What did we learn about Rent Bidding?

Rent bidding refers to a situation where applicants, under pressure to compete against each other for a property in a tight market, make an offer to pay rent above the advertised price in order to secure a listed property. They can be encouraged to do so by landlords or their agents during the application process. Alternatively, a landlord or agent may attempt to initiate a rent auction or bidding process by advertising a rental property without a clear fixed price - instead providing a range of rents or lists as ‘rent price available on application' or 'by negotiation'.

In 2022 the NSW Government introduced protections against the solicitation of rent bidding by real estate agents through amendments to the Property and Stock Agents Regulation 2014. This had limitations as the ban only applied to licensed agents and not to self managed landlords. The ban also only applied to solicited rent bidding and not unsolicited rent bidding which was continuing. The Department undertook a fairly significant compliance project at the time.

In 2023 the ban on solicited rent bidding was extended into the Residential Tenancies Act 2010, with penalties introduced for individuals and corporations. The Act makes it a breach for landlords and agents to advertise properties without a fixed price and solicit or invite tenants to offer a higher amount than has been advertised. Compliance with these reforms which banned solicited rent bidding has continued to be a focus with the Rental Commissioner Trina Jones. 

NSW Fair Trading last week released their report Bidding in the NSW Rental Market - Analysis and Regulatory Insights where they investigated rental market bidding behaviour in the past 10 years. The report outlines the compliance action taken by NSW Fair Trading since the legislation was amended. It also outlines prevalence of rent bidding and underbidding in the rental market in the past 10 years by comparing rental advertisements and tenancy data held by the Rental Bond Board. 

What did we learn?

1. Regulatory activity works if you work it.

Government responded to an issue by adjusting the rules and then - crucially, for the first time in a long time, held people accountable for following the rules. The improvement in advertising practices are clear and it's because the regulatory activity was visible and real. The number of fines issued on this (145 penalty infringement notices to the value of $157,850.00 in the period 10 May – 31 December 2024) is about the same as issued for all other Residential Tenancies Act breaches combined over at least the 10 years prior.

We need to see more of this - both improving the laws and enforcing them, to make clear that lifting the standards of renting is being taken seriously. The Rental Commissioner and Taskforce are clearly a key and increasingly effective part of this and need to be supported and grown.

2. Rent pricing is a game, not a science.

One in three advertised rents aren't at the rents ultimately secured, rising to over 40% in 2024. This shows how frequently the rent is set, with a roughly 10% window of variation. The dramatic rise in overpriced dwellings in 2024 suggests practices where seeking higher rents, hoping they would be met but not achieving them. Essentially, it indicates that people were testing and attempting to lead the market rather than following it.

Given the extremely rapid increases of the 2 years prior, we might think of this as a race car that had been approaching the top of a hill too fast and then lost contact with the ground. It was not the ground that created the separation, but the over confidence! The inaccuracy means we should not give too much weight to these prices as pure indicators of market activity.

This highlights two areas that need to be addressed. First, initial rent pricing. This data suggests overbidding is still occurring at broadly the same rate as it was pre-2020, and higher than it had been in 2015-16. NSW maintains a rate of overbidding at more than 10%. The obvious reason is unsolicited rent bidding. NSW is not leading in this space - Queensland, the NT, South Australia and now Victoria have moved to end all forms of rent bidding. There is no reason NSW couldn't or shouldn't do the same.

The second, and arguably more significant, is rent increases during tenancies. The standard practice is to look at advertised rents - which are now demonstrably inaccurate at the start of the tenancy. The latest numbers in this report 15% of properties across NSW have a lower rent than the advertised price suggests. Tools like our Rent Increase Negotiation Tool and the Government's simpler Rent Check use actual prices from bonds.

What no one can currently use but are clearly part of the assessment are sitting rents. This is one of the reasons to utilise benchmarks to help guide the process (while not perfect, CPI does include sitting rents). A sitting tenant offers a different value proposition and the rent increase process needs to better recognise this.

The rules of the "game" need to be made fairer and more transparent.

3. Does rent bidding increase rents?

In its conclusion the paper says that its findings "suggest that both rent bidding and underbidding are primarily market response mechanisms rather than significant drivers of overall rental price movements." This matches with how we thought of rent bidding as well - a symptom of a poorly functioning rental sector rather than the cause of it. However, earlier the paper had asserted that falls in rent bidding from December 2022 "can likely be attributed to the introduction of rent bidding restrictions and related Fair Trading regulatory education and compliance campaigns." We think the compliance efforts were certainly effective at stopping solicited rent bidding, but the persistence of overbidding despite the regulation undercuts the claim that it was the regulation itself that drove the fall in bidding. The report itself doesn't report on the rate of bidding compared to rent movements more generally - so we took a closer look.

Rent Bidding and Rent Change

Rent bidding here is recorded at the time the property was first advertised, while the rent is based on lodgements which can happen up to a month after the tenancy started causing a lag between them, but the relationship is very strong. It is clear that rent bidding is more common in periods of rent price rises and less common in slower rent price increases. Both bidding and price increases are outcomes of a rental market that is not meeting the community's needs. This further supports the need to restrict all forms of rent bidding  - or we can expect a return as soon as the sector faces further difficulty.

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That NSW Fair Trading has published this work at all is a big milestone, and we really welcome it. Ensuring that regulatory action is implemented is one thing, but reflecting on its impacts is another. We would love to see this approach - of taking action and reporting on it - expanded beyond rent bidding. With the soon-but-not-soon-enough start of the new eviction reforms, it will be really important to communicate to industry both the expectations and the consequences for treating tenants poorly.