The first thing that happens after a new government is elected is that the Prime Minister and the party divvy up the ministries.
The next thing after that is that they look at what they have promised during the election campaign and work out how much of it they can or want to implement.
In this week’s podcast we ask if the new Labor government’s commitment to co-owning homes with first-time property buyers is going to take the heat out of the property market … or just make it worse.
And will the government grasp the nettle of negative gearing and dial down the effect that one economist has described as rewarding people for making bad property investments?
We meet a new strata owner who has, with the best intentions, managed to get most of his colleagues on his committee offside by asking awkward questions.
We also look at a couple of points that came out of last week’s “Lawyer in the Hot Seat” webinar.
The first was a part of strata law that’s generally overlooked which is that if you win a tribunal case against your owners corp, they have to find a way of making sure you don’t pay any part of their legal expenses – and that means a special levy that excludes you.
The other item that stood out was, if your owners corporation has been making donations to campaigns for or against even strata-related issues, such as pets or short-term letting, they have probably been breaking the law.
All that and more in this week’s Flat Chat Wrap.
If you enjoyed listening to this podcast (or reading the transcript), please share it with your friends using the social media buttons on this page.
TRANSCRIPT IN FULL
Well, there’s been an election, and we’ve got a new government, or we’re getting one.
Yes, sure thing!
So we’ll be talking a bit about what that means to the housing market. What else have we got on the agenda, Sue?
Well, you took part in a webinar the other day, I think, didn’t you?
With the strata lawyer, David Bannerman, and you said that a couple of really interesting things came up there. I think you also had a really interesting query on the Flat Chat forum, from a first-time strata owner?
Yes, somebody who’s got themselves on the committee and immediately started raising the alarm about things that they thought should have been done and hadn’t been done. There’s a lot to talk about. I’m Jimmy Thomson, I wrote the Flat Chat column for the Australian Financial Review.
And I’m Sue Williams, and I write about property for Domain.
And this is the Flat Chat Wrap. So we now have a government with the majority who are Labor Party, but crossbenchers…
Playing a big role, as well.
Yes and I mean, the Greens were talking about building millions of houses, or apartments. I don’t remember the teal independents saying much about housing. They were very much focused on the environment and integrity.
We’re back to what the Labor Party was proposing, which was that they would be co-owners of houses and flats, for first time buyers.
And it’s interesting, because I think the Liberals staked a lot on their plan about housing affordability; on allowing people to use more of their super and it seemed really, as if that was quite a popular notion, but then maybe, a lot of the negatives about the Liberals, outweighed that positive. But I mean, lots of people were saying, well, you shouldn’t be using your super; you should be keeping it for when you’re older. And other people were saying, well, it’s a great idea, because an investment in super, doesn’t pay as much as an investment in property.
So in some ways, there were lots of things in favour of that, but maybe it just wasn’t quite popular enough.
You know, it was all politics, really. I don’t think the scare campaign about having Jim Chalmers sitting at the end of your kitchen table, as a co-owner of your apartment or house, really flew with many people.
Because he seems quite a nice man, doesn’t he really?
He does. I wouldn’t mind him; he can come around to breakfast with us, anytime. One of the things that struck me during the election campaign, was Waleed Aly wrote a piece about how the government (while it may want more people to be able to afford to buy housing), doesn’t want the value of property to drop, because so many people have invested in this idea that, with negative gearing and stuff like that, property is a good investment. It strikes me (I’m going to take a wild punt here and say), that the government might look again, at getting rid of negative gearing.
Well, it makes perfect sense, doesn’t it? Because I mean, it’s making us baby boomers quite rich, but it’s making our kids impoverished, because they just can’t afford to get into the property market.
Because every time they go to bid for an apartment or a house, there’s somebody there who’s looking at a second or third investment property.
Yes and investors are really back in the market now, in a big way.
And somebody (I think it was an American economist), thought that negative gearing was ridiculous, because it rewards you for making bad decisions. If you pay too much for your apartment, or your house, that’s okay, because you can write that off against tax.
Yes, that’s right.
So it is the elephant in the room. It’s the fly in the ointment… It’s a number of cliches.
And I think it does make sense, to scale back negative gearing. But it would have been a really dangerous election policy for any of the parties to have made because…
As Bill Shorten proved, three years ago.
That’s right. You can lose elections on that kind of thing.
But you know, they should take their lead from John Howard. All those years ago, he promised that there would be no GST…
Because I think when you look at the alternative; the alternatives are really strong wages growth, to allow young people to be able to afford those kinds of prices for property. Given what you said, that they don’t want prices to fall, strong wages growth; well, that would be kind of nice, but you don’t want wage growth to be too strong, really, because that’s obviously, incredibly inflationary. But the situation at the moment is that baby boomers have made a lot of money and young people are now really dependent on the generosity of their parents, aren’t they really? You know, their parents helping them out with some of that wealth they’ve accrued.
Yes, but obviously, that doesn’t apply to everyone, does it? I mean, if you are a young person who is doing alright… You might have a university debt… Once you start working, you’ve got money to pay back. And then your parents; if you’re like our new prime minister, from a single mother on a disability pension, living in Housing Commission… Were she still around, she wouldn’t be able to say “oh, here’s a pile of money to get you started on the house.”
Sure. Or, parents even, that feel that kids should make their own way and they don’t really want to help them out, because that’s a cop-out… They want their kids to look after themselves and be independent and learn the value of that.
I mean, there’s all sorts of reasons why, but the basic thing is, negative gearing was a great thing when it came in, because it encouraged people to invest in housing and that accelerated the number of houses being built. That accelerated the population growth, and all these things. But, we’re past that now. You know, it’s like we still have legislation that forces people to use steam engines on railways, which was fine once upon a time, but isn’t so great now.
Because the real issue is always a supply of homes, isn’t it? And when we’re talking about that, we’re talking about apartments. I mean, we’re talking about high-density, or medium-density projects in lots of areas around Sydney and around Melbourne. And that’s the only really long term answer. I mean, Labor’s idea of kind of joint ownership of homes is great and it’s kind of a nice temporary, short-term measure, but really, we’ve got to be looking at the long-term supply. That means making sure that development happens in a considered and responsible and respectable way, bearing in mind the neighbours of these new developments. But, you know, if they are good new developments, and they really look after a suburb and look after their neighbours, then this can only be a good thing.
I just wonder if the co-ownership thing is going to be inflationary, also, and if they do get rid of… They talk about grandfathering negative gearing, so that it if you’ve got negative gearing on an apartment at the moment (or a house), then it would stay, but as soon as it was sold, then it would revert back. I wonder if that would prevent a lot of development of apartments and houses, because it would take a lot of investors out of the new property market? Well, that’s the idea though, isn’t it? To stop this sort of rampant inflation.
Yes, that’s right. I mean, we have to look at those solutions, because construction is really slowing down now. We’ve all heard about the prices of raw materials going up by at least 30% and the disruption to the supply chain of building materials. In that kind of atmosphere, we have to look at all options, to see what we can possibly do. Because you know, there are difficulties in all areas.
I reckon if you want to put a brake on house prices, you get rid of negative gearing. If you want to put a brake on rents, get rid of Airbnb, and then we can all move forward, on a level playing field.
But at the same time, with long-term plans to increase the housing supply.
Yes and get into more things, like affordable housing; a mixture of affordable housing within ordinary apartment buildings.
Yep. So everybody’s mixed in.
Okay. When we come back, we’re going to talk about what happens when you are the new kid in an apartment block, and you’ve never been in strata before.
A very familiar story in a post to the Flat Chat forum this week. It’s a first homeowner and they’ve bought into an apartment block. It’s the first time they’ve been an owner in apartments, and they’ve done all the right things. They’ve got themselves on the committee and doing their due diligence, have started finding things that they think are a bit odd, like expenses sheets that are missing and receipts for work done, that don’t turn up and fire safety checks and things like this. They’ve gotten to the point where somebody else on the committee has told them ‘just stop; just stop all this. Stop asking questions,” which is not a reasonable response, really. But well, what do you do when you’re a new person in an apartment block, and the committee has been trundling along quite happily without your assistance, but you suspect that things are not being done to the letter of the law?
That’s probably the situation a lot of people are finding themselves in at the moment, because a lot of downsizers are moving into apartment buildings for the first time, or first home buyers, buying apartments for the first time, as well. Many of those people won’t be familiar with the joys and disasters of strata. They will be newbies, looking kind of wide-eyed at what goes on, and especially I suppose, in lots of established blocks, where there may be older owners who’ve been used to doing things in a certain way, and maybe, you know, haven’t been keeping good, correct paperwork and things; kind of letting things tick along. So would you have any advice for that person?
I did, actually, and once I started writing it down on the forum, I realised there’s quite a lot of advice that I wanted to give; one of them being, that there are no strata cops going around, checking up on everybody doing exactly the right thing. If you’re doing the wrong thing, what tends to happen is that another owner will raise a complaint and then that has to go through a process; you know, the mediation at Fair Trading… The Tribunal can even issue orders. So it’s at the end of a very long process and there are several stages at which the owners corporation can decide ‘we’d better do the right thing here,’ long before you get to being fined, which is what they were worried about. I think there’s also a situation in a lot of buildings… I mean, my theory is that there is no strata scheme in the whole of Australia that is 100% compliant with every aspect of strata law. There’s little things; most of them are minor, and many of them are insignificant, and people get by, but one of the points I made was, you go into an established building, with an established committee and you start asking questions. ‘Why are we doing this? Why are we not doing that?’ And the simple answer is, a lot of people don’t know. The most common response is ‘because we’ve always done it that way.’ You get strata managers who weren’t even aware that the laws had changed and you can’t expect everybody in strata to know exactly what they should and should not be doing.
So, when you see something wrong, should you actually just close your eyes and move on by?
My suggestion was, pick a battle; pick your issues, one-by-one… Don’t go in all guns blazing, saying ‘everything is wrong here, we need to fix it.’ When you you find an area of concern, do some research and I’ve suggested joining the Owners Corporation Network, or even just writing to Flat Chat and saying ‘I’m worried about fire safety checks. I’m worried about leaking balconies. I’m worried about the uneven tiling in our foyer… Who’s responsible? What can we do? What should we do?’ I mean, this person has realised that there’s no maintenance fund in this building and there’s no maintenance plan. Now, that is pretty typical, actually. A lot of owners have no interest in doing anything that will ultimately mean they will have to pay higher levies. So, it’s not unusual to find that there’s no sinking fund and no maintenance plan. That doesn’t mean there shouldn’t be one; there should be. There certainly should be a maintenance plan; that’s in the law, you’ve got to have that. You’ve got to have a 10-year plan, which is updated every five years.
Is that even for small buildings?
Yes, but you don’t have to fund it. You have to make a decision every AGM; you have to make a decision, how are we going to fund the maintenance plan, and that decision could be ‘when we need to get the work done, we’ll raise a special levie or we’ll raise a loan.’ You’ve made a decision then, everybody’s aware of that. It’s not a case of saying ‘we’re going to have to spend $10,000 on windows next year,’ and then putting that money aside. You don’t need to do that, but you do need to have discussed it. These are the kinds of things that people who have been in committees for a while and have been trundling along, not making decisions, get alarmed when somebody comes along and says ‘shouldn’t we have discussed this and come up with a decision?’ So my advice is, choose the issues, get yourself properly informed, and then present that to the committee.
Sounds very wise.
I also suggested taking chocolate muffins to the next committee meeting.
Even better, because really, you don’t want to make enemies of all your new neighbours. It can be miserable, living in a place where people don’t like you.
Tell me about it! I think it better to take people along with you. You know, rather than go up and confront people and say ‘you guys have really not been doing your jobs properly and I’m here to make sure you do…’ How about saying to people ‘I’ve just read this thing and I’ve just had this thing that says we should be doing this; has anybody got any thoughts about that?’ Bring people along with you.
Because people may have very good intentions, but just not know the way to go and if you can provide them with a roadmap, then all the better.
And one of the most common things that committees and strata schemes are not doing (that they should be doing), came up in the webinar that I hosted the other day.
Last week, I hosted a webinar called ‘Lawyer in the Hot Seat,’ and David Bannerman answered questions; some of which had been sent in advance, and some of which actually arrived while we were in the middle of the webinar, some of which, didn’t get answered at all.
He’s one of our sponsors, isn’t he? A new sponsor.
And David is quite a (how can I put this), quite a ‘lively’ strata lawyer. I mean, he’s very active and he’s also very good. He’s very highly regarded. One of the things that came up, was an issue that we’ve touched on in the past, which was, what happens when you are taken to the tribunal by your owners corporation, or you take the owners corporation to tribunal, and the owners corporation loses the case? This is a little known part of strata law… The owners corporation will have expenses. We’re not talking about costs, because costs are sometimes (and not always), awarded by the tribunal in favour of one party or the other, or both. Most usually, they would say ‘pay your own costs.’ But we’re talking about expenses and that can be lawyers and expert opinion and all the rest of it. If you are in a dispute with your strata scheme, and the strata scheme has incurred a lot of expenses, and you win and they lose, they have to raise a special levie, to pay those expenses.
Wow, so they can’t pay them out of the…
The law specifically says they must not pay it out of the admin fund or the sinking fund. They have to raise a special levie, that excludes the person who won the case.
And that’s interesting, because I think a lot of people in the past, have taken cases to NCAT, or VCAT; things like, maybe the common property on their apartment leaks, or something like that. And then they say afterwards ‘well, it’s great; I’ve won, but the thing is, they’re having to pay, and I’m one of the lot owners, so it’s my money that’s helping fund the action against me, or defending against me.’ But now, that has changed and so that person who has taken the action, or is the subject of action, doesn’t have to pay for the action against them.
I think it changed when the law changed, back in 2016.
But nobody really knew much about it.
Nobody ever noticed it. It’s interesting what you said there, because you still have to pay your share of the repairs.
Yes, but not the expenses in them taking action against you, or…
That’s very sensible, isn’t it?
And the other thing we were going to talk about briefly, was costs because…
What’s the difference; costs and expenses?
Not a lot. The expenses incurred in running the case is the expenses part, but NCAT does not always award costs, because they say in their legislation, it’s intended to be a low-cost, self-funded thing, but they will award costs in unusual circumstances. Now those unusual circumstances could be if somebody has deliberately delayed the process, either by not turning up for meetings, or withholding some information and then adding it in later, just to slow things down. There is a tactic in legal cases of a war of attrition; just keep slowing things down, slowing things down. When an owners corporation or an owner does that in an NCAT case, the member can say ‘this is ridiculous, I am awarding costs against whoever has been doing this.’ There’s other things like, if the parties knew, or should have known, that their case had no legs to stand on, then NCAT can order costs to be paid… The other side’s costs to be paid.
Because that’s nuisance litigation, really. It’s not serious.
And there is a list on the NCAT website, of all the categories in which the tribunal may award costs against one party or the other. But this is different; if costs aren’t awarded, that’s fine. Expenses still exist and if the owners corporation has paid for lawyers and paid for experts, and then they lose the case, then the person who won the case, does not have to pay a share of those costs. Now that is quite interesting tactically, because then the owners corporation, or the committee, then has to explain to all the owners ‘well, this special levie is because we took this action, or defended this action, when we shouldn’t have. And by the way, the person who won, didn’t have to pay.’ So that’s quite interesting. It might actually curb a few owners corporations from taking action just for the hell of it; just to try and shut somebody up.
Absolutely. And anything else come out of the webinar that surprised you?
The other thing that came up, was a question that was posted during the webinar. It was from somebody saying that their owners corporation had made a donation for a campaign. It was basically a political campaign, related to… I think it was a pet thing, that they wanted the law to be changed, so that owners corporations could make their own decisions, and it wouldn’t be part of law, that you had to allow pets.
Right, rather than be bound by the Court of Appeal.
And this person was saying ‘well, is that a legitimate expense?’
Because the other campaigns that have been running have been by strata buildings against Airbnb, against short-term platforms, saying that they should be allowed to make bylaws, to prevent them coming into their buildings.
Which was quite effective, actually, in New South Wales, and nowhere else in Australia.
So it’s those kind of campaigns we’re talking about; not vote for the Teals…
And according to David Bannerman, that kind of expense is way beyond the remit of owners corporations and committees. They should not be using owners corporation funds for these things. You can use the infrastructure of the committee to, for instance, write to owners and say ‘we want to campaign against (or for) this; would you be prepared to donate? Here’s a bank account number, or here’s a web address.’
Set up a specific fund for that.
Or you point people towards a fund. What you cannot do is just use owners corporations funds to promote these things. I think you could argue that it was for the greater good, but who’s to decide what’s right and wrong in these situations. I mean, you might think it’s a terrific campaign. You might want to have a campaign to ban barbecues on balconies, and a lot of people would think that was a really bad use of money; of the owners corporation’s money, regardless of what benefit you might think it would bring to owners corporations. And the other aspect of this (which we didn’t get into in the webinar), is if your owners corporation has paid that money, how do you get it back? Let’s say that the campaign was about barbecues and you are a keen barbecuer and you really resent your money being used for this campaign… How do you get it back? I don’t think you can, because under the law, any repayment of levies to owners, has to be unanimously agreed.
So therefore, it’s even harder.
But who are you getting it back from, anyway? I mean, you’re getting it back from your own funds. The only thing I can think possibly (and I think this is a very, very, very long shot), is that you could take the individual committee members who made that decision and say ‘we want you to pay us back.’
But they’ll have insurance anyway, usually and that insurance would usually kick in, if they made that decision in good faith and there was no malice.
I think you’d have to assume that in most cases, it would be in good faith; just misdirected. Now, getting back to the webinar… We’ve got the audio for the webinar and I’m cleaning it up as best I can. The next couple of podcasts will be the first half hour and the second half hour of the webinar and those will be online from next week.
Okay, that’ll be good.
Let’s hope so. I think it’s good; it’s quite interesting. But you won’t you won’t be on it, Sue?
That’s probably a good thing, Jimmy.
I don’t think so! So that’s a little preview of next week’s podcast. Thank you for listening to this week’s and thank you Sue, for coming and joining in and now you can have a little break for a couple of weeks.
Okay, fantastic! Thank you, Jimmy and happy travels! You’re off to the States and to Scotland, I understand?
Yes I am, but I was trying to keep it secret. I was hoping to go away and that no one would even notice on the website. No, that’s not true. The website will keep going. The wonders of technology; it’s quite amazing. I remember the last time I was away, I was on a train from Boston to Washington DC and they boasted it had Wi Fi and I wondered how good it would be. I was on the train and I discovered the website had crashed here in Australia and I managed to log on and fix it while travelling at 100 kilometres an hour on a railway track in America.
I was amazed. Okay, thank you again, Sue. Thank you for listening, and we will 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, 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.