Podcast: Busy making plans to do nothing

This week we introduce you to the concept of “downvesting” – no, it’s not a singlet fashioned from duck feathers, but a growing trend whereby impending retirees buy a property that they plan to downsize into but rent it out until they are ready to make the life-changing move.

And we investigate the challenging concept of de-cluttering and how getting ready to move house could change your mind about moving at all.

We take another look at Build-To-Rent and how one superfund, the majority of whose members work in health and social services, is investing in a BTR block of which many of the residents will be exactly that slice of essential (but often underpaid)  workers.

And we have a look at how the new tax proposed for short-term holiday lets in Victoria is long overdue and could and should spread to other states.

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

TRANSCRIPT IN FULL

 

Jimmy  00:00

Had a busy day today?

Sue  00:01

Oh gosh, yes! I couldn’t face too many days like that one again.

Jimmy  00:05

I had a talk about my new book, at a library in North Sydney.

Sue  00:12

And I understand you went to the wrong library?

Jimmy  00:14

I went to the wrong library.

Sue  00:15

Oh my god!

Jimmy  00:16

I had this mad dash… And the ridiculous thing is, we went to the wrong library, but we got there three-quarters of an hour early and then realised, oh my god, we’re in the wrong place; we’re 20 minutes away from where we need to be.

Sue  00:30

Oh, no! But you arrived in time?

Jimmy  00:32

Just a couple of minutes late, but it wasn’t a good look.

Sue  00:36

Well, I had something similar… I got the train; I was doing a talk in Hornsby. I went to the wrong platform in Town Hall and then I had to run to another platform and then realised I was at the wrong one again, and I had to run to a third one. So I was really very hot…

Jimmy  00:53

Dragging a bag full of books.

Sue  00:55

That’s right. And then the train stopped somewhere. And I thought “this is weird.” Everybody got off and I found a man cleaning the train and said is this train going to Hornsby?” He said “oh, no, you have to switch to that one over there.” So I had another mad dash to the next train. So yes, it was a bit hectic.

Jimmy  01:11

Right. But the good news is your new book is being taken to the Frankfurt Book Fair, I believe?

Sue  01:19

That’s right. This book is coming out in April. It’s a nonfiction and they’re all pretty excited about it;  I’m excited about it, too.

Jimmy  01:27

So am I. Okay, well, let’s get excited about things related to strata. What have we got happening?

Sue  01:34

Well, I’ve done a story about the latest trend in strata. We know about downsizers; we know about investors… This is called ‘down -vesting, a kind of combination; a hybrid of each.

Jimmy  01:46

We’ve got this thing, getting another push this past week, which is build-to-rent. And just today, the Victorian Government has announced huge plans to build lots more apartments (it will be apartments). I think they said 80,000 a year, for the next 10-years, or something like that, which is a lot. I’m not sure; that figure doesn’t sound right. But they’ve also brought in a levy on Airbnb, of 7.5%.

Sue  01:54

Is that the first jurisdicton to do that?

Jimmy  02:26

Yes. I think that Hobart has increased the rates on Airbnb properties and I think a couple of other councils have done that as well, in Victoria. But this is an actual levie. If you get $100 from your tenants, your renters, your guests, you’ve got to pay $7.50 to the government. We’ll talk about that as well. A lot to get through, again, as ever. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  02:57

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

Jimmy  02:59

And this is the Flat Chat Wrap. Sue, tell me about down-vesting.

Sue  03:17

It’s this new trend that they’ve identified and I think it’s been going on… It kind of started during COVID, where lots of people bought properties that they thought they would like to downsize into. You know, maybe they’re on the coast or inland a bit, and maybe a bit cheaper. When they move in there, and they can sell their house, or their apartment that they’ve lived in for a long time, they can sell for a profit, and they can get rid of their mortgage. But since the end of COVID, they’ve discovered that people aren’t actually moving into these new apartments that they’ve bought on the coast and in the country. They’re hedging their bets a bit, because they realise that eventually they want to live there, but they’re not quite ready yet. They want a couple more years of living in their regular home. So maybe it’s they’re just not emotionally ready.  Always, when you move into an apartment from a house, you’d have to declutter, you’d have to get rid of so much stuff and they’re just not quite prepared to do that yet. Or they might still be working, and they can’t work from home all the time. So they’re just thinking that they want to delay that move a bit. So when they choose these places to downsize into, they’re also choosing places which are going to make a good investment. So therefore, in the interim, before they’ve moved in, they’re going to rent them out on a regular residential rent, or they’re going to use them as weekenders, or sometimes, they’re going to put them on short-term rental platforms, although in Victoria they’ll be paying for the privilege, I  understand.

Jimmy  04:44

Yes. It sounds like it’s investing in future downsizing, hence the down-vesting.

Sue  04:55

There’s a new term for everything.

Jimmy  04:56

Is there a chance that some of these down-vestment apartments will sit empty for a while?

Sue  05:02

Well, that’s always possible, but at the same time, people bought them for a reason. They found them pretty attractive in the first place. So sometimes they might be putting off the actual move, but they’re starting to think well, I’d really like to go there. And then they start planning to get rid of stuff and planning the kind of furniture they want for their new apartment, and then start getting excited about it and move in sooner, rather than later. My brother, for instance, bought a down-sizer place outside of Sydney, in Port Macquarie and he planned that that would be a down-vestment, really. He’d go in there eventually, but then he kind of kept looking at it and thinking “actually, I really like it” and so him and his wife moved there.

Jimmy  05:40

Right. Because I’m thinking, you know, you said about decluttering and that’s one of the things we kept getting people coming to us and saying “we’d really like to put your apartment on the market, because apartments in this building are selling for a lot of money.” And you know, the prices that they kind of suggest are pretty decent, if you don’t need to live somewhere. But one of the things that stops me from even entertaining the idea, is the thought of what you call decluttering. 20-years of accumulated clutter; books, magazines, free gifts… I have a million pens. There should be a pen-recycling thing, somewhere.

Sue  05:41

And Jimmy when you say it’s 20-years worth of junk…

Jimmy  05:47

It’s actually all the other years…

Sue  05:50

Treasures, I mean. If you remember, before we moved into this apartment, when we were leaving our apartment, I said to you “why don’t you declutter before we move into our nice new apartment?” You said “oh, no. It would be best if I take everything in and then I’ll declutter.” So this is actually at least 30-years of stuff. So don’t say it’s just 20 years!

Jimmy  06:48

Okay, right. But it’s a lot of stuff and the thought of decluttering, just to move houses, is horrific. But then I also think, I’ve got to do it at some point and I think if you get rid of all your treasures, so that you can move house more easily, you might actually go oh, I quite like it here, now that it doesn’t have all this clutter.

Sue  07:09

Yes and you might have loads more space, for new treasures.

Jimmy  07:14

Or not.

Sue  07:16

I’m a big advocate for people getting in a professional declutterer. I think they go through stuff quite ruthlessly and put it in different piles and say “do you really need this old ACDC t- shirt and will you ever fit into this dress again? And I mean, I think it is quite brutal and tough, but it probably does the trick.

Jimmy  07:35

I think the thing is, that if somebody was doing that in our flat, I’d want to be there while they were choosing what got thrown out.

Sue  07:42

Well, they do; you would be there as well.

Jimmy  07:43

And then, if I’m going to be there, I may as well do it myself. But then I can never get around to doing it myself, because I’m too busy recording podcasts and writing columns and writing books. Alright, so down-vesting…

Sue  07:58

You heard it here first.

Jimmy  08:00

Indeed. When we come back, we’re going to talk about the latest tax on short-term holiday rentals, that has been announced in Victoria. That’s after this.

Sue  08:17

Tell me what’s happening in Victoria.

Jimmy  08:19

Well, this is an announcement; we were expecting this, that short -term rental properties in Victoria are going to attract a tax of 7.5%.

Sue  08:31

Is that from rental income?

Jimmy  08:33

That’s from the rental income; that’s off-the-top, I believe. Now, this raises a whole bunch of questions, such as how are they going to know who’s got short-term holiday rentals? But they reckoned that this is going to bring in $70 million a year, which they can put towards more housing. $70 million doesn’t go very far. That’s a small block of flats, basically. But what it’s really going to do also is…

Sue  09:03

Get people to put stuff back on the rental market, maybe.

Jimmy  09:06

And you’ve got to think this is a good idea. I mean, these disruptors have had a fair old run, for the past few years, of just getting away with things that were basically, illegal. They were floating planning laws, that said you cannot have holiday rentals in these residential blocks. And now, the government has said yes, it is actually disrupting us too much. We’re going to curb it, we’re going to force people to pull back a bit. And the thing is, the other message that’s coming out of the whole short-term holiday rental market is, it doesn’t make that much more money. Once you’ve paid the agency that comes in and changes your sheets twice a week, or something like that and all the other ancillary costs, the profit goes down and down and down. You’ve got to furnish the place and I think a lot of people will go “that 7.5%; nope, it’s not worth it.

Sue  10:00

It is hard, because I guess the people who are making big profit are the ones who’ve got like, 20 Airbnb properties and so therefore, they develop it as a business and they either pay professional companies to come in and do it and get economies of scale, or they look after it themselves.

Jimmy  10:15

Or hire cleaners and things themselves, rather than doing it through a company.

Sue  10:19

Or those people who have guests in their home, which was the original idea of Airbnb. But even that’s kind of changed a bit, because these days you think, well, if you’re getting four people to come and stay in your home, and you’re looking after them, so you’ve got a five-bedroom home, really, you should be moving out of that house; you should be downsizing, because you only need one-bedroom, or two-bedrooms at most, and leaving that house for a young family to move into. The dynamics have changed.

Jimmy  10:51

People get attached to their homes, not just because of the physical building.

Sue  10:56

They certainly have emotional ties, yes.

Jimmy  10:57

And the community; they become part of their community. They like to be able to walk down the street to their usual cafe and know that they will get their usual cup of coffee and go around the corner to their usual grocery store.

Sue  11:09

Yes, but that’s why developers should be building in in-fill sites and local councils should be encouraging them, so that when you want to downsize, you can downsize in the same location. So you can still go to the same shops and still go the same cafe. You can still live in the same area, but live in an apartment, a smaller apartment, rather than a huge house that you rattle around in.

Jimmy  11:30

Yes, I agree; 100%. So the other thing that’s come out of this housing announcement in Victoria… They’re going to knock down hundreds of old apartment blocks, which were social housing, and replace them with new developments that will be a mixture of private and social housing, but will increase the number of social housing units overall, which you’ve got to think is a good thing. And they are bringing in quite an innovative idea in renting. They’re going to limit the amount that you can increase your rent by, if you end a lease and go and get another tenant in, to try and stop this thing of people gouging. They’re deliberately ending a lease for dubious reasons, so that they can put the rent up, because if they put the rent up, while the tenant is still there, the tenant can quite reasonably claim if their rent increases, that its too excessive. They’re profiting from a very bad housing situation, so the Victorian Government is saying “well, no. If you end a lease and start a new lease, there’s a limit on how much extra you can charge for the rent.” And presumably, that extra amount will not cover the cost of re-letting.

Sue  12:53

Because that’s expensive, too.

Jimmy  12:55

But I think what’s missing in all this; getting back to the Airbnb thing, there is no mention of a registry. And the question arises of, how do they know…

Sue  13:05

There is so much talk of the registry in New South Wales, but…

Jimmy  13:11

Nobody pays it any attention. The one difference it has made in New South Wales is that you cannot list your property on Airbnb or Stayz, if you don’t have a registry number. So at least the know, to some extent, who out there is letting short-term lets.

Sue  13:32

Is that just in New South Wales?

Jimmy  13:34

I think there’s one in Tasmania, as well. It’s one of these things; the short-term letting people jump up and down and talk about privacy. And they talk about “oh, that’s going to cost jobs and blah, blah, blah, blah, blah,” If it isn’t hurting the short-term letting industry, then it’s not working; that would be my view. Because, as I said before, these guys have had a free reign for so long. They fill their pockets; Airbnb has become a multi-billion dollar industry across the world. It’s time they got their heads pulled in a bit, I think.

Sue  14:12

Especially when so many people just really, really, really need housing.

Jimmy  14:16

And I think this will spread to New South Wales, almost certainly, because New South Wales and Victoria have this kind of competitive thing, of who can look after their tenants better. We’ve got two Labor governments; they should be…

Sue  14:32

Talking to each other.

Jimmy  14:33

 Talking to each other and working out policies that work for everybody.

Sue  14:37

Because that’s good as well. I mean, if they’re taking down social housing, but they’re replacing it with more social housing, that’s a good thing, because in New South Wales (certainly around Sydney), they tend to take away social housing and replace it with very little social housing, really.

Jimmy  14:51

Well, the argument in that; I mean, if you’re thinking about the Redfern scheme, they’re knocking down a lot of social housing and they’re replacing it with it… There’s going to be more apartments in social housing, but the percentage of apartments is going to be less than it was, because previously, it was 100%. And now it’s going to be a lower percentage, but it’s still going to house more people.

Sue  15:14

I was actually thinking about the social housing around The Rocks and Sirius, where they kind of moved everybody out. Mostly, they were kind of putting them in the suburbs, really.

Jimmy  15:29

The biggest mistake they made with that was not to say “look, here is social housing that replaces that social housing. This is where we’re building it and we’ve now got housing for more people.” And maybe the reason they didn’t say that, was because they weren’t actually doing that. But now we’ve got a Labor government that’s committed to housing more people. Let’s see if they can live up to their promises.

Sue  15:50

And I do like the mix of social housing and private housing. And studies have shown that people just really enjoy the diversity. I mean, you wouldn’t know if you were living next door to a social housing tenant, or somebody who knows their own place.

Jimmy  16:03

No. Look, things are changing in Victoria; they will change in New South Wales. We can just watch and see what happens. When we come back, we’re going to talk about build-to-rent. We spoke about this last week; you were at a big symposium, run by the Australian Financial Review into…

Sue  16:30

Housing, generally.

Jimmy  16:34

There was a bit of a controversy; some spokesman got up and said that…

Sue  16:38

He was not a spokesman; he was a developer, a private developer and he runs his own private development group. Very high-quality, blue-chip developments, really. And yes, he caused an enormous amount of controversy, because he was saying, basically, that unemployment needs to go up much, much further and that will help property prices. And it was interesting, because I was watching him on the stage and I thought “I really dislike this man.” I spoke to a couple of people; other property professionals around me and I said “what did you think of him?” They went “oh well, he is a developer; you kind of have to expect that.” But you know, I’ve met a lot of developers and some of them are shits and I’ve rarely met one so bare-faced awful as him, really. It was quite interesting, because there was real backlash against him. And the controversy went around the world. You know, this guy saying this stuff.

Jimmy  17:35

We need more pain, is what he was saying.

Sue  17:38

And then he deleted some of his social media accounts, because he was getting so much hate.

Jimmy  17:44

And quite rightly so.

Sue  17:45

Well, no, I mean, you don’t…

Jimmy  17:48

The criticism was justified; let’s say that. Now at the same time, somebody was talking about build-to-rent and how that could be a vehicle for investment, by mum and dad investors… Small individual investors, let’s call them that.

Sue  18:10

Because as we know, build-to-rent is usually done by big developers, who develop apartments that they rent out.

Jimmy  18:16

Like Mirvac.

Sue  18:17

Yes. And they have really high levels of amenities and facilities and are quite high quality. And the big institutional investors kind of invest in them. They love investing in them, because they offer good returns year after year and it’s a very steady income. But individual investors can’t really get access to them…

Jimmy  18:36

Unless you invest in the companies that invest in them. And then you don’t know what those companies; what else they’re investing in. Interestingly, last week, Hesta, the health services, super fund, has announced that they’re putting $100 million dollars into a development in Victoria. Part of the development will be given over to social housing and low-cost housing and one of the reasons they’re getting involved there, is because it’s very close to hospitals. So their workers, who invest in the super fund, are going to be able to benefit from the super fund investing in a build-to-rent project near where they work. So it’s a nice sort of circular economy thing.

Sue  19:24

Absolutely.

Jimmy  19:25

But I think the breakthrough will be when they find a way of saying here is an investment. First of all, you can put a moderate amount of money into this build-to-rent. But also, the key will be, you can sell your shares at some point. A lot of people, they want to put their money into something that offers income, and capital growth. That’s why they buy apartments in buildings and put renters into them or (god help us), Airbnb.

Sue  19:59

They do need an exit strategy, is what you’re saying?

Jimmy  20:01

Yes. But the good thing about it is, you don’t have to worry about finding the tenants, repairing and maintaining the property… Somebody else does all that. These build-to-rent properties; you never hear about them having big defects.

Sue  20:18

No, because the developers hold onto them, so therefore, if there are any defects, they just fix them.

Jimmy  20:24

So it takes a whole level of angst out of being an investor. You can invest your money, which you think, well, at least I’m helping people to get housing. You can make an income; you can make a profit, and you don’t have to worry about the building falling down, and the tenants misbehaving, or whatever.

Sue  20:45

And at the moment, it’s only a tiny proportion of Australia’s housing stock.

Jimmy  20:50

0.2%?

Sue  20:52

That’s right. But it’s much bigger in Europe, in Britain and America. You can kind of see the appeal. I mean, it’s not only people who are content to rent, or people who are maybe saving up to buy a house, and they want to rent in the interim. But it’s also a number of, of down-sizers, who sell their houses, and they get the equity in their houses, and then go and rent in a build -to-rent, because then they can actually use that equity on travel or, you know, put it into their business, or use their money for anything, really and they’re suddenly out of the property cycle. I think that’s quite a good thing, too.

Jimmy  21:27

I think it’s a great thing. It’s something that we’re going to see growing here. It was interesting; Susan Lloyd-Hurwitz, who is an adviser to the government on housing, as she used to be the CEO of Mirvac, was on the radio the other day, talking about how do we solve the housing crisis, etc. And she said quite simply, we need to build more social housing. Governments in Australia have moved out of building social housing in a big, big way, because they’ve been told that market forces will solve all the problems.

Sue  21:39

Yes, I suppose so. I just wonder if it’s something from our colonial or convict past? We look for the security of land ownership.

Jimmy  22:16

It’s funny, I was teaching my students the other day… We were doing Australian literature, and they’d never heard the song ‘Waltzing Matilda’ and so I found this Youtube clip of Slim Dusty singing Waltzing Matilda, and it was funny, but I remembered in listening to that, it always used to confuse me, because there’s a line in it ‘up came a squatter mounted on his thoroughbred.’ Growing up in Britain, a squatter was somebody who broke into an empty flat, and they all their mates occupied the flat for free. They squatted on it and it was illegal. Squatters were not rich people. It was only when I came to Australia and discovered that squatters were people who just took over land, claimed it as their own and eventually got a permit to live there, or were given the ownership of it. And they were rich; the squat-ocracy were running the country. You wrote books about MacArthur; I mean at some point, either he or his antecedents were squatters on the land.

Sue  23:23

And he tried to do that too, with some common land, which really annoyed Lachlan Macquarie and was one of the reasons for so much enmity between the pair, as well.

Jimmy  23:33

Right. So the squatters are different things, in different countries.

Sue  23:38

And so maybe here, because we had so much land, we just kind of felt that land ownership was something that we really desired and really needed.

Jimmy  23:48

Everybody aspired to. And I think after the First World War, a lot of returning soldiers were given a plot of land. So it is kind of embedded in the Australian culture.

Sue  24:01

It’s interesting, because I heard that interview as well with Susan Lloyd-Hurwitz. And the interviewer kept asking her, why is it that Australians are so obsessed with property? And she never answered it, did she? She kept moving onto the messages that she wanted to give, about how we had to supply more housing. But she never actually addressed that. Interesting; we have to look into that a bit more.

Jimmy  24:22

Phone her; you’ve got her number. Call her tomorrow. That’s enough from us, for another week. Thanks Sue, it’s been a stressful day. We both managed to be late for our book signing gigs, but we got there in the end. And one final reminder, if you go on the Flat Chat website, you’ll find a link to a seminar that we are both doing…

Sue  24:48

We’re mediating panels; moderating, moderating panels and mediating if they descend into chaos.

Jimmy  24:53

Oh, yes; doing all of that. That’s on Friday, around lunchtime. It’s an OCN event, called Strata Matters, so if you’ve got a bit of spare time… It’s not free, but it’s not expensive. It’s Friday the 22nd. It’s in North Sydney and the seats I think are going quite fast, but you can still log on and watch it online, if you get in and register soon enough. And on that note, thank you for listening, and we will both 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 flightchat.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.