Podcast: Unit boost too late for returning students

There’s some good news and some possibly calamitously bad news in this week’s podcast.

Firstly, the number of apartment building approvals was up by more than 50 per cent in December, month on month.

Then a major league developer has told state governments they need to make much more of an effort on affordable and build-to-rent apartments.

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LISTEN HERE

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But all of that is in the future.  Right now, tens of thousands of Chinese university students have been told they need to get back to in-person tuition.

That means an incoming surge of students, all of whom need to be housed somewhere in a market that’s already collapsing under the strain of massive demand and critically low availability.

Does this mean we’re heading back to overcrowded apartments and slumlord head tenants ranting apartments then cramming them with overseas students?

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

TRANSCRIPT IN FULL

Jimmy  00:00

It’s Tuesday afternoon, rather than Sunday morning.

Sue  00:03

Yes, we’re a bit behind this week, aren’t we?

Jimmy  00:05

We are, and we’re looking to the future… We’re looking at apartment building approvals and we’re looking at what’s going to happen when the students from China started coming back to Australia. Two big events, at either end of the housing situation. They’re not unrelated, are they really? They’re not really, no. So, plenty to talk about. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  00:30

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

Jimmy  00:32

And this is the Flat Chat Wrap.

[MUSIC]

Jimmy

Sue, you’ve been looking at new building approvals and it seems like there’s a bit of movement on the apartment front?

Sue  00:54

Absolutely. There’s been a lot more apartment buildings approved for December, compared to the previous month of November last year.

Jimmy  01:01

In New South Wales?

Sue  01:04

That’s right. There were 2,822 apartments’ approved to be built in buildings in December, compared to just 1,111 in November. I think that’s about a 56% rise, which is really good.

Jimmy  01:20

And does this indicate a shift from people building houses, to building apartments?

Sue  01:26

I think it could, but it also shows much more confidence in the apartment sector I think, because there are a lot more people wanting to buy homes… They’re wanting to buy affordable homes; they often can’t afford houses, so they’re choosing apartments instead. And also, we’re hoping to get so many migrants this year; already the flow has started and many of those new migrants will be living in apartments, rather than houses.

Jimmy  01:52

Well, partly because they’re used to living in apartments, and they’re not craving that idea of what used to be called ‘the quarter-acre block.’

Sue  02:01

I mean, it might be later on that they move into houses, but always they come and live in apartments for at least two years and some of them will live in apartments for a lot longer.

Jimmy  02:13

There’s also a report this week, that Lendlease has called on governments to support affordable housing; to the point of saying that every development, regardless of whether its on former Commonwealth land or not, should have 30% of affordable housing.

Sue  02:34

Wow, that’s quite high isn’t it?

Jimmy  02:35

It’s huge, although apparently, it’s not high compared to the rest of the world. I mean, it’s standard elsewhere, that in new developments, there will be a certain amount of affordable housing and build-to-rent housing. These are apartments that will not necessarily be sold into the private market. Some of them will be retained to be rented at a…

Sue  03:02

Lower than market rate.

Jimmy  03:04

 Yes, and others will be built purely for rental; they’ll never be sold.

Sue  03:09

And they’ll sometimes be managed by housing trusts, or housing charities. I mean it’s interesting, because a lot of people think “ah, I wouldn’t buy an apartment in a building where maybe, 30% is for social and affordable housing.” But in fact, where that’s happened, the demand for them has been extremely high. You get a real diversity of tenant and it works out really well. It becomes a really harmonious community. I went to see one last year that had been built just near Wollongong, and it was fantastic. The apartments were beautiful; really built and designed to a high standard and the people who were in social affordable housing were just so thrilled to be there and the other people who had bought there, were just really pleased as well, to be part of a really diverse community, rather than just loads of people, all in the same kind of price bracket. They had older people, younger people, families and professional couples. It was a real mix; it made me think well, this is what the future of housing should be like. It shouldn’t be groups of people who can all afford a certain outlay. It worked out really well.

Jimmy  04:19

A lot of commentators have said that the problem with affordability in housing in Australia is that for decades now, housing has been seen as a prime investment for individuals and companies. You can put your money into housing, because you know that the population is going up, therefore the demand will increase. Given a few bumps and troughs along the way, basically house prices go up, so it’s a pretty reliable investment. And then you get all the tax breaks that go along with that, so that the person who just wants to buy or rent somewhere to live, is an afterthought.

Sue  05:01

That’s right. It’s become a really distorted market, because as you say, it’s all about wealth creation, rather than about finding people appropriate homes.

Jimmy  05:09

Yes, and as long as we have that distortion in the market, then people will find it increasingly difficult to get homes. The negative gearing thing just skews everything out of all consideration, but who’s going to be brave enough to finish it?  Even suggest finishing it… I mean, even the suggestions they’ve had in the past (the Labor Party)… The last election, but one said “we’re going to end negative gearing, but we’ll keep it for the people who’ve already got apartments or houses.”

Sue  05:40

We’ll grandfather it.

Jimmy  05:41

And that’s set off hysteria.

Sue  05:43

That’s right. But I think people are now generally a lot more knowledgeable about negative gearing and a lot more reasonable and are willing to think about it and talk about it. I reckon it’s just slowly dawning on us, that it might be okay to get rid of negative gearing and that the world won’t end. So I wonder if at the next Federal election, it could become an issue again. It does seem the Labor government has an awful lot of support at the moment and if it pushed it’s way behind the end of negative gearing, it might well get through.

Jimmy  06:20

But it’s one of these things that should be a bipartisan thing; to house everybody in the community, to a reasonable standard. That shouldn’t be a political football.

Sue  06:30

No, absolutely.

Jimmy  06:31

But it certainly will be, regardless.

Sue  06:34

Yes, it will, but I think a lot of voters… I mean, they have kids who are really struggling to get into the market. They know lots of other people  who are having trouble; they themselves may be having trouble. We’ve had nine interest rate rises, after today. When did they start going up; in May last year, I think? So now the cash rate is 3.35%. That’s a lot more than the 0.1% it was during COVID. That’s really harming people; everybody’s feeling the squeeze. Inflation is pretty high at 7.8%, so people are struggling with food prices and fuel prices, as well as building costs. I think people are much more ready now, to start thinking, well, the things we’ve tried in the past haven’t worked, how about we look at something new, and how about we consider it a bit more carefully?

Jimmy  07:24

Yes.  But we seem to be incapable of considering, in the same breath, the idea that house prices are too high, that we should bring them down. You’re saying to people “oh, house prices are going to come down because of interest rates,” and then people are saying “oh, my kids can’t afford to buy an apartment or a house, because the house prices are so high.” Well, make up your minds; you know, choose a lane and what that lane is. Bring house and apartment prices under control, and set a reasonable base for them, so that people can aspire to rent for long -term… That’s the other part of it; long-term rentals are so much not a part of the scene here. Give people the opportunity to rent for long -term; give people the opportunity to buy into a market which doesn’t explode every six months or so, when prices get out of control again.

Sue  08:26

Sure, and when you’re talking about rentals; I was just looking at a piece of footage and it showed this massive long queue of people, all applying for one rental property. A three-bedroom apartment, somewhere or other. This long queue just snaked around the block. All these people standing there, looke so depressed and miserable and it also interviewed the person who’d just left there. She was a tenant, and she had left because her rent had doubled, so she couldn’t afford it any longer. She was having to join the other queues of people, for other rental properties, and all these people were willing to pay the much bigger price and sometimes (which is not legal),  offer more than the price, just to try to get in. Some of them were applying to rent the place, even before they saw it.

Jimmy  09:17

I think it’s legal to offer; it’s not legal to suggest.

Sue  09:23

What’s the difference between ‘offer’ and ‘suggest?’ Oh, for the real estate agent to suggest it?

Jimmy  09:27

Yes. It’s legal for you as a tenant to come in and say “look, I’ll pay a bit more,” but it’s not legal for the agent to say “you know, you’ll get this, if you pay a bit more.”

Sue  09:40

Right. Well, who’s to say what conversation goes on between somebody who’s really desperate to have a roof over their head and a real estate agent?

Jimmy  09:50

I don’t know if there’s a mechanism there, where you can go back and say “hang on, this was advertised at x amount a week and it’s now being rented at x times.”

Sue  10:02

Then they’ll just say “well, the tenant offered more money,” wouldn’t they?

Jimmy  10:05

Yes.

Sue  10:06

I mean, it’s just horrendous, watching these queues of people, just trying to find a unit. It’s great that the housing approvals are up for apartments, so we will get more, but it’s going to be another three years before all those are built. It’s going to take a while and in the meantime, there’s a lot more migration here, so there’s going to be a lot more pressure on that housing market, too.

[MUSIC]

Jimmy  10:39

It’s funny to think that a new policy on education by the Chinese government would have an effect on the housing market in Australia, but I think it’s about to have a very profound effect.

Sue  10:52

Absolutely! Tell us what the new policy is.

Jimmy  10:54

Well, the new policy is that the Chinese government has announced that in the future, they will only recognise degrees where the students have had face-to-face tuition.

Sue  11:05

Is that because there’s so much corruption?

Jimmy  11:08

Well, I think there’s a problem; there’s a big problem throughout education at the moment, of people buying essays and they’ve got…

Sue  11:17

AI?

Jimmy  11:18

Artificial intelligence writing essays for people and the fact of the matter is, the only way you can tell, is by face-to-face.

Sue  11:28

Yes, that’s true. A friend of mine (who’s a journalist), asked that programme; what’s it called? Chat GPI, or something… I can’t remember what it’s called, but she asked this thing to write a story for her, for a newspaper, and she gave it the information. She said the story was absolutely perfect. So, it could be the end of journalism! But yes, it would be very hard to see if students are using that, really. It would be hard to pick out the ones who are.

Jimmy  12:06

I mean, I’m teaching at the moment and there are students that come along…  I have to say,  we are alerted that the homebase University for these American students has very strict guidelines on plagiarism and things like that. And there is a very sophisticated system, where all essays are fed into an online system that is able to compare with previously written essays. Now, if those students have used this artificial intelligence writing thing, then that will not show up. I was researching some background on one of the items I was teaching. In fact, it was ‘Cloudstreet,’ the Tim Winton book. I just wanted some background information about how it was perceived overseas. And I found this terrific essay, which touched all the major points. It made a lot of sense and had some very compelling arguments. I went to find out what the source of the essay was and realised it was a company that was selling essays about Australian literature. So this is exactly the kind of thing that could slip through the net now.

Sue  13:22

So you’re now selling it to your students, to make more money?

Jimmy  13:25

If you find yourself as a teacher, dealing with somebody who is not engaged and quite clearly doesn’t understand the subject and then produces a brilliant essay about it, your alarm bells are going to go off and you will be able to find out whether or not this has been written artificially, or bought off the net. You do that by just taking a passage from the essay and saying to the student “can you just explain what you meant by that?” If they stumble and bumble, then you know that you’ve got an issue. The other side of that is, that I found two essays where both had exactly the same spelling mistake. That’s a bit of a flashing red flag. Yes. Because of those crime mysteries where… Like ‘Line of Duty.’ The whole series hinged on the misspelling of one word. {NB: It turned out that the word had been auto-corrected incorrectly}

Sue  14:23

That’s right.

Jimmy  14:24

I won’t tell you what it is, because it will ruin it for you.

Sue  14:28

So now all these Chinese students are actually coming to Australia, whereas maybe before, they were doing their lessons on Zoom and things, but now they actually have to come.

Jimmy  14:37

And sit opposite people like me and sound as if they know what they’re talking about, before they turn in an absolutely brilliant essay. Which brings us back; sorry, I see what you’re doing here… You’re bringing us back to the topic, which is, where are they going to live?

Sue  14:53

Yes, there’s going to be a huge problem, isn’t there? Firstly, apartments are so expensive; on a student income, it’s going to be hard. Secondly, there’s just none around.

Jimmy  15:03

And you know, some of the apartments that they could be staying in… If you get four students to agree to share a two-bedroom house; so they’re sharing a bedroom, but they’ve got a lounge room, that two -bedroom apartment or house is going to cost them $800 a week. They can afford that; $200 is reasonable, for student accommodation. But will they be allowed to rent that from the landlord? Would the landlord say “oh, I’ve got four Chinese students, who want to rent my apartment; I don’t think so.” I would rather have Chinese students than…  Yes, but I’m talking about other people in this world. Along comes ‘Aussie Joe,’ who says “I’ll rent your apartment for $800; no problem.” And as soon as they’ve signed the lease, in come the bunk beds, and suddenly you’ve got eight students, or twelve students, living in that same space. I am concerned (and I’ve written about this for the Fin Review), that we could be back to the bad old days of overcrowding.

Sue  16:12

Quite easily.

Jimmy  16:13

When people were moving into studio apartments and filling in the gap between the lofted bed area and the window space, to create another floor, to squeeze more students in. Certainly, City of Sydney Council and other councils were working really hard to do something about overcrowding. But of course, that all became irrelevant when COVID hit. Suddenly the problem went away, because the students went away. What’s going to happen when they come back? We’ve heard about people… For instance, there are agents who have connections with families back in China, who say “we looked after your older son or daughter, would you like us to look after the younger ones?” Because it’s a matter of pride; the kids are not going back to their families, who are paying a lot of money for them to stay here and say “you put me into an absolute hovel, where I had to sleep in the laundry space on a mattress, on top of the washing machine and sink,” because that would embarrass their families. So the reports don’t come back. And the same agent comes back to the same families and says “hey, we’ve got space for your kid in a nice apartment, near the university.” I can’t say for sure that that’s going to happen again, but I’ve got a feeling that those people have not gone away. The head tenants of apartment blocks here; we know the one thing that they always make sure of, is that they pay the rent on time, every month, so the owner never thinks there’s a problem. They think “we’ve got a really good tenant in there.” The only time they will get any inkling that there’s a problem, is if other people in the building complain. That’s what I think the real crux is for apartment residents; to say “there’s a problem in that apartment. There’s too many people staying in it.” We can pass a bylaw in New South Wales; you can pass a bylaw to limit the accommodation in an apartment to two adults per bedroom. It’s hard to prove, but it can be done. You’ve got to do it, or the sharks will move in, exploit the students and ruin the community. Every time our building has to upgrade its security to make sure the right people are being allowed in at the right time, it has an effect on the people who already live there. There’s one building in the city, where your ID is connected to your key fob. Your key fob gets read at the front door. The camera at the front door looks at your face.

Sue  19:02

Oh really, it matches it? 

Jimmy  19:03

It takes a picture and if it’s not the same, or very similar to the picture that’s on the computer, the door won’t open.

Sue  19:09

That’s clever.

Jimmy  19:10

It’s clever until you run out to get milk from the shop on the corner and you grab your partner’s keys and then you try and get back in and your face doesn’t match the face on the computer. Obviously, anything that’s sophisticated like that is going to have the possibility of things going wrong. You wouldn’t need them, if people weren’t overcrowding apartments, and that’s something that the government needs to look at, in terms of legislation. It’s all very well to leave buildings to put in bylaws and police their own bylaws. There has to be something bigger than that, that actually deters people from doing it in the first place.

Sue  19:52

Sure thing, I quite agree.

Jimmy  19:55

Okay, so that’s it. There’s going to be more apartments built, but in the meantime, there’s going to be thousands’ more students coming. Some of them will be lucky enough to get into dedicated student accommodation.

Sue  20:07

Yes, and some of that accommodation is really nice now; it’s being done by some top architects. Really neat designs.

Jimmy  20:14

And nice little community spaces, as well. They can hang out with people who are just like them, or come from similar backgrounds.

Sue  20:20

And another person we know has students come and stay in her house with her. She’s got a three-bedroom house and she’s an empty-nester now, so she gets a couple of young people to come in and stay. She cooks them breakfast and dinner most nights. She really enjoys the company, and they probably quite enjoy some home-cooking and spending some time in a nice house.

Jimmy  20:44

Well, this is an area that’s been mentioned as well; you know, the empty room’s syndrome. You know, empty-nesters is an obvious one, but people who have more space in their house than they necessarily need, who would welcome the opportunity. Maybe they don’t need to even cook them breakfast, just give them a secure bed for the night. I don’t know if there is an agency that connects people who’ve got accommodation, with people who need the accommodation. If there isn’t, there should be.

Sue  21:16

Yes, because maybe, lots of elderly people living alone would quite like a little bit of company and the reassurance that somebody is there, if anything goes wrong.

Jimmy  21:24

But you need the people at both ends of that agreement to be protected. You need the homeowner to be protected from bad elements that might want to take advantage of them and you need the students to be protected from bad elements that might want to take advantage of them. But once you’ve got those guarantees in place, and you’ve got a system where, if something does go wrong, either can complain, then why not? I mean, it’s just stupid to have people desperately needing accommodation and lonely people sitting in houses that are too big for them. Right, problem solved; we can move on; great! Well, Tuesday afternoon; we’re running late, but we’ve got another one in the can, Sue. Thanks very much. I know you’re incredibly busy at the moment.

Sue  22:11

It’s always a pleasure, Jimmy. Thanks for listening!

Jimmy  22:18

And we’ll talk to you again soon. Bye.

[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, Stitcher, 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.