Podcast: Big ideas, tax bribes and Fonzie flats

This week in the podcast, Sue reports back from a two-day seminar about property investment with the news that, yes, more apartments are going to be built in Australia and yes, some people are worried that there simply won’t be enough skilled labour or materials to get it done as quickly as we all want and need.

However, there is some innovative thinking, whether it’s about how to deal with Nimbyism – bribe the buggers with tax breaks, says Yellow Brick Road boss Mark Bouris – or allowing “mum and dad” investors to put money directly into build-to-rent projects without having the hassle of managing tenants and property.

There’s a push to promote “Fonzi Flats” to make use of the space above garages and storerooms, not to mention empty basements and other unused areas in existing homes.

And there’s the OCN’s Strata Matters conference where both Jimmy and Sue will be wrangling speakers and making sure you, our listeners, have your questions answered and your concerns aired.

That’s all in this week’s Flat Chat Wrap. 

TRANSCRIPT IN FULL

Jimmy  00:00

Sue, it seems to be your show today?

Sue  00:02

I don’t know about that, Jimmy. You always kind of steal the limelight.

Jimmy  00:08

What have we got?

Sue  00:09

This week, I spent two days at the AFR Property Summit. The first day was about commercial real estate, with some great speakers. And the second day was about residential real estate, with some even better speakers, I might say. So that was a really thorough look at the housing situation today.

Jimmy  00:25

What else have we got?

Sue  00:26

So we’ll be looking at what happened there. One of the guests at the Summit was the new Rent Commissioner, Trina Jones. We heard what she said about rentals and the difficulty there. We heard a really interesting idea about getting rid of NIMBYs, and we’ve also got the OCN Strata Matters seminar coming up very soon, of which we are both appearing, I understand.

Jimmy  00:50

They are going to let us out of our room and we can go and be seen in public. All right, well, that is as ever, a lot to be getting on with, so we’d better get on with it. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  01:03

And I’m Sue Williams and I write about property for Domain.

Jimmy  01:06

And this is the Flat Chat Wrap.

[Music]

Jimmy

So you were at a conference about residential housing?

Sue  01:26

That’s right. It was really interesting; it was fortuitous timing, really, because, as you know, Labor and the Greens finally reached an agreement on the Housing Australia Future Fund, as it’s called now. The new $10 billion programme, to provide 1.2 million extra homes in Australia, over the next five years.

Jimmy  01:42

Most of which we think will be apartments.

Sue  01:45

Yes, it will be. And also, the $1 billion fund for social and affordable housing, too and that had been the sticking point for the Greens, really, who wanted thaat added on. It was good because, that was agreed the day before the conference. The Housing Minister, Julie Collins came along and gave a long and impassioned speech about the importance of the Housing Australia Future Fund, and how they felt it would be financed and their hopes for the future, really, and how they felt that over the last decade,  not enough homes had been built. They were really going to try hard, to make sure that we had a lot more homes in the future, because we have such a critical shortage. That’s right. I mean, a lot of people were kind of greeting the government’s announcement with real excitement and optimism, but a lot of other people (often the developers), were saying “well, how are we actually going to produce 1.2 million extra homes?” I mean, that’s a really big number and we haven’t been producing very many homes recently, so how can we double our output, or more than double our output very quickly? And they were saying well, we’ve got this big infrastructure boom and the problem is, that’s absorbing most of the labour, and many of the materials that we need to build housing. So they were questioning whether we’d have the workforce to erect these houses and the supply of materials is still disrupted to some extent, after COVID. So whether we’ll still have the materials, as well. And they’re also bringing up other issues, like nimbyism.

Jimmy  02:25

And one of the problems that came up is that, when you start building lots and lots of homes, you need lots and lots of material and lots and lots of people to build the homes. We talked about that last week, didn’t we?

Sue  03:27

We did. And they were saying the difficulty is that lots of people in various areas, don’t want extra housing in their suburbs. You know, they might live in a medium-density suburb in Sydney or Melbourne and they’re saying “no, no, we don’t want a high-rise,” or they might have freestanding houses and they don’t want medium-density apartments. And it’s not until some of those empty-nesters are looking for somewhere to downsize into and they think there’s nothing in our suburb. There’s no apartments to downsize into. Of course, that’s their fault sometimes, because they’ve been objecting to plans being put forward, to stop development.

Jimmy  03:27

For years and years and years and they’ve been electing counsellors who promised that they want allow low-to-medium rise apartments to be built in their area and then they’re turning around and saying “where are we going to live?” Now, one of the speakers was Mark Bouris of Yellow Brick Road?

Sue  04:22

That’s right. It was quite interesting… He had a really interesting proposal that I’d never heard before. He was saying that we’ve got to tackle this from the bottom, up. And he said, maybe locals should be paid bonuses if they reject nimbyism and instead encourage new housing developments in their suburbs. So maybe there could be like a zone tax rebate, to those on the ground, who agree to development approvals and agree not to object to them. So I thought that was quite nice idea, really.  If there were 10 new developments proposed for one area, providing say, 10,000 new apartments, then those people who didn’t object, or the people who quite supported it, could be paid a zone-based tax rebate. And also, there were lots of calls for planning approvals to be speeded up, because they can take up to three years in Sydney, especially if a DA gets put through and there are lots of local objections. It can take three years and that’s really hard. If you want 1.2 million extra homes in the next five years, that’s three years that’s taken up, just in the planning process.

Jimmy  05:25

I wonder if it could be as direct as a tax rebate. I mean, I could see the government saying “hey, if you want new roads, or you want new railway stations, or you want a new sports ground, you’re not going to get it, if you reject, low-to-medium-rise housing. It’s a political issue, that shouldn’t be political.

Sue  05:44

That’s right, because Julie Collins said “look, it’s for the greater good of all Australians, that we can provide enough housing for Australians.” And as well as housing is a basic necessity and a basic right; as well as that, people who live in existing areas in houses where there’s apartments built nearby, their values of their homes go up exponentially.

Jimmy  06:06

Really?

Sue  06:07

Because they become much more desirable suburbs to live in, because there’s a mass of people there.

Jimmy  06:13

And they draw shops and facilities and things like that.

Sue  06:17

Infrastructure is going to be built there, as well. Because you know, you’ve got areas like say, Schofields in Western Sydney…When I went out there a few years ago, it was just apartments being built there and then afterwards, all the infrastructure started coming in. Which isn’t the best way; it’s great to have the infrastructure first, of course. And also, one speaker talked about how Paris is the most densely-populated city in the world.  Yes, I was amazed. And he said, there’s not much high-rise in Paris, but Paris is a medium-density; maybe six-to-eight levels of apartments. And they go on for miles and miles. So it’s medium -density. You don’t think of Paris as being a really crowded city; we think of Singapore or Hong Kong.

Jimmy  06:42

It is?  The Paris that we see is aroundabout the Eiffel Tower, and the Champs-Elysees; you know, the tourist areas.

Sue  07:12

That’s right and it’s all very low-rise there.

Jimmy  07:14

And that was all planned; there was a town planner that came in and designed basically, the Paris that we know, with these three- or-four-storey apartment blocks, which are now mostly given over to Airbnb, I hear. But when you take the train out of Paris, then you see all the medium-rise buildings. I didn’t know it was the most densely-populated city in the world. When we come back, we’re going to talk about rents, tenants and landlords and some innovative ideas for helping people who just can’t find anywhere to rent. That’s after this.

[Music]

Jimmy

One of the speakers at one of the days that you were at this conference, was the Rental Commissioner; the fairly recently-appointed Rental Commissioner.

Sue  08:09

Of New South Wales; Trina Jones. She was really impressive. And she was at pains to say all the time, look, we’ve got a rental crisis; is terrible. Tenants are having an awful time. We’re one of the worst countries in the world to be a renter. But at the same time, she was saying, we need to readress the balance of power in the sector… We need to have lots of changes; we need to improve the quality of life for Australia’s tenants. But at the same time, we need to do it in concert with the landlord’s and with the other interests. It shouldn’t be ‘them versus us;’ it should be everybody reaching agreement on what’s the best way to go forward.  And she was saying that’s critical, really, because these days, there’ll be lots of people… You know, in the past, we always thought renting was that you were waiting to get onto the ladder of property ownership. But there are many people today, who are renting, who will never own a house, or never own an apartment, and many of them don’t want to; they won’t aspire to that. I mean, it’s always been the big Australian dream, but really, in the future, there’ll be lots more people renting.

Jimmy  09:13

One of the things about renting is, it gives you mobility. You know, you’ve rented an apartment… As far as we’re concerned, our interest is in apartments; you rent in an apartment, your job changes, your circumstances change. You don’t like the area, your favourite Indian restaurant moves two suburbs away; something like that. And you can as a renter (well, theoretically), you can go and live where you want, because you can find another place that’s a similar cost, or maybe even cheaper, but that’s not the case now, because there’s so little rental property around.

Sue  09:49

No and I can’t imagine anybody moving for their favourite Indian restaurant, Jimmy.

Jimmy  09:54

No, now that you mentioned it.

Sue  09:56

It’s really tough out there for renters and we have one of the shortest average rental tenure times in the world, because people have been constantly moved on, because we have no-grounds evictions. So people can be evicted from their homes…

Jimmy  10:13

Which is the easiest way to put the rent up.

Sue  10:15

Yes, that’s right. So it’s really, really difficult. And there were some really novel ideas. There’s a property group called LongView, and the founder of that, Evan Thornley, was talking about how really, we’re a nation of small investors, of mum and dad investors. But really, they don’t want to be bothered by having to look after the property repairs and maintenance and worries about the tenants; that kind of thing.  If you could separate the investment in property from the the care and management, that would be a perfect way of going forward. And one of those ways is obviously build-to-rent. That took up a lot of time at the conference. I mean at the moment, it’s only 0.2% of the housing stock, but in the US, it’s 10% of the housing stock. In the UK, it’s now 5%. And it’s growing exponentially in Australia, as well.

Jimmy  11:05

It has fantastic potential. I mean, years ago now, we featured a place in Washington DC, where you go in and it’s a big, huge apartment block. It’s kind of like a resort, because it has its own bar, it has its own indoor golf course, or driving range. It has a swimming pool and gym and all that. But for the residents; predominantly for the residents. Other people can go and drink in their club and have a dinner in their club, provided they’re brought in by a resident, but it’s just the other side of the Potomac from Washington DC and the government buildings there.  So you imagine there’s a lot of reasonably well-paid people; professional people… Look, they want to rent in a place like that, for two-or-three years, because they might not have a job there in two-or-three years time, because the government changes and priorities change. So it’s perfect for them to have that mobility. We have this idea here, where you basically have to put down roots and stay in the one place for years and years. I think the average turnover for apartments (for ownership), is seven years. I mean, who gets a job for seven years these days?

Sue  12:23

Not many people. We went to see a build-to-rent; one of the first ones in Australia, in Sydney Olympic Park. And that was going really well. And they’ve got a brother/cousin now, in Melbourne, LIV. There are so many build-to-rent projects now being announced, because the government has introduced tax concessions for them.

Jimmy  12:46

It used to be that they they made it difficult for them, didn’t they?

Sue  12:50

Yes, that’s right, but not anymore. They’re really encouraging them. So one way of separating the management from the ownership, is build-to-rent. The other way… He was saying, we really need to get institutional investors, investing in property in Australia. That was kind of interesting; I’d never really thought about that before. Because apparently, there’s lots of overseas capital, really keen to invest in Australia and absolutely keen to invest in property.  I mean, look at the property prices rising, so they’d get a good return. But there just aren’t the kind of pathways to enable them to do it. And he was saying, why don’t we allow institutions to come in and buy up strata schemes; apartment strata schemes wholesale? And then they could appoint business managers, to look after the businesses. And then you’ve absolutely got the division between church and state; you’ve got the division between the investment and the management.

Jimmy  13:45

So you invest in the build-to-rent company?

Sue  13:48

 It’s not build-to-rent; it’s build-to-sell.

Jimmy  13:50

Oh, I see.

Sue  13:53

So they’re actually buying strata schemes. In our apartment building, a big institutional company could come in, and if it was all rented, they could come in and buy it off of maybe, the owner, and then they could run it in a professional way and appoint a manager to look after it.

Jimmy  14:11

Oh, I see.

Sue  14:12

So it’s not build-to-rent; it’s build-to-sell, because they’ve bought it.

Jimmy  14:17

Right. Okay, I think I understand; I’m not sure. It sounds like if you’re buying a building that’s full of renters, and you’re going to continue renting, it’s kind of buy-to-rent.

Sue  14:31

Well, it would enable this huge amount of institutional capital to come in and invest in property. And at the moment, they’re not doing that.

Jimmy  14:38

Somebody was writing to us the other day saying, isn’t it funny that we’re starting to see these build-to-rent properties come up and these rental apartment blocks coming up, and we never hear about them having defects. Partly because the developer and the builder is having to deal with a large institution, that has just as much money to spend on lawyers as they have.

Sue  15:04

And as well, they’re keeping it; they’re keeping possession of it often. So therefore, if there are any defects, they want to get them sorted. And often these buildings are really premium buildings; they are done by good developers. They are higher rents than private investor buildings. And the finishes and the detailing is of a much higher standing. 

Jimmy  15:25

The opposite of high-rent buildings…There’s a kind of low-rent solution being suggested for tenants, which they are calling the ‘Fonzie Flat.’

Sue  15:34

Oh, yes.

Jimmy  15:36

I think he’s a kind of architect/urban-developer person. His name is Mike Day; he’s been on a tour of the States. There’s a story on the the Flat Chat website. He’s come up with this idea of, I don’t know if you remember Happy Days and The Fonz…He lived in a  flat above his parent’s garage, I think. And I think they’re saying, look, we’ve got these bits of established building; it would be so easy just to build a flat on top of a two-car garage and then there would be more. It’s kind of like the granny flat concept.

Sue  16:13

I mean, you’ve got lots of garages with nothing over them, really. It’s just airspace.

Jimmy  16:20

Apparently, the planning regulations make it quite difficult to do that. But it’s an interesting idea, to develop Fonzie Flats.

Sue  16:28

It came up a few years ago; it was very popular then, because the government allowed some development of granny flats, but it depends on different councils.

Jimmy  16:39

Again, it comes down to the local councils saying “we don’t want anything that even resembles an apartment block in our…”

Sue  16:46

Often they have great views, because they are a bit elevated and it’s a nice taste of apartment living for a house owner.

Jimmy  16:54

It also gets a young person out of the apartment building.

Sue  16:58

Absolutely. They can put a teenager in there; they could put elderly parents in there. Maybe not so much elderly parents; climbing stairs would be an issue. But yes, get away from the kids…

Jimmy  17:09

Okay, so there’s lots of innovative thinking going on around apartments. But the basic problem seems to be… I got quite a good reaction from the piece that I put on the website last week, about war-gaming; the housing crisis, because when you look at all the elements that come into it… This lack of skilled labour, the supply of materials, the nimbyism, the planning; all these different things… There is no one single solution.

Sue  17:40

And Julie Collins, the Housing Minister, said that there had been a long study of housing in Australia, conducted by the former CEO of Mirvac, Susan Lloyd-Hurwitz;  she is one of the people doing it. I think they’ve come up with 11 recommendations to improve the housing situation. And now they’re going through all of them and studying them really closely and seeing what could work. And that’s great that a government is actually…

Jimmy  18:04

Thinking; they’re thinking.

Sue  18:06

 It’s a bit late, really. I mean, the housing crisis is really shocking for so many people.

Jimmy  18:10

But everybody says just let the market decide. That’s how we got into this mess…

Sue  18:16

That’s right. I mean, this is a basic need. You can’t let the market decide.

Jimmy  18:21

When we come back, we’re going to talk about the Strata Matters conference, which is on next week in Sydney, but you don’t have to be in Sydney, because you can attend online and we will be there. That’s after this.

[Music]

Jimmy

So, they’re letting us out of our little studio next week. We’re not speakers so much, as moderators, on a couple of sessions at the Strata Matters conference. The OSN; the Owners Corporation Network conference, their annual conference in North Sydney. I know I’m doing a thing about finance and levies and non-payment of levies and what do you do, if you’re running out of money because people aren’t paying their levies. So that’ll be quite interesting; that’s quite a topical topic.

Sue  19:20

And I’m moderating a session about what to do with ageing strata buildings; how to rejuvenate them, and maybe extend them and add to their value, so that’ll be quite an interesting session, as well. And then I think they’ve got a couple of keynote speakers too, haven’t they?

Jimmy  19:38

There will be presentations by David Chandler…

Sue  19:42

The Building Commissioner…

Jimmy  19:44

Anoulack Chantivong, the Fair Trading Minister, is going to make a presentation. There’s a lot of high-profile people there and a lot of people who think about strata and where we’re going with it. This is all tied in with what we were talking about earlier, the building of new houses. All these houses that they need to build, they’re not going to be houses; they’re going to be apartments, in the vast majority of cases, because it’s just a much more efficient way of housing people; giving people homes.

Sue  20:19

And there will be plenty of opportunity to ask questions of all the speakers as well.

Jimmy  20:23

Well, not if I’m doing it… One of our jobs is to moderate the discussion, and to give people a chance to ask questions and express their points of view.

Sue  20:35

And this is being held next Friday, isn’t it? Friday, the 22nd of September, from 10am to 2pm, in North Sydney?

Jimmy  20:44

Yes and it’s in real-life and online, but you need to go to the OCN website, which is ocn.org.au and click on their Events tab there, and it’ll tell you everything about it.

Sue  21:00

And if you’re going to register, register early, because I think they’re running out of space, because it’s proving so popular, which is good.

Jimmy  21:06

And it will be even less space, after my piece appears in the Fin Review on the weekend.

Sue  21:12

Oh, okay. You’re writing about it?

Jimmy  21:16

One of the things I’ve written about; one of the aspects in this, is future-proofing your apartments… You know, we’re coming up to a period of serious concern for apartments, in terms of weather and floods and fire and stuff like that. People are talking about there being power outages and things like that. What do you do, if there’s a power outage in your apartment block, or the lifts stop? You want to get the power back on, but what do you do until such time as it comes back on? So that’s what I’ve written about this weekend in the Fin Review.

Sue  21:53

I look forward to reading that.

Jimmy  21:55

Alright, we’ve ticked all our boxes. There is so much going on in strata. Keep an eye on the Flat Chat website. Obviously, if you’re listen to this, you probably know all about it already. Sue’s got a lot of articles coming up from the conferences that she attended this week. And if we’re lucky, we’ll see you at the Strata Matters conference next week.

[Music]

Jimmy

Thanks for listening to the Flat Chat Wrap podcast.  You’ll find links to the stories and other references on our website, flatchat.com.au. And if you haven’t already done so, you can subscribe to this podcast completely free on Apple podcasts, Google podcasts, Spotify, or your favourite pod catcher. Just search for Flat Chat Wrap with a W, click on subscribe, and you’ll get this podcast every week without even trying. Thanks again. Talk to you again next week.