Australia's radical $4 billion plan to ditch rental bonds
A new plan could see rental bonds become a thing of the past and instead renters would purchase “bond cover” that could potentially cost them 10 times less than a tradition bond.
“Rental bonds are painful for renters and they are painful for landlords. Across Australia $4 billion worth of bonds are being held by state governments for years at a time and yet most renters always do the right thing,” said Justin Butterworth, whose startup Snug is advocating the new bond cover model.
“We believe rental bonds are a tax on renters to pay for the rental system.”
However, tenant advocates believe that bond cover is effectively asking people to fork out an annual fee to access their own cash.
Rental bonds generally equal one month’s rent and are held by state government controlled rental boards until the end of the lease.
Around Australia, there is around $4 billion tied up in rental bonds and in NSW alone, there is $1.3 billion.
State governments earn interest on the bond, which pays for support services for tenants including loans for those who are unable to pay for an upfront bond.
Comparison website finder.com.au found that people under 24 were more likely to lose all or some of their bond, with the main reasons being due to unpaid rent or water bills, unpaid fees for breaking the lease early or property damage.
In 2015-2016, the average bond amounted to $1657 and 55 per cent of bonds were returned in full, according to the NSW Rental Board.
Mr Butterworth told news.com.au that renters should be rewarded for their trust.
“Many people rent for years at a time and we found the default rate was very low; a very large amount of renters do the right thing and Australian renters can be trusted. So why do we have bonds, there must be a better way?
“If billions of dollars of renters’ capital is being held by the states, they are generating interest that is not going to tenants.
“Many renters have student debt, health and life expenses but have thousands of dollars tied up in their bond.”
Mr Butterworth’s company Snug focuses on allowing tenants to apply for a bond cover “certificate of guarantee” that is renewed annually.
If the tenants have problems at the end of the lease, Snug commits to paying anything owed and the amount is then claimed from the renter.
If a claim arose, the landlord and renter would resolve it. However, if that didn’t work, Snug would assess the claim’s validity and then resolve it quickly.
"We don’t need four weeks to work out how much a carpet stain in Surry Hills is worth,” said Mr Butterworth, who insisted they would be fair judges on who was at fault.
Senior policy officer at the Tenants Union of NSW, Leo Patterson Ross, agreed that renting was becoming increasingly difficult.
“Rents are getting higher and so bonds are getting higher and that means there are very legitimate concerns that the barrier to becoming a tenant is being raised. Most bonds are returned so there’s a question mark over what their use is,” he told news.com.au.
However, Mr Ross was sceptical that bond cover was better than the current model.
“Bonds ensure you have money set aside and if something does go wrong you don’t have to (risk going) through a debt collection agency.”
“They’re charging you to keep your own money, and if at the end of the lease there is a problem with the lease you still have to pay for it.”
The Tenants Union would prefer to see help in terms of Government loans given to those struggling to pay an upfront bond, over the bond cover resolution.
Mr Butterworth said the ACT was the state government most enthusiastic about bond cover with Snug while Queensland had decided to hold off launching.
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