Late last year, outside a house in Melbourne’s inner-west, an auctioneer tried to drum up some interest.
The suburb is sought-after by families looking for a home within easy access of the CBD, but the agent had other investors in mind.
The house, a run-down three-bedroom property with a price range of between $1.25m and $1.35m, represented a wonderful investment, he said, for someone wanting to set up a rooming house.
“I hear you can get $200 a week for a room,” he told the small crowd gathered outside. “This has three bedrooms. You do the maths.”
The auctioneer’s angle might have left aspirational homeowners taken aback, but it comes as little surprise to property and investment managers, who say there has been an explosion of interest in rooming houses from investors.
In a time of high interest rates, property managers say, rooming houses offer a higher rental yield to owners than even record-high rents, and the Victorian government’s recent tightening of land tax concessions for investments has prompted many investors to ask questions about converting their existing properties.
But with rooming houses a “housing of last resort” for renters, many of whom are living with entrenched vulnerability, the trend has advocates worried.
“We have seen first-hand that more people who are older and more vulnerable are moving into rooming houses,” said Amy Frew, director of client services at Tenants Victoria. “Due to the housing crisis there has been a lot more scope for exploitation.”
Census data shows that 8,599 people were living in rooming houses in Victoria in 2021, nearly double the number from 2016, with a huge spike in those aged 24-35.
According to Tenants Victoria, the two main cohorts of rooming house residents are international students and people with complex needs experiencing entrenched vulnerability such as those with mental health issues, substance use problems, experience of family violence, a recent incarceration or who are in poverty.
At the beginning of April this year, there were 1,550 premises on the Victorian rooming house register – a 10% increase on December 2022. Rooming houses are supposed to be registered by the local council, which is also responsible for monitoring and enforcing public health standards, while Consumer Affairs Victoria is responsible for monitoring compliance with the rooming house operation and residential tenancy law.
The sector, however, is rife with problems. And property managers say that the number of registered dwellings is a vast underestimate – that for every registered rooming house, there are five to 10 more operating illegally.
Rick Stapleton, managing director of the housing investment company the Property Room, said investor interest in rooming houses had “taken off” as a direct result of the rental crisis.
“I don’t even advertise for rooming houses and I get three or four inquiries a day, especially in the last few months,” he said. “I think demand for rooming houses will just increase as the rental crisis gets worse in the next year or two and there’ll be a lot more private investment in the rooming house space.”
Michael Williams, managing director of the Hopkins Group, said interest in the space had grown ever since the company entered the industry about eight years go.
“Demand and inquiry is growing all the time,” Williams said, noting that the cost to convert a property so that it was compliant with the relevant building codes often put investors off. “We hope that councils do more work to get rid of unregistered rooming houses,” Williams said.
Frew said that despite significant changes to regulation of the sector since a 2009 blitz, Tenants Victoria had seen little change in the living conditions in rooming houses.
In a 2022 submission to the rental commissioner, Tenants Victoria said rooming house residents regularly reported unhealthy and dangerous living conditions, including “unsafe and poorly maintained internal and external areas, insufficient shared facilities, overcrowding, lack of cleanliness, and other issues” such as serious violence and physical safety risks. There had been no improvement since that report, Frew said.
Ross McKenry, chief executive of the Registered Accommodation Association of Victoria, said rooming houses were often unfairly maligned.
“There are some bad ones out there. They choose to do nothing for their residents and take as much money as they can,” McKenry said. “We too often hear only about the worst case scenarios, particularly the unregistered accommodation, which we’re concerned about. They give the industry a bad name.”
According to Frew, however, they saw “no substantial difference” in conditions between registered and unregistered houses.
“It’s about the person who runs them and how they take care of the property and the residents,” Frew said. “The living conditions in registered rooming houses can be extremely poor. Some operators who have run registered rooming houses have never been compliant with the law.”
Councils were inconsistent in regulating rooming houses, she said, and Tenants Victoria had not observed more active monitoring by Consumer Affairs Victoria.
“In our experience, breaches of standards and regulations by rooming house operators are often not investigated, prosecuted and enforced,” Frew said. “In most instances we are aware of, councils will still give the operator notice of their intention to visit.”
A spokesperson from Consumer Affairs Victoria said in a statement: “Rooming house safety is a top priority for us, and we carry out hundreds of inspections each year to make sure rooming house operators are complying with the law. Rooming houses are often the last resort for some of the most vulnerable Victorians, and rooming house residents have the right to a safe and secure home.
“We take reports on rooming house safety very seriously and we encourage anyone concerned about a rooming house not meeting the minimum standards to contact us.”
