22,457 were renting through private landlords and 14,102 through real estate agents. The ABS Census 2001 data shows that of 31,528 private renters in Tasmania, 21,146 rented through private landlords and 10,382 were with real estate agents. 2 Estimate received from the Manager, Policy & Legislation Consumer Affairs and Fair Trading (December 2002) 5
Table 1. Establishment phase costs estimated for a period of 6 months IT Infrastructure $80,000 Initial Lodgments with Service Tasmania $40,000 Management in establishment phase (6 months) $30,420 (including on costs) Residential Tenancy Officer (6 months) $22.500 (including on costs) 3.5 Clerical Staff (Data Entry) Level 3 (3 months) $28,875 (including on costs) Office infrastructure 6.5 staff at 15 Murray St @ $310 x 100 square metres $15,500 Telephone, postage, office stationery etc $25,000 Advertising $20,000 Total $263,295 Table 2. Estimated annual costs to administer an Office of Rental Bonds in Tasmania Staffing: Residential Tenancy Manager Administrative and Clerical Employees Award Level 9 1 Residential Tenancy Officer (Disputes) AC & E Award Level 6 1 Residential Tenancy Officer (Advice) AC & E Award Level 4 $60,840 (inc. on costs) $45,000 (inc. on costs) $37,800 (inc. on costs) 3.5 Clerical Staff (Data entry) AC & E Award Level 3 Sub Total $115,500 (inc. on costs) $259,140 Residential Tenancy Tribunal $211, 050 (payment to Magistrates Court (Small Claims Division) 3 Office Infrastructure 6.5 staff at 15 Murray St @ $310 x 100 square metres Telephone, postage, office stationery etc Advertising Sub Total $31,000 $50, 000 $20,000 $101,000 Payment to Service Tasmania 4 $40,000 Annual Total $611,190 3 Figure is based on South Australian data showing 3% of bond returns going to formal dispute resolution based on a cost of $350 per dispute. 4 Approximately 47,000 forms lodged including 26,800 with bond payments 6
Table 3. Summary of estimated administrative costs for a Tasmanian Office of Rental Bonds over a Five Year Period New model expenditure Estimated costs of current model New model Income Establishment phase costs (6 months) $263,295 Annual administrative costs $611,190 pa Return on bond pool investment $657,000pa Allocation required from State Budget 2003/2004 5 2004/2005 6 2005/2006 7 2006/2007 8 2008/2009 9 $503,140 $348,190 $216,690 $ 85,190 - $ 65,750 $263,000 $394,500 $526,000 $657,000 Allocation from State Budget for 2003/2004 2008/2009 $296,811 pa Allocation from State Budget 2008/2009 onwards - $45,810 5 estimated on 20% bond pool invested at 5% interest (6 months) = $65,750 income 6 estimated on 40% bond pool invested at 5% interest = $263,000 income 7 estimated on 60% bond pool invested at 5% interest = $394,500 income 8 estimated on 80% bond pool invested at 5% interest = $526,000 income 9 estimated on full bond pool = $657,000 income 7