Podcast: Airbnb tax and other strata matters

Busy, busy, busy in the Flat Chat bunker this week. We start with a wrap-up of what went on at the Owners Corporation Network (OCN) Strata Matters conference last week including a grab-bag of politicians talking about what’s been done and what still needs to be achieved in strata.

Then, prompted by a thought from Sydney MP Alex Greenwich that NSW might consider a tax on short-term holiday lets, like the one announced in Victoria, Jimmy rips into the “idiotic” discussion of the proposed tax on Victoria’s short-term holiday lets (aka Airbnb) on the ABC TV’s Q&A panel show.

Back to the Strata Matters conference, and we go through the card, picking up on topics as diverse as  water-saving, levies debts, strata loans, remediation, repairs and adaptation of older buildings.

Finally we discuss one of the major themes of the conference; collective sales – whereby 75 percent of owners can force the other 25 per cent to sell to developers.

We reveal how it has all gone horribly wrong in one scheme where the owners and their prospective developers ended up paying the legal fees of an unsuccessful bidder as they fought to prevent the redevelopment going ahead.

All that and more in this week’s Flat Chat Wrap.

TRANSCRIPT IN FULL

Jimmy  00:00

We were at the OCN, the Owners Corporation Network Strata Matters conference last week.

Sue  00:06

It was fantastic, wasn’t it? It went really well. It had about 200 people there.

Jimmy  00:10

It was full.

Sue  00:13

They sold all their tickets.

Jimmy  00:14

And another 50 people apparently logged in and watched on the internet, online. I tell you what though, it could have been a full day, rather than four hours.

Sue  00:27

There was so much material there.

Jimmy  00:29

I felt we were a bit rushed, to be honest. But we got through our sessions and you took copious notes, so we will talk about that. We’ll talk about…Daniel Andrews announcement… First of all, that there’s going to be a 7.5% levy on short-term rentals and the fact that he’s resigned.

Sue  00:51

I didn’t see that coming.

Jimmy  00:52

No, nobody did; it was a bit of a shock. I’m sure the Airbnb people will be dancing in the street. And, we’re going to talk about a bit of a collective-sales disaster, where people were all ready to sell their building, and then they got basically, screwed over by the legislation that was meant to protect. I’m Jimmy Thompson, I write the Flat Chat column for the Australian Financial Review.

Sue  01:18

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

Jimmy  01:20

This is the Flat Chat Wrap.

[MUSIC]

Jimmy

Strata Matters conference, last Friday…

Sue  01:39

Yes and it was the 21st anniversary, of the founding of the OCN. I can’t believe it’s been 21 years!

Jimmy  01:48

Somebody wrote to me the other day and said ‘as a founder of the OCN, that I…’ I can’t remember what they were saying. And I felt like saying “well, I actually, am not even a member, let alone a founder.” So what happened Sue, because you took copious notes? Anything specific?

Sue  02:06

Yes. Well, we had the opening message from the minister, Anoulack Chanthivong. It was a bit disappointing that he didn’t come along, really. I think sometimes they don’t realise how important the strata vote is, but hopefully, he will have seen how many people came along and maybe he’ll come next time. Well, he should have realised how important it was. He was talking about how there are 1000 new strata schemes registered every year in New South Wales alone. So that’s a huge number, isn’t it? And then you add all those strata schemes being registered elsewhere around the country. That’s incredible, really. He just talked about how they’ve got lots of recommendations for change and improvements for strata laws, and they’re being acted upon. But there is a huge appetite for change and for quick change, really. Not really.

Jimmy  02:56

Was there some hint in the earlier session; now there was an early session with Tim James, the Shadow Minister for Fair Trading and Alex Greenwich, the Independent Member for Sydney.

Sue  03:10

It was kind of interesting, because Tim was talking about how he had also experienced effects in his apartment building (which I think cheered us all no end really). He was talking about how strata should really be considered the fourth tier of government. Which is absolutely right; we’ve been talking about that for a long time, really. And Alex reminded us that there hasn’t been a lot of changes made; laws to stop proxy farming and the establishment of the Building Commissioner’s Office, which has been huge. Some controls around short-term letting, although perhaps they’re not being policed as well as they could.

Jimmy  03:44

Or at all.

Sue  03:46

Well, yes, depending on the local council really, and also allowing pets into apartments. He was saying those challenges still really remain around strata renewal and the need for oversight for that. And affordable housing, the cost of living; we need more action on short-term letting, looking at better caps on the number of nights allowed, making sure the rental housing stock isn’t depleted so much by short-term rentals and having more power for owners corporations to enforce their own bylaws around short -term letting

Jimmy  04:19

Now is there any hint at all, that New South Wales might follow Victoria in putting attacks on short-term lentting?

Sue  04:27

Well Alex actually said he’d like the New South Wales government to consider Victoria’s tax. Tim James looked a bit uneasy.

Jimmy  04:35

Well, he’s a Liberal.

Sue  04:36

Well, that’s right, so it’s unlikely that he’d want to go that way. But Alex said the New South Wales Government should really think about it; maybe not as much as 7.5%, maybe a bit less, but they should really look at putting a levy on short-term rentals.

Jimmy  04:53

I don’t know why they would go for less than Victoria. I mean, it’s the same problem. The tax is not there to raise money, it’s to force people to put their properties back into the residential rental market, isn’t it?

Sue  05:07

Well, that’s right.

Jimmy  05:08

This was discussed in Q & A on the ABC last night.

Sue  05:11

It was very interesting, wasn’t it? Somebody said well, look, if people aren’t making enough on short-term rentals, they’re really unlikely to put it back into the residential rental market. They’re much more likely just to sell it, and then you’re kind of left without a home at all to rent. I think that’s a bit silly, really. I mean, certainly, there are investors leaving the market at the moment, for various reasons, interest rates being one of them, but I think once you’ve got an investment property, you’ve got it for the long -term, because that’s when you make money, when you hold onto it. I don’t think people will, just because the levy is 7.5% they would immediately think we’ll just discard our property completely. Because they could pass it on (some of it, at least), to their tenants, their short-term tenants.

Jimmy  05:59

I mean, there was a ridiculous suggestion that some people would rather leave their property empty if they couldn’t get short -term letting in it. There were so many stupid arguments in that whole panel… The only sensible voice was that Labor MP, whos’ name escapes me. He was basically saying that housing was a right. Housing is a right, but making money off property isn’t a right, but we consider it to be a right and people are misusing the housing stock.

But as always happens, you’ve got one guy; that radio person from Melbourne (the guy on the end), he was saying, “oh, you know, there’s no evidence that these properties will go back into the housing market, because most of the short-term tenants in Victoria are from other parts of Victoria.” It was just total non sequiturs. 

And then there was the Aboriginal woman, who quite rightly said “well, this isn’t going to help Aboriginal people who are suffering homelessness, partly because even if these apartments do come back onto the market, then the Aboriginal people in the Northern Territory, etc, won’t be able to afford them anyway.” Which is a fair point, but that’s not an argument for not doing it. And it’s almost like that argument of, if we can’t get perfection, then let’s not do anything about it.

And then there was a woman in the audience, who was saying “oh, you know, I’ve got this business; we’re going to suffer so much.” Well, what about the people who got kicked out of the city centres, to make way for holiday lets? I just found it so infuriating. You know me, I don’t shout at the television much, but I was shouting at the TV last night. And this is what Airbnb and Stayz absolutely love, when people start having an argument, a discussion about short-term lets and just get away from the core issue. As soon as they start arguing about it, they all argue from a different point of view, misinformed point of view. All that nonsense about sharing; I mean, they very quickly go “it will cost people jobs.”

Sue  08:10

And one person said “oh, it’s all mum and dad investors.” No, it’s mostly commercial operators now, with multiple properties.

Jimmy  08:22

They just trot out this nonsense. And some of them are reading off the Airbnb and Stayz playbook; ‘just say this, tell them that… Keep saying this message, keep talking about sharing, keep talking about jobs.’ Here’s the thing; it struck me when Daniel Andrews was announcing this at a press conference, somebody said “well, why haven’t you done this before? Why didn’t you do this at the start?” And he said “because we didn’t have 39,000 homes taken out of the residential rental market before.” That’s the argument, right there.

And if you think about it, if half of the Airbnb and Stayz properties in New South Wales and Victoria, if just half of them came back into the residential rental market, that would be 50,000 homes overnight. You can’t build them in a year, but you could get them back into the market, within a couple of months.

Sue  09:18

I was talking to someone today about the Federal government, encouraging more homes to be built and they’re looking at 450,000 a year, that kind of thing; that’s what they’re aiming for. They were saying that it’s going to take at least seven years to get those finished, because they’ve got to go through planning approvals. Especially in New South Wales, planning approval takes a long time. They’ve got to find the materials, they’ve got to build them. Seven years is a long time. If someone’s sleeping in their car, or couch-surfing, or on the streets…. Seven years is a lifetime.

Jimmy  09:58

And the people who are saying “we went into Airbnb’s aand developed and put furniture in these places, because we want to make money for our retirement.” Well, you know, my heart does not break for you; my heart breaks for the people who are sleeping in cars, and maybe those people wouldn’t be able to afford those apartments when they come back on the market, but the very fact that there are more homes available, will take down the price of rents, right down the line.

Sue  10:28

It will affect the vacancy rate.

Jimmy  10:30

Absolutely.

Sue  10:31

You’ve got a vacancy rate in a place like Villawood, in Western Sydney of 0.58%.

Jimmy  10:38

Goodness me!

Sue  10:38

 I mean, Sydney generally, is about 1.6%. But you know, that’s incredible and Villawood is suffering a much higher rate of mortgage stress than nearly any other area in Sydney.

Jimmy  10:52

People were desperate to buy houses at any price; homes at any price.

Sue  10:57

And their incomes are lower than average, as well, so it’s really hard.

Jimmy  11:01

And just so that a bunch of people can make more money. It’s not that they wouldn’t be able to make any money off their apartments if they didn’t have them on Airbnb; they’re just making more money than they would have with regular tenants. And to be whining and complaining about an extra 7.5% tax on what they earn… My heart does not bleed for you, I’m sorry.

Sue  11:28

I think you’re being a bit harsh, because I think a lot of people thought this is a genuine way to make money for their retirement. And nobody realised; when people started out doing Airbnb, nobody realised that it would have such a catastrophic impact.

Jimmy  11:45

Excuse me, I was writing about this for years and saying it would happen.

Sue  11:50

Were you?

Jimmy  11:51

Yes, I am the person.

Sue  11:53

Some of these people got into it and you know…  I stayed at an Airbnb years ago. I stayed in Melbourne, and it was a woman who was renting out a bedroom in a house and I stayed with her; it was great.

Jimmy  12:08

That was proper sharing.

Sue  12:10

That was different, yes.

Jimmy  12:11

These are people who take an apartment, which would normally have a family in it, or a couple in it, and throw them out and say “right, we’re gonna have tourists coming in here and if it’s in an apartment block, if the other people don’t like it, that’s tough. But oh, by the way, could you please keep up the repairs and maintenance, because, yeah, we know our tenants, our guests, knock the building about a bit, but we’d like it to look nice and clean for them, so that we can get more money off them.” I mean, Jesus, come on!

Sue  12:43

Okay, let’s stop that. We’re finished now. We’ve done that one.

Jimmy  12:47

We’re going to take a quick break and when we come back, we’re going to go back to the Strata Matters conference.

[MUSIC]

Jimmy

And we’re back.

Sue  13:01

Yes. There was another panel, which you chaired, about making good decisions for your asset in challenging times and it was really interesting. Tonja Gibson of Strata Answers talked about water, about the importance of saving water. It was interesting; she was saying that 80% of strata water bills are water used inside an apartment. She was talking about a company who goes through an apartment and does an audit of apartment buildings. The team of plumbers come in and go through the building, fix any leaks, replace old fittings, and generally, kind of tighten up everything. And they usually find a savings of between 30-to-45% on bills, as a result of that. And there was one small building that had an annual savings of 40%, which was $19,000 a year. That’s a lot of money, over a number of years, as well. So that was something that I’d never actually considered before.

Jimmy  13:54

It’s also helping the environment, because a big part of the cost of water in apartments is pumping the water up to the top, so that it can come down through gravity. And the more water gets used, the more electricity gets used, in pumping the water up.

Sue  14:14

Reena Van Aalst of Strata Central talked about how the cost of living is impacting us all, but she hadn’t seen levie defaults rising very much. She thought it was maybe because some people are still on fixed-rate mortgages; they haven’t quite gone over that cliff, onto variable rates yet. She was saying that buildings have a statutory duty to keep buildings in good repair and most owners are prepared for modest increases in levies. And they have to take that into account, when they’re looking at their capital values, it may have doubled over the past five years.

Jimmy  14:46

But there was a suggestion (and this was picked up by the other speaker, Paul Morton), that the majority of people in apartments do not consider that it’s their duty to financially support members of the community who are worse off than them. In other words, if you’ve got your levies in default, then you better pay them, because your neighbours are not just going to let it slide for too long, before they come looking for penalty interest. Especially if they need to borrow money, to keep things going. Those penalty interests; it just happens to work out to pretty much cover the interest of a strata loan. So there is absolutely no benefit in owners corporations’ saying “we’re not going to charge you the penalty interest on your unpaid levies.” So what else happened?

Sue  15:36

Paul Morton from Lannock Strata Finance, was also talking about when you need big repairs in a building, or you want to do an update, you’ve got three ways of going; you can use your sinking fund, you can have a special levie, and you can take out a loan. I mean, obviously, he specialises in loans to strata buildings, but he was saying when you compare the cost of each one, you have to look at it pre-tax and post-tax, which hadn’t occurred to me before.

And he was saying that often, it’s really important to pay for good solutions to preserve the value of your apartment, so you need to pay out this money. And he was saying often, in the majority of times, a loan turns out to be cheaper after tax, than the alternatives. And Reena said she often recommends loans to her clients, whereas some people are very nervous about them. But then, we all take out mortgages, so why not for the buildings?

Jimmy  15:37

One of the questions from the floor was that somebody said that their strata manager said that a strata loan would affect the value of all the properties in the building, because people would say “oh, there’s a strata loan here,” so it’s worth less. I think Paul jumped on that fairly quickly; he said, well, people just calculate it into the cost of the property, and people would rather see that a property was having repairs done, and that the owners weren’t kidding themselves that everything was fine, when it quite clearly wasn’t.

Sue  17:06

Absolutely. And then we had a keynote from Katie Harborne of the Better Regulation, division at Customer Service. She talked about the various acts that have been put into place, to improve the design and quality of buildings and to safeguard future construction quality. And somebody from the floor talked about their concerns. It’s really hard getting skilled tradies now, because some of them don’t have the certification; they don’t have the qualifications that are now necessary. And Katie argued back and said “well, really, we had to lift the standard. It’s just a short -term shortage, because those people are now getting their qualifications.”

Jimmy  17:42

They are getting trained up. I mean, the key issue there was waterproofing and that’s the one that has plagued strata for years. Waterproofing has been so suspect, that it was the one thing that really needed fixing. People were saying “oh, we can’t get our waterproofing done, because we don’t have the skilled trades.” Well, skill-up, is the answer.

Sue  18:05

And then there was a panel that I moderated…The adaptation and renewal of ageing assets. We had Professor Hazel Easthope of the University of New South Wales, from the City Futures Centre, and Daniel Sirone of Sedgwick, a building consultancy and structural engineering company, and they do surveying and project management, as well.

And we looked at maintaining buildings and Daniel talked about how you have to define the objective and extent of works really closely and keep good communications with all your tradies, to make sure you’re doing okay.  And then there’s also the the idea of improving buildings. I mentioned Glenview Court in Tamarama, that old brutalist building right on the hillside there, which has now become Skye Tamarama. It’s an old 60s-78 apartment building, and it’s now got two fabulous penthouses on the roof, which are being sold for $20 million each.

They’ve got a couple of levels of car parking underneath the building, that have been dug out. It’s got a new wavy roof and it’s got nice courtyards and balconies now, so it’s really changed the building and they had a huge strata loan to do that. It wasn’t smooth sailing at all. There were cost blowouts and rows and difficulties, but they finally seem to have got there. And hopefully they can sell their penthouses. So, you know, the sky’s the limit, so to speak.

Hazel talked about the sort of things you can do. You can look in your building to see if there are any spare spaces that aren’t being used; common property spaces. You can have little work from home offices. You can sell those places to people. In some old buildings at Bondi, they’ve kind of reconfigured them and rebuilt them, to make more apartment as well, and then there’s demolish and collective sale.

Jimmy  20:02

Maybe we’ll talk about that after the break, because there’s a very specific example there, of things that have gone horribly wrong, and other things that are going wrong for some residents. At that point, I think we had to leave.

Sue  20:16

Yes. So we miss David Chandler, the Building Commissioner…

Jimmy  20:20

A recording of him.

Sue  20:21

Well yes, that’s right. And then there was a panel on strata disaster and planning and de-risking.

Jimmy  20:26

Well, we will never know.

Sue  20:28

That was all about emergency protocols and building diagrams and leadership education. But presumably, we could put a link from the OCN onto the Flat Chat website?

Jimmy  20:36

Anybody who missed it (including us), can go back and watch the video of what happened for the whole of the day, basically. I mean, it’ll be cut back a bit, but you’ll get the essence of it there. When we come back, we’re going to talk about collective sales and how it can go wrong, if you just take one or two steps in the wrong direction. That’s after this.

[MUSIC]

Jimmy

Collective sales; this is what we used to call forced sales. That’s where 75% of owners can vote to agree to demolish or sell the building, or whatever. It was designed for older buildings that were well past their use-by-date, but you might have one or two owners holding out, either for emotional, sentimental reasons, or because they wanted to be the last person to sell, so that they could get the most money.

Sue  21:37

Absolutely. So with a 75% rule, I think a lot of people thought there was going to be a lot more small crumbling, old buildings demolished, and big buildings put up in their place, which would be a central tenant for the New South Wales government, to ease the housing crisis, really, because lots of these areas have been rezoned, so they allow much higher buildings, and so they would have a lot more apartments on those kinds of sites.

So a lot of the older buildings get together, and they all want to try and sell their buildings together, so then a developer can come in, amalgamate the sites and build a huge tower, or a couple of huge towers. And Macquarie Park has been kind of a test case for this, because it was rezoned to allow much higher buildings. It’s got lots of crumbling old stock from the 50s and 60s.

And as well, at the time, the market was really strong, so developers were really keen to to build new buildings. But then it all went kind of horribly wrong. Lots of buildings got together and tried to sell them to developers and out of 11 bids, only two of those are now being redeveloped and that’s a really small percentage.  Professor Hazel Easthope has done a paper, which has come just come out and I’ve done a story about it for the Herald. And it’s about two buildings that got together and wanted to sell their apartments.

They got a good offer from a student housing developer, GSA and so they decided to go with that. But at the same time, unfortunately, another developer (who was going to make another rival bid, but then withdrew it), owned some apartments in the building, so therefore, they were part of the 25% who objected. And under the new legislation, the minority owners can go to the Land and Environment Court and object to a building strata being extinguished.

And so some companies associated with that developer did exactly that. And the problem with the new legislation that nobody really foresaw, is that the new legislation says that the owners corporation has to pay for those minority owners to go to the Land and Environment Court; it has to fund their appeal. So therefore, the owners are paying huge money for legal action against themselves.

Jimmy  23:57

By a commercial interest.

Sue  24:00

Well, yes; nobody foresaw that. And in this case, the owners corporation were quite wise and they said to the developer; GSA, the successful tenderer… They made an agreement with them, that they should pay the legal costs, if there were any objections. So then GSA was then paying the legal costs of a rival developer, to protest against their plans. So it became really, really expensive and incredibly messy. And in the end, the whole thing collapsed; GSA walked away, because it was becoming too expensive. As a result of that example, a lot of the other developers who were thinking of redeveloping sites, started saying well no, we’re not going to do it, if there’s only 75% of people who want to do it. We will only do it if there’s 100% unanimous. So then you’re back to square one, before that legislation came into effect.

Jimmy  24:51

Right. And just briefly (because we are running out of time), there are stories going around about a developer in Sydney, who is going into old buildings that need…

Sue  25:04

Work done, like fire orders…

Jimmy  25:06

Remediation work. Going in and dobbing the buildings into the local council, getting the remediation orders through and then saying to the owners “okay, you better sell to me now, before these crippling special levies come in.”

Sue  25:22

That’s right.

Jimmy  25:23

And apparently this has happened in two buildings, and they’re all buildings, but in fantastic locations, with terrific harbour views and things. This is so sleazy. I mean, if it’s true…

Sue  25:37

We know the buildings involved, but maybe we could do a bit more work on that. It’s just a horrible thing, isn’t it? These are people’s lives and their homes, and somebody sees they could get a buck out of it, and just pounces.

Jimmy  25:51

I remember a couple of years ago, there was somebody in the eastern suburbs, who bought into an old building, persuaded the owners corporation to dig a new car park under this old building, which is going to cost a fortune… A huge special levie; all the old people, who were on fixed incomes sold out at knockdown prices and the carpark was never built. It was just a ruse to scare people.

How evil; these people should be in jail. I sense our dinner is burning; I’d better go and fix it. Sue, we might pick up some of these themes for next week, because there was a lot going on at the conference and there will be a link to the OCN website, where you can catch up with that yourself. Thanks again. I know you’re very busy at the moment, but it’s always good to sit and have a chat about things strata. We will talk to you all again 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 flat chat.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 podcatcher. 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.