http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11976876 Rec
ID: 1149978 • Letter: H
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http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11976876
Recently students have been looking for accommodation in major cities as they prepare to return to their university studies. Some applicants have been asked to submit, as part of their application, a statement of the maximum rent they are willing to pay. See the article: Student's shock at landlord's question: 'How much are you willing to pay 11 The notion of maximizing profnt is fundamental to much economic thinking. Yet we know from class discussion of such issues, that perceptions of fairness/unfairness often play a role in a buyer's decision to buy or not buy a good and therefore, on the seller's pricing decision. Write a short exposition describing the implications of the strategy employed by some landlords in asking for maximum willingness of applicants to pay. In your discussion you should consider the following questions: In asking for the potential renter's maximum willingness to pay, what do you think the landlord is trying to achieve? Why do the renters quoted in the article consider this unfair? Would it be fair or unfair if the landlord asking the question had multiple properties available for rent? What difference does the nature of the product (housing) make to this discussion? Would your answer change if we were talking about goods other than housing? Provide an example of one other good to illustrate your point. . Note: This written exposition does not require a standard essay structure of introduction, body and conclusion; however, please read the marking scheme below, as other conventions of essay writing, such as paragraphing and logical sequencing of arguments and referencing are required as part of this assignment.Explanation / Answer
Answer-
This process makes sense for the landlord since their main objective is to obtain the maximum value for their properties. However, the process is not fair from the standpoint of a tenant which is discussed herein below. Also the practice is unfair in the sense that the advertisement of the properties are done with one rental value and then the prospective tenants are told to bid for the property. The real institute of Victoria has issued guidelines for its members that prohibit rental bidding, however the practice still occurs. (source : https://www.tuv.org.au/act/help-change-the-law/rental-bidding/).The process adopted by the landlord mentioned in the mentioned article is similar to a rental-auction or rental-bidding process which is prevailing currently in many cities worldwide and also various Apps have been launched in this regard, although in some countries and cities the rental-bidding Apps have been banned by the authorities. The landlord by this process tries to ensure that they get the maximum value of their property.
A school of thought also apprehends that the tenants will be in huge financial burden if finances are not planned properly or forced to continue with the premises at a higher rent to secure a fixed place of stay. Additionally, the most unfair part mentioned in the article is the weekly rental. This process will be forced the tenants to bid for higher rent to secure a fixed place of stay. Ultimately, this process will lead to a price war which may force the tenants to take untenable financial burden on them. This situation is unwarranted due to the nature of the deal, i.e., Tenancy Right.
The Real Estate Institute of Victoria (REIV) said the stopping bidding process would force up costs, which would be passed on to renters.
(Source : http://www.abc.net.au/news/2017-10-06/victorian-government-to-announce-rental-laws-overhaul/9024978).
Thus one can understand the apprehension about this process. The tenants will be under tremendous pressure and insecurity will prevail amongst the tenants about their fixed place of stay. In a bid to give tenants a ‘fairer deal,’ VIC Premier Daniel Andrews’ government has revealed changes to improve tenant rights, including reducing the size of bonds and introducing long-term leases (source https://www.rent.com.au/blog/renting-reform-victoria)
The above situation prevails when the supply side is lower than the demand of any product or services. In this situation, in those cities, where the demand for rented premises is higher than the availability, the price war starts and various unfair processes are adopted by the suppliers. However, it is quite important to understand that the situation either can be controlled by increasing the supply side. And when it is not possible, the unfair part of the process should be curbed by appropriate legislation, considering the sensitivity of the product or services, for example tenancy right. However, bidding in purchase of property is one time event and therefore the best bidder has all the right to purchase the property by bidding the highest price. However, in case of rental property, a weekly bidding process will create insecurity and price war to keep a safe and secure place to live.
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