Jimmy 00:00
We are going earlier this week.
Sue 00:01
Yes, because you're off tomorrow.
Jimmy 00:03
I'm off to Vietnam again. I have all these frequent flyer points from the last time I was there.
Sue 00:10
And you're going to work from over there.
Jimmy 00:12
That's exactly why I'm going. I might write a piece for Mild Rover, because a lot of people read my piece last week about how to decode TripAdvisor and things like that. I might dash something off.
Sue 00:30
So basically, you're going there to finish your novel though, aren't you?
Jimmy 00:34
I am.
Sue 00:35
And you're going to get away from me, because I've got to finish my novel, as well and we are just terrible together.
Jimmy 00:40
I'm going away to get me away from you.
Sue 00:44
I'm glad. I can be on my own and get my novel written, so we won't distract each other all the time.
Jimmy 00:51
Coming through and saying "I've now written 62,000 words."
Sue 00:56
I wish!
Jimmy 00:58
Today, we're going to talk about an interesting new report that's come out, which has come from quite an interesting source. It's from a quantity surveying company, so they're not actually pushing a product; it's just that they're very aware of what's happening in the market. The managing director, Mike Mortlock, is also a member of the...
Sue 01:18
Property Investment Professionals of Australia; PIPA. He's on the board of directors.
Jimmy 01:24
So he's got an overview, but they put out this report, which has got one of the least sexy names of any report I've ever seen, which is...
Sue 01:35
Rising Tide of Unit Rents Closes Gaps with Houses in Major Capital Cities. What would your title be then?
Jimmy 01:43
Rising Rents Closes Gap on Houses. It's just easier to remember. But to be fair, it does what it says on the tin, and it's quite a comprehensive report. So we'll be talking about that. And we're going to talk about something that's come up on the Flat Chat forum recently, which is about appointing compulsory managers. I'm Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.
Sue 02:11
And I'm Sue Williams, I write about property for the Sydney Morning Herald, the Melbourne Age, the AFR and Domain.
Jimmy 02:16
And this is the Flat Chat Wrap. So this report; give me its name again?
Sue 02:36
Rising Tide of Unit Rents Closes Gaps with Houses in Major Capital Cities. Basically, rents of apartments are rising faster than rents on houses in the capital cities. Particularly Sydney, Melbourne and Brisbane.
Jimmy 02:49
Let's look at how much they are rising and then have a chat about why that might be the case. I mean, I've got the figures here... These are comparing February 2023 with February 2024, so that's the last year basically. In Sydney, average rents for houses have gone up from $650 to $700. The average rent for flats has gone up from $540 to $650.
Sue 03:20
Wow, that's a big difference, isn't it; $110 a week...
Jimmy 03:24
For flats. It's gone up...
Sue 03:26
$50 a week for houses.
Jimmy 03:28
In Melbourne (this is greater Melbourne City), houses have gone up from $460 to $530. Flats have gone up from $430 to $520. There's only a $10 gap there.
Sue 03:41
But of course, because it's from a lower base, the units are cheaper than houses. It's a bigger percentage.
Jimmy 03:47
Much, much bigger. And in Brisbane, houses have gone up from $530 to $580. And apartments have gone up from $470 to $550. So that gap is really crunching down. It's quite interesting, looking at some of the individual suburbs and the difference in rents there. In Turramurra in Sydney, up in the north shore, the gap has gone down $130 a week. So you've gone from, the gap was $530 a week and is now $400 a week, but that's a posh area, Turramurra.
Sue 04:30
Yes, big blocks.
Jimmy 04:31
In Rockdale, the gap has halved from $200, to $100. There is a whole chart of places; it's quite remarkable.
Sue 04:41
So why do they reckon this is happening?
Jimmy 04:43
What they're saying is, that they reckon that it's a lifestyle choice, that people are becoming more used to the idea of living in apartments as a positive choice. I wonder if it's just a case of more apartments are being built than there are houses? But then you would think that that would actually keep the rents down.
Sue 05:05
It would increase the gap between the two. Maybe, we're hitting the tilt point and people now are really actively seeking out apartments and so rents are going up,as a response to the higher demand. Because also, when you say there is a supply of new apartments, of course there is, but it's not terribly much. I mean, development, approvals for new apartments seem to be going down every year. So there aren't enough around to satisfy all the demand. You're quite right; people are getting used to the idea of living in apartments, and it is a choice. And also, people really want to live in the middle of cities. They want to live in the suburbs, just around the capital cities. They want the convenience; they don't want an American lifestyle, where you have to drive everywhere. You drive to the shops, you drive to a cafe, you drive to work, or you travel long distances to work. They just want to live in the centre. Time is really valuable to us all and I think people are willing to make a compromise, to save an awful lot of time.
Jimmy 06:11
I also think that there's an element of the post-COVID surge in overseas immigrants coming, especially from Southeast Asia. People coming to work and study here. These are people who are used to living in apartments and one of the biggest things, when we've done surveys, what people like most about living in apartments, it's convenience and security.
Sue 06:54
We're talking about security of tenure, we're talking about security from outside.
Jimmy 07:00
I mean, if you're in a house in a suburb and you're not familiar with the suburb; you're not familiar with the neighbours, and you are from a different country, you might feel a wee bit vulnerable, where if you're on the 10th floor of an apartment block, and the only people who have access to you, or your floor are your immediate neighbours, then that security is quite a big issue, I would think. A lot of this is these prices are set by the landlords; the owners of the property. And I think a lot of property owners are getting into apartments, because again, if you own a house and you're renting it out, you are responsible for so many aspects of maintenance of that house, and buildings get old; things break, things wear out. You've got to fix the tiles on the roof and things like that. Whereas, if you're investing in an apartment, yes, there is a certain amount of money that has to be paid for maintenance, but you know what that is at the beginning of every financial year, or every AGM. You know that you're going to be budgeted for a certain amount of money and you can pretty much forget it after that.
Sue 07:24
That's right. I mean, we've seen the preference changing for baby boomers, for downsizers. Lots of people who are retiring now are buying apartments to retire into. And you know, 20 years ago, they would never dream of that, they'd always go for smaller houses. But now they're actively seeking out apartments, and especially apartments that have great facilities, like a pool, or a concierge, or a gym. They're really looking for the added convenience of those. So I think that's probably filtering down through the whole system. Yes, that's very true. And with rents going up so much, it means that with your investment in apartments, you're going to get a good return from them. Capital values are going up. People are saying this year, they're expecting house and unit prices to go up by about 10% in the main cities, like Sydney, Melbourne, and Brisbane, and in other cities, and in other regional areas, they might be going up by less, but they'll still be going up. I mean, 10% in a year is pretty strong. You know, that's way above the average rise. I mean, it's not compared to COVID, but that was exceptional, but 10% is really a strong rise. So it's kind of getting tougher for owner/occupiers and investors really, but for investors, apartments are a bit cheaper to buy. Their capital value is going up, and now they're getting a much better return, a much better yield. So it could be that this is the big tilt point, I think, for apartments. And I think it's really important for people to live close to all facilities. I was talking to a woman at the gym the other night, and for me, my gym is about a five-or-four- minute walk away and run there in two minutes, which I discovered last night when I was leaving my class. I was talking to this woman; she travels for two hours to get to the gym! I mean, the gym is a good gym.
Jimmy 08:46
Well, presumably there is another gym in between...
Sue 10:09
There are other gyms near her, but she really loves going to this gym, because it's in the city centre, so it attracts the best kind of trainers for the classes. So she's willing to travel two hours there and two hours back, just to go to that gym.
Jimmy 10:28
Fair enough. One of the things I was going to say about these comparisons; this is average rents. So you're not comparing like-for-like. The average apartment is going to be smaller than the average house. It might have the same number of bedrooms, but there's going to be less space. So that makes it even more remarkable that the rents for apartments are catching up. And in some areas, they've actually overtaken the rents for houses. It's all supply-and-demand. I think if developers start building quality apartment blocks, then people will flock to them, because they've got so much going for them.
Sue 11:11
And so much of the housing stock now is getting quite old. It's quite rundown; it's badly planned. The interiors aren't very well planned, you know, so you kind of walk in and you've got the lounge room immediately. Whereas, with apartments, you've got breathing space before you actually get into the lounge. That's really important, I think. So if you've got a newer apartment over an old house, some people would always go for apartments. And in the past, we've had people who are really keen renovators, and they're very willing to buy old houses and do them up. But at the moment, the construction costs and the materials are so high and skilled labour is in such short supply, it's actually a real deterrent to anybody wanting to renovate.
Jimmy 11:55
Absolutely, and you know, the government is talking about building apartments, closer to railway stations and things like that. I was in Bondi Junction, the other day. I was walking around an area that I wasn't familiar with, so I just followed the signs back to the station. And suddenly, I'm in a Meriton apartment block. I thought I'd gone in the wrong door and then I realised that the apartment block was built above the station. You live in that apartment block, you come down in the morning, there's a cafe; there are half-a-dozen cafes, you can pick up your morning coffee, straight down the escalator, onto the train and off to work. I mean, life could not be more convenient, basically, for the people living in that block, or nearby blocks. And I suddenly got it in a way that I hadn't, that this is all integrated now, it's all part of the same thing.
Sue 12:46
It's fabulous having that choice, isn't it? I mean, there will be some people who would regard that with horror, I'm sure. But I mean, many people would think "wow, the convenience; it leaves me so much time to actually get on with my life."
Jimmy 12:59
The time spent travelling to and from work is generally wasted time for a lot of people. They just want to get in, get into their office, start working, come home, go to the gym and enjoy what time they have in the places that they are. Okay, there's all sorts of theories about why this might be the case, but obviously, the basic one is supply-and-demand, and the demand for apartments is going up and I think that's why they're starting to catch up with house prices. Not that they're going down; they're just not going up as quickly. When we come back, we're going to talk about getting the appointment of a compulsory manager and is it a good or a bad thing. We often advise people on the Flat Chat forum. They say "my strata manager doesn't do anything, my strata manager is in cahoots with the committee and the committee doesn't want to do anything." Usually, the committee doesn't want to spend any money. The strata manager wants to keep their job with the committee and so they will help the committee to do whatever it is they want to do, or not do whatever it is they don't want to do. And it gets a bit cosy; very hard to break through, especially if the strata manager is holding onto the strata roll, and they won't give out email addresses. So you can't contact the other owners and say "do you know what's going on in this building?" So we often suggest to people they should apply to the Tribunal for the appointment of a compulsory strata manager. And we've always warned people that this is one of these 'be careful what you wish for' moments, because that strata manager can come in and usually does come in and takes over all the duties of the committee. The committee doesn't function anymore. They can have meetings, but they can't make any decisions. It's usually for about two years. They're they're, making all the decisions for the strata scheme.
Sue 15:01
People don't realise that they just won't have a voice in that either. I think they kind of think a new strata manager will come in and will really listen to residents, hear what they want for their building, but take advice, and then just do as they're told. But in fact, that doesn't happen at all. The strata manager runs the whole building, and can kind of do whatever they want with it really.
Jimmy 15:23
We've had one case where a reader in Melbourne in an older apartment block, where there was a rusted-on committee who didn't want to spend any money on anything, and the building was gradually deteriorating. And there was a suspicion that they wanted it to run down so much that they could sell it off to a developer. Although that would have been difficult, because it was a heritage building; it just had a lot going on with it. So this reader went off to the tribunal in Victoria and had an administrator appointed. Now, they are saying that these crippling levies have been introduced and it's presumably to make up for all the stuff that hadn't been done over the years. And that's a very clear-cut case of being careful what you wish for. However, there's a story recently about a strata scheme that went to tribunal, said "we need to replace our strata manager, but we just want to replace him with somebody who does just what strata managers are supposed to do.The committee can keep functioning." And this is something that's always been in the law; it says in the act that the Tribunal can appoint somebody to take over all or part of the duties of the strata committee, and that 'part of' thing has never been implemented before, as far as I can see. But I wonder if that's a trend going forward? It's an option, isn't it?
Sue 16:57
Yes it is. Because then people can still have some kind of democracy, but at the same time, they've got somebody overseeing them, who maybe isn't going to take sides.
Jimmy 17:08
You go into these things, asking for somebody to be appointed to make things better, not to make things worse. The attitude in the past has been, if you go in with a compelling argument to replace the strata manager, the tribunal in New South Wales has tended to go "okay, we will replace your strata manager with a compulsory strata manager who has all authority over the whole scheme." It's like the lesser of two evils. Now, it seems like you can go in and say "we just want them to behave like a proper strata manager, because the other person has been so bad at what they're doing. We just want them replaced." And that seems like a reasonable option. But I wonder... I doubt very much whether most of the members at NCAT, The tribunal, are aware that that's an option they can take.
Sue 18:02
That'd be a shame if they weren't.
Jimmy 18:03
There's not a lot of communication. One of the problems is that you've got Fair Trading, who cop a lot of abuse and criticism (not least from us),that can only advise on these things. And then you've got the tribunal, which comes under a completely different department; it comes under the Attorney General's department. A lot of them are retired solicitors and people like that. And some of them are very good. Some of them just don't understand strata to begin with and they just want to draw a line in the sand and say "okay, we stop this, and we're moving on to something else." And that's where the problem arises. But I have not seen anything come out of the Attorney General's office that has said we now have a policy of examining how much control to give up to the appointed manager. And I think that's a huge gap.
Sue 18:54
That's a fabulous thing and if more people are more aware of it, and maybe, when they go to NCAT, they could actually suggest that, if the person at NCAT isn't aware.
Jimmy 19:04
They can, if they've got a smart enough strata lawyer to go in with, but this is the other thing... NCAT was supposed to be set up to be lawyer-free. And that lasted for about five minutes, until the members discovered that they were spending most of their time explaining strata law to the various litigants, who were turning up without lawyers. But now we're getting back to the situation where you go in and the other side says they want to have a lawyer, and then you're faced with the choice of well, do we lawyer up as well and hope that our lawyer is better than there's. So no progress has been made in that regard. They need to have a look at it, and they need to integrate it more closely with Fair Trading. Somebody pointed out on the forum the other day, that we were promised that Fair Trading would be able to go to look at a case and then go to the tribunal, and say "you need to appoint a statutory manager here." But that didn't come in in the last tranche of changes and apparently, they're still looking at exactly how that will work. So hopefully it will work with a bit of communication between Fair Trading and the tribunal. While we're on the subject of the forum, I've just got to point out there is now at the top of the page, a big red button. Well, it's not that big, and it's not that red. But one of the readers wrote to me last week and said I don't want to have to scroll through all the other stuff on the website to get to the stuff that he liked, which was the forum stuff. That's what he enjoys. Obviously, there's a certain amount of schadenfreude about reading about other people's problems. And he said 'could you put a big red button at the top of the page?' And I went 'well no, I'm not really a computer programmer. I'm not a website designer; I'll see what I could do.' And then I found out that I could put a thing on the menu at the top, but not in red. So I thought well, could I make it red? I just Googled it and I got the instructions on how to make this button red. So there is now an orangey-red button at the top of the page, that will take you straight to the forum.
Sue 21:18
Fantastic! I bet that reader is very pleased.
Jimmy 21:20
I've sent them my address for delivery of bottles of wine, but I'm not expecting too much in that regard. And finally, before we go, I'm about to 'lock up and leave' this little office that we're sitting in at the moment and head off to Vietnam We now call it 'Great Escapes.' I don't know who the escape is for, Sue. Is it me or is it for you, or is it for both of us? I'm trying to do a lot more original material. We're not just offering deals, but we're offering a lot of deals. People seem to like local travel hotels, quirky boutique places, or cheaper places that offer you unlimited drinks all day. So we've got all that on the website. But this week, I think I'm going to do a thing about the worst flights I've ever had. And I'm thinking of our honeymoon...
Sue 22:18
That was shocking; it's amazing our relationship survived, really.
Jimmy 22:21
That was a real test, wasn't it? I might jot down a few words about that. Maybe when I'm on the plane to Vietnam, so look out for that. We're calling it 'Great Escapes.' It will be on the front page of the Flat Chat website and that will lead you to the story in Mild Rover, our travel website. Thank you, Sue. Next time I talk to you. I will be in Saigon.
Sue 22:44
And we'll both have loads and loads of words written, hopefully.
Jimmy 22:51
Thank you for listening, and we'll talk to you again soon. 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.