Landlords are using tenants' obliviousness to rental charges to practice price fixing as one of their swindling tactics, even as the latest report cites rent as a key driver of the escalating cost of living.
The report has described the landlords' actions as "cartel-like", noting that the informal nature of the business, which is largely conducted in hard cash, makes it difficult for the authorities to find paper trail in order to enforce or impose regulations.
The report by the Kenya Institute for Public Policy Research and Analysis (Kippra) cites increases in the cost of housing as measured by expenditures on rent and amenities as the second most significant driver of the cost of living.
The State think tank notes that these costs affect both households and businesses, with the latter forced to bear additional costs based on lease agreements.
It also cites Airbnb, a short-term rental service platform, as aiding landlords to exploit tenants.
According to the newly released Kenya Economic Report 2023 themed, Cost of Living and the Role of Markets, property owners or managers may require tenants to exclusively use certain service providers, such as maintenance or cleaning companies.
This limits consumer choice and interferes with fair competition in the market. It notes that this is a common practice in urban centres.
“Price fixing is also common as landlords or property managers collude to fix rental prices for housing units, preventing competition and increasing prices for tenants, especially in the leafy suburban areas,” the report says.
Kippra says price discrimination in the housing rental sector occurs when landlords or property managers charge different rental prices for similar housing units to different groups of tenants based on certain characteristics, such as their income level, nationality, or ethnicity.
“While it may not necessarily be harmful to tenants, it creates inequities in access to rental properties and limits tenants’ choice."
However, Kippra says there is limited data on the prevalence of price discrimination in the rental housing sector.
This practice is noted to be more prevalent, particularly in urban areas where rental demand is high, and landlords have significant market power.
Landlords have been cited as well for not being transparent about their pricing practices, making it difficult for tenants to understand how rents are determined and to compare prices across different properties.
“This lack of transparency could contribute to price discrimination and limit tenants’ choice,” says Kippra.
The shortage of affordable rental housing especially in urban areas in Kenya, the report says, is catalytic to price discrimination as landlords are more likely to discriminate against tenants who are unable to pay high rents, as they have a smaller pool of potential tenants to choose from.
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Kippra emphasises that the Constitution of Kenya prohibits discrimination based on race, gender, ethnicity, religion, or social status, and the Rental Housing Act of 2016 prohibits discrimination based on family status, disability, or HIV status.
It adds that the government has established a Rent Control Board to regulate rents in certain areas and prevent landlords from charging excessively high rents.
“Despite legal protections against discrimination, there is limited enforcement capacity to hold landlords accountable for discriminatory practices,” the report says.
“This can make it difficult for tenants to seek redress and deter landlords from engaging in discriminatory practices.”
The board’s authority, Kippra says, is undermined by a lack of enforcement capacity and resources, which limits its effectiveness in regulating rents and preventing discrimination.
Kippra says policymakers and regulatory agencies therefore, may need to take steps to increase transparency in rental pricing, promote competition in the market, and provide tenants with greater access to information about rental properties and their rights as tenants.
“This requires new approaches to regulation and monitoring, and efforts to promote consumer awareness and education around rental pricing practices,” it adds.
But even as this is being done, new trends in the real estate sector, such as short-term rental platforms, pose a big challenge with the report indicating that landlords and property managers are benefiting from this gap courtesy of a disconnected loop in the legal framework.
The emergence of platforms such as Airbnb is said to be aiding landlords and property managers to exploit both the State in terms of taxes and tenants who are disadvantaged due to how lucrative the sub-sector is.
While these platforms increase consumer choice and promote competition in the market, they can also create regulatory challenges and lead to unfair competition.
“For example, property owners use Airbnb to circumvent regulations and avoid paying taxes, putting traditional rental providers at a competitive disadvantage.
"Airbnb has disrupted traditional rental models and requires new approaches to regulation and enforcement to ensure fair competition and consumer protection,” the report says.
It notes that the rise of short-term rentals through platforms such as Airbnb has introduced new challenges related to information asymmetry.
As such, guests may not have accurate information about the property, its location, or its amenities, while hosts may not have complete knowledge of guests’ rental history or behaviour.
“The increasing use of online rental platforms can create information asymmetry if these platforms fail to verify the accuracy of property listings, pricing, and other relevant information.
“Tenants may encounter misleading listings, hidden fees, or inaccurate descriptions of the property, making it difficult to make informed decisions.”
One of the reasons why rent prices are high, the report says, is because of the informal way properties are being put up.
The report says there are many different players in this space which makes it difficult to coordinate enforcement actions and investigate cartel behaviour effectively.
“The informal nature of the housing sector can make it difficult to enforce competition law. For example, many small-scale developers and contractors may not be registered with regulatory bodies, making it challenging to monitor their activities and enforce regulations.”
“Additionally, many transactions in the housing sector are conducted in cash, making it difficult to track and monitor their financial flows.”
The report says in the rental housing sector; landlords often have more information than tenants. They know of the property’s condition, legal requirements, and rental market insights.
“As such, tenants may make decisions that are not in their best interest, such as agreeing to unfavourable lease terms or paying too much for rent,” the report says.
It cites a 2020 study by the Competition Authority of Kenya (CAK), which revealed the limited information tenants have on rental prices, quality and standards, making it difficult for them to make informed decisions.
“Further, there is lack of standardisation in the residential rental sector in Kenya, which has resulted in a wide range of rental prices for similar properties, making it difficult for tenants to determine a fair rental price,” says Kippra.
The report says landlords who have more information about the rental market and the condition of their property may be more likely to overprice their rental units.
“This means that tenants end up paying rent that is more than the market value, leading to a higher cost of living,” the report explains.