Podcast: Can rent crisis solutions both work?

The podcast has an international flavour this week – and not only because co-host Sue dropped in just before she jetted off to Europe.

Reports from Scotland suggest that build-to-rent apartments, one suggested solution to the housing shortage – and rent caps, one proposed solution to the cost-of-living crisis – don’t sit easily with each other.

There are also reports from New York where Airbnb has sued the city for imposing rules on such trivialities as fire safety, over-crowding and building codes, saying they are an attempt to drive short-term holiday lets out of the city.

You can see their point – it’s like claiming that allowing Airbnb to spread unfettered is effectively creating a campaign to drive locals out of their homes. (Thinks) Wait a minute! 

We dissect – or maybe that shopuld be fillet – the Queensland government’s response to our question about its stated plans (but lack of action) to do something about the iniquity and inequity of the pre-sale of management rights.

And finally, we look at the best places to buy apartments if you want to make some capital gain. 

TRANSCRIPT IN FULL

Jimmy  00:00

It’s Wednesday morning…

Sue  00:01

Yes.

Jimmy  00:02

Big night for the Matilda’s…

Sue  00:04

Scary!

Jimmy  00:05

A big night for Sue Williams… You’re going to be on an aeroplane, heading to Barcelona.

Sue  00:10

Yes, that’s right. And luckily, I’m on Emirates and they stream sport. So hopefully… I mean, they were the airline who streamed the quarter-finals, so they’ve got to do the semi-final.

Jimmy  00:26

Let’s hope so. I’ll be thinking of you, when I’m sitting at home, watching it on TV, or maybe at the pub, where we watched the Spain-Sweden game. I think the pub’s going to be a bit fuller.

Sue  00:41

It could be. You’ll have to get to get there at midday.

Jimmy  00:46

Maybe, I’ll just get a takeaway and go home. Okay. We’ve got quite a lot of things. I started off this morning thinking we had nothing to talk about and we’ve got tonnes. We’ve got how rent controls and build to rent projects don’t really sit well together. That’s a story coming out of Glasgow. We’ve got a story coming out of New York, about how Airbnb have been bounced out of court in their attempts to sue the New York City Council. The Queensland government has responded to our comments about the iniquity and inequity of presale of management rights. And you have….

Sue  01:28

We have tips for where apartments are going to improve in value the most in Australia.

Jimmy  01:33

That’s great; we had better get on with it. I am Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  01:41

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

Jimmy  01:43

And this is the Flat Chat Wrap.

[MUSIC]

Jimmy

Sue  01:59

Jimmy, you’re just back from your book tour to Tasmania… What was the situation with apartments there?

Jimmy  02:04

I don’t know; I was too busy signing books. But it’s interesting, because I went to Hobart and in my newsletter last week, I pointed out I was going to Hobart, where the city council is trying to deal with Airbnb. And they had done that, because the state governments useless (as they are everywhere across Australia, when it comes to Airbnb; they just roll over and say “please tickle our tummy”). But in Hobart, the city council has said something very close to 10% of their homes have been given over to Airbnb, or short term rentals.

Sue  02:45

Wow! That’s a huge amount!

Jimmy  02:48

And you know, it’s not a very big city. So that’s 700 homes, out of 7000 that have been given over to Airbnb. And so they’ve said, alright, we’ve had enough. We’re doubling your rates. If you go on Airbnb, we’re doubling your rates.

Sue  03:06

Oh, interesting.

Jimmy  03:07

So that makes it much less of an attractive proposition for people, who want to put their properties on Airbnb. It’s only just come in; I don’t know how effective it is. 

Sue  03:18

It will be worth following that, though.

Jimmy  03:20

But hopefully, it makes people think, is it worth it? And for some people it will be and for others who are on the fringes where they can’t charge the massive rents that Airbnb people charge, they might go “hey, it’s not worth it. We’ll just put it back to residential.”

Sue  03:37

Because rents are really high in Hobart, anyway.

Jimmy  03:41

Guess why?

Sue  03:42

 That’s right.

Jimmy  03:45

I am back from Hobart and managed to not get involved in any housing controversy there, but did sign a lot of books. It’s selling like hotcakes. The book’s called Mole Creek.

Sue  03:56

You actually went to Mole Creek as well, didn’t you? You went to the pub there and you seemed like a returning hero. 

04:03

There was a funny little incident that happened at the airport, because I brought this book out under the name James Dunbar, which is my first two names.

Sue  04:13

To avoid the strata-hero tag.

Jimmy  04:15

Yes, exactly. And so I got to the airport in Hobart and there was a big stack of Mole Creek, right at the front.

Sue  04:22

Fantastic!

Jimmy  04:23

And I said to the nice woman behind the counter, “do you mind if I sign some of my books?” And she said “I’d love you to,” and then she said “do you have any ID?” I was able to show her the author’s note, which points out that my other name is Jimmy Thomson.

Sue  04:45

Isn’t that amazing, that people go around bookshops and sign books that they actually aren’t the author’s of?

Jimmy  04:49

Apparently, it might be a thing; it’s a kind of new form of graffiti; you scroll your name on other people’s books, and in the best laid plans of mice and men etc… There was a book prominently displayed at the top of shelves as you walked in. I signed them all and she moved them down to the bottom of a shelf, with a tag on it saying ‘signed by the author.’ The display wasn’t half as good as it had been; I should have left them alone.

Talking about Airbnb, while we’re on that subject (briefly), a little story is coming out of New York, that Airbnb in 2022, New York City changed its laws. It requires owners to register with the mayor’s office, disclose who else lives in the property and promised to comply with zoning, construction and maintenance ordinances. It seems reasonable.

Airbnb called the restrictions ‘extreme and oppressive’ and a defacto ban on short term rentals that left the company “no choice but to sue.” Airbnb said back in June “taken together, these features of the registration scheme appear intended to drive the short term rental trade out of New York City, once and for all.”

And this is a quote from our friends at the OCN, that Airbnb simply does not want regulators to discover the ‘mums and dads making ends meet’ mantra actually refers to corporates with large numbers of listings. It goes on to say “nor does it seem to want to comply with smoke and co2 requirements, overcrowding regulation or noise restrictions.” And I believe that the judge in that case threw the case out.

Sue  06:34

 Wow!

Jimmy  06:36

Because the ordinances are absolutely fair. As somebody said, way back when Airbnb moved into New York, at the same time as Uber moved in, New Yorkers reacted very differently to the two things. They greeted the arrival of Uber, like they were conquering heroes coming to the city, but they hated Airbnb. And the reason is, it’s really hard to get a taxi in New York and it’s really hard to get a flat in New York, and one will help and one will hinder. So it’ll be interesting;  I’m sure there’ll be appeals and things going out all over the place, on that one.

[MUSIC]

Jimmy

In other news from overseas, Glasgow (which is basically my hometown; it’s my spiritual home in Scotland)… When I was a kid, Glasgow had a population of just under a million people. It now is down to about four or 500,000.

Sue  07:41

Really? I thought you were going to say 4 million then.

Jimmy  07:44

No, because they built all these new towns around, like Livingston, to move people out of the city. And now they’re looking to repopulate the city centre. What’s come out of this is an interesting conundrum, for those of us who have been saying “we should have some sort of rent control and we should encourage build to rent. You know, this is where corporations build apartment blocks and they become the landlords. It’s not actually, strictly -speaking strata, because there is no strata committee. It doesn’t come under strata law. It is a company that owns a building and rents apartments within the building; lets apartments.

So the SNP (the Scottish National Party, which runs the government in Scotland), has decided to impose a 3% cap on rent increases all across the country, but only in Scotland, obviously. And this has resulted in a company called Get Living, who had planned to build 1500 homes in Glasgow… A 200-million pound project, so that’s about $450 million Australian dollars. They’ve put that on hold. They were going to build 1500 homes near the centre of Glasgow.

They were looking at young professionals and young families who want to live near the city centre, where most of the work is and where all the entertainment is. Just like Sydney and Melbourne; people want to live where the action is and where their work is. This  apparently, was part of the Glasgow City Council’s overall plan to double the population living in the city centre to about 40,000. Rick de Blaby, who is the Chief Executive of Get Living, said that they have just put that plan on hold for now.

Sue  08:16

Because of the 3% rent cap?

Jimmy  08:44

Yes. He said companies like Get Living are effectively owned and funded by big global pension funds; the same as the build to rent people here. “My shareholders include pension funds from the UK, Canada, Australia and Holland and a lot of those are for public sector workers.” So these are the ads that we see on TV, for super funds.

When I go to them and say “I want 200 million pounds, to undertake a scheme in Glasgow,” and the fundamentals are really strong, but the top-line revenue can’t be controlled by us; it’s actually controlled by government. And I say “can I have the same 200 million pounds to do the same project in Manchester, or Leeds?” It’s a really short conversation.

Sue  10:37

Because Manchester and Leeds don’t have a rent cap?

Jimmy  10:39

They don’t have a rent cap.

Sue  10:40

That’s hard, isn’t it? Because rent caps can be a great idea, where rents are going out of control. But maybe, they should only be applied to private market rents, rather than build to rent, because build to rent is usually a higher rent than private rents, because they tend to offer a lot more amenities. They offer long-term leases and people choose to go into build to rent, because they have the security of tenure and they know they’re going to have access… Often they have gyms there, they might have a pool.

Jimmy  11:11

Or they share facilities with normal residential facilities, like Mirvac Place, out near the Sydney Olympic Park. They share their facilities with the residential place across the way, or some of them.

Sue  11:26

That’s right. And they have working spaces, communal working spaces. They have a gourmet kitchen, they have a dining room; incredible facilities, really. And obviously, people pay a bit higher rent. But I mean, in Australia, the rent of build to rent is linked to CPI. I assume it will probably be linked to CPI everywhere, but in Glasgow, the CPI is up higher than 3%.

Jimmy  11:50

And it’s blocking it. The problem there is a blanket cap on the rents and probably… You look at Canberra, or the ACT, where they have a rent cap, which is basically CPI-plus I think 2% or 3%. Rents can still go up with CPI and a bit more, if the market demand is there. But their rents have risen less; they’ve still risen, but they have reason less than anywhere else in Australia.

So I mean, it does seem to be a good compromise there and maybe the Scottish Government should be looking at the ACT and going “we can do something like that.” I’m sure that the built to rent people wouldn’t have a problem with that. It is relevant this morning, because the National Cabinet, or whatever they call it,  is meeting to talk about housing affordability and availability.

But the Prime Minister has gone into that meeting, saying “there will be no rent freeze,” which is part of their argument with the Greens and that’s stopping the Greens from voting in favour of their housing package. It’s all very complicated and interconnected.

Sue  13:06

It’s interesting, because some of the states… I mean, Victoria is talking about rent caps now. It’s kind of difficult, because it’s state-versus-federal, really.

Jimmy  13:14

You know what I’m thinking; I’m thinking that these people are going to look at this and say “it’s too complicated. Let’s put it in the too-hard basket for now.”  Rather than sit down and say “let’s try something innovative,” like they’ve done in ACT (which of course, they won’t do, because they’ve done it in the ACT) and try something that’s a bit more subtle and nuanced and might actually work.

When we come back, we are going to talk about a response from the Queensland Government to our piece about pre-sold management rights, which we talked about last week. That’s after this.

[MUSIC]

Jimmy

Sue, you’ve got the email that came to us, from the Queensland Department of Fair Trading or something.  We were quoting the SCA, the Strata Community Association of Queensland (which is a strata manager’s, umbrella body and strata professionals), who were saying “hey, government, you said you were going to do something about pre-sold management rights, which everybody agrees (well, everybody who takes a reasonable position on this), are just wrong. You cannot expect people to sign up to the contract.

Well, the developer sign up to contracts for 25-years. The owners who have to pay for those contracts have no say in the terms and conditions and they can’t get out of them, once they’ve signed them. And also, we have a letter that came in this week, from somebody who started off with a 10-year management contract in their building and it has now been extended to 30-years.

Sue  15:01

Oh my god!

Jimmy  15:03

You know, partly because people are getting misinformation from  the management rights people, from the government; all sorts of vested interests are telling people “no, this is the only way we can do this. We can’t unwind this, so you’re gonna have to put up with it.” People are getting ripped off left, right and centre. We got a response from the Queensland Government; what is the first thing they said?

Sue  15:30

Okay, they say “we understand that management rights are a contentious issue in the community title sector.”

Jimmy  15:35

Well done! Congratulations; you’re awake!

Sue  15:39

And then they go on to say “that’s why the government established the community titles working group, to examine the key issues for the sector.”

Jimmy  15:45

So they’ve got people talking about a problem that they should have been talking about for the past 25- years. Congratulations again, Queensland.

Sue  15:54

Okay. “The working group has considered many areas of Queensland body corporate legislation, including scheme termination, management rights and enforcement of caretaker duties, and how best to balance the rights of individuals with a broader community of the scheme.”

Jimmy  16:08

Right. Do you see what they’re doing here? They’re taking a fairly straightforward issue, which is pre-sale of management rights and they’re sucking it back into this morass, this quicksand of all these other strata-related issues. What else did they say?

Sue  16:26

“The government will carefully consider the working group’s views on management rights, to determine whether legislative amendments or other policy initiatives should be pursued.”

Jimmy  16:35

What they could have said is “we realise there’s an issue here and we will make changes.” What they’ve actually said is “we are going to see what the issues are and decide whether or not we should make changes.” Basically, what they’re doing is kicking the can down the road.

Sue  16:52

Absolutely.  I mean, they’re just saying they’re going to consider the recommendations of the working group; they’re not going to actually implement them.

Jimmy  16:58

So the working group goes away and is bashing their heads together for the next nine months. They come out with a report and the government goes “oh, thanks for the report, but no.” It’s too hard. I mean, they don’t even address the specific issues, that 25-year contracts that cannot be rewritten or adjusted or rescinded or revoked, are just wrong. They don’t exist in any other aspect of law in Australia, except for management rights in Queensland, and they only exist so that developers can make more money. And their final sentence of the report; ready for this one?  Yes.

Sue  17:13

“We are committed to continuing to work with stakeholders, to ensure we strike the right balance between development flexibility, the viability of existing management rights’ businesses, and rights and protections for lot owners.”

Jimmy  17:53

Okay, so here you are, in terms of importance or relevance to the Queensland Government. First of all, number one; we’re looking after developers. Number two; we’re looking after the people who already have management rights contracts. Number three; when we get down to it, we might look after the lot owners, who pay for all this. These are the people who buy the apartments, these are the people who pay these inflated rates for these management contracts and they don’t even get a say in who the managers are. You’re right at the bottom of the totem pole, people who live in apartments in Queensland. I know there are people who are very happy with the arrangements that are there… I can tell you, there are a lot of people who are very, very unhappy. And guess what, your government doesn’t care.

Sue  18:46

And I mean, it’s not only for Queenslanders… Lots of people in Melbourne and Sydney; all over the country, own places in Queensland. They bought a lot of them during COVID. A lot of people would like to go and retire in Queensland perhaps, but they bought them in the meantime as an investment. But in fact, some of them are proving to be a really poor investment, because they’re paying so much in levies, because of the management  rights.

Jimmy  19:10

You’ve got the cost of people managing your building;  everybody has that, but you also have added to that, the cost of financing the loan that those people had to take out, to buy the management rights, either from the developer or from another manager, That’s added to the cost; you’re getting no benefit for that and you don’t have any choice.

Sue  19:36

So when the Queensland Government wrote to you, I guess they thought they were going to quieten you.  They don’t know me very well. They’re going to get to know me, but right now, they don’t care about Flat Chat or Jimmy Thomson, or even James Dunbar. Or Sue Williams.

Jimmy  20:00

Or Sue Williams; we mustn’t forget about you. Look, somebody needs to start kicking butt and taking names in Queensland and as we discovered in New South Wales, 20-years ago, nobody was listening. Look out Queensland; we’re coming. After this, we’re going to be talking about where would be the best place (I’m guessing Queensland might not be one of them) to buy an apartment, if you want to make a bit of a profit? That’s after this.

[MUSIC]

Jimmy

Sue, you’ve got a report there, about the best places to buy an apartment if you’re looking to make some money on it.

Sue  20:55

That’s right. This is for investors , really. This is a report from Hotspotting and they’ve produced the national top-10 apartment hotspot report. Surprisingly, Queensland is right up there, because they’re just looking at prices; they’re not looking at yield so much and rentals and income. They’re looking at prices, and they reckon that apartments have been outperforming stand-alone houses this year. There has been faster growth in rents and superior price growth for much of the past 12-months, and a growing share of new dwelling approvals. That’s good. Hopefully, we’ll get a few more apartments around.

Jimmy  21:31

The government in Queensland, as we said last week, have announced that they’re going to put 600,000 new apartments in the southeast corner of the state in the next 20-years. So building approvals are a given, I guess.

Sue  21:45

Sure. The number one is Annalee in Brisbane. That’s the best place for apartment price growth for the next year. And that’s mostly because of the positive impacts of the 2032 Olympics, because it’s very close to Wolloongabba. You’ve also got the Sunshine Coast and that did incredibly well during COVID. It did really well during the pandemic, because everybody was trying to buy there, so that’s going well. There’s big infrastructure spend there as well, and lots of people going there for lifestyle.

Jimmy  22:26

You made the point that the the property prices are rising, but that doesn’t take into account the costs of letting.

Sue  22:37

Gold Coast Southport, because vacancy rates there are low and lots of people go there as tourists, so they attract a lot of people. Prices are a bit more affordable there. And then finally in Queensland, Yorkeys Knob. This is a place I love the name of;  it’s a small beach suburb in Cairns. That’s a location where units are tightly held. You know, Cairns has had enormous growth. We had a Domain report that showed that Cairns had huge growth over the last year.

In the centre of Cairns prices has gone up something like 28% in the last 12-months. It’s quite incredible, really. You don’t think about living in Cairns; maybe one should. And in New South Wales, there has been several suburbs in the Sutherland Shire. They’ve been rezoned to include more apartments and so they’re going to do really well. Gymea is the sort of nerve-centre suburb.

Jimmy  23:31

I always think of Sutherland as being the the epicentre of nimbyism, but that’s probably the North Shore.

Sue  23:40

There’s lots of nimbyism everywhere, I suppose. Gymea has got lots of medical and educational amenities. And it’s got a Westfield and rail links and stuff. Then there’s the inner-west in Sydney. Stanmore is the best example there. You’ve got a median house price of $2 million and a median apartment price of $765,000. That’s a big difference, isn’t it? And then in Victoria, Clayton. It’s well-located beside Monash University and Monash Medical Centre, and prices are going up there very, very quickly. Apartments are very affordable, compared to houses.

And then Kensington in Melbourne, which is known for its village feel, and it’s cafes and diversity of architecture. It’s kind of a bit like Kensington in Sydney, really. That’s doing really well, as well. And then finally, you’ve got Adelaide, Mitchell Park. And in Canberra, you’ve got Belconnen. They are both two final hotspots for apartments. So it’s good to hear that apartments are doing so well.

Jimmy  24:44

If you feel like it, you could combine a property hunt with a road trip. A very long roadtrip.  It sounds like  a TV series; The Property Hunt…Interstate Property Hunt.

Sue  25:00

Oh my god; you’re going to have to patent that now.

Jimmy  25:02

Anybody who tries to steal my idea, you have to deal with me. All right, well, we crammed a lot into that. Sue, you’ve got to go and get packed now; you haven’t even started packing.

Sue  25:15

Yes, that’s right. I better hurry up. The next couple of podcasts I guess I’ll be doing from wherever.

Jimmy  25:26

Well, we’ll do our best. And there will be a podcast next week. You can be assured there will be another voice on; it won’t just be me. But who the other voice is and where they’re coming from, remains to be seen.

Sue  25:42

I might be replaced.

Jimmy  25:44

If we can’t get a hold of you, we can’t just go to silence. Thanks very much Sue, for taking a break from your packing and preparing and finishing off all your last-minute stories. And thank you all for listening. We will talk to you again soon. Bye.