Pets, Airbnb and Management Rights: Strata policy challenges for the incoming Queensland Government

I am grateful for another guest post, this time from Dr Stephen Thornton of BG Economics. Views expressed are Stephen’s, and should not necessarily be attributed to me. GT

Pets, Airbnb and Management Rights: Strata policy challenges for the incoming Queensland Government

by Dr Stephen Thornton

The apartment construction boom in Queensland in the last few years has been astonishing and unprecedented. The number of strata lots is now quickly approaching 500,000, mostly apartments and townhouses (465K, October 2017). By 2020 around one million people in the state will call them home.

A strata review is being finalised by the QUT Commercial and Property Law Research Centre as part of a wider Queensland property law review commissioned by the former Newman government, with a number of recommendations recently made. Some of these recommendations go to procedural matters like the calling of AGMs, electronic communications and the like, while others are around by-laws and, importantly, scheme termination.

Given jobs and health budget savings are always high priorities, the incoming government should give serious consideration to one of the Centre’s recommendations around the keeping of pets. The recommendation would make it much less likely that pets would be banned in strata complexes, as it would limit the prohibition of pets to new buildings where the developer sets it as a by-law or if a body corporate adopts it by way of a resolution without dissent.

In my submission to the review (in which I argued that giving developers and bodies corporate the power to adopt ‘no pet by-laws’ is contrary to Queensland’s economic interests), I calculated that allowing pets in strata properties is likely to result in 1,000 new jobs in the longer term in Queensland’s $1B – $2B pet industry (currently estimated at 10,000+ jobs). Importantly, these new jobs would be in both high-skilled employment areas (e.g. vets, pathologists, radiologists) and lower skilled employment areas (e.g. retail stores, pet grooming, dog walking), and would be right across the state including high youth unemployment places like Townsville and Cairns.

In more recent work for the Mars Keep Australia Pet Friendly campaign, I have estimated the recurrent public healthcare savings due to pets for the Queensland budget to be $172 million annually (total Qld/federal public saving of $435M; total all state/federal public saving of $2B). More pets in strata properties would increase these savings.

However, there are a number of major issues not covered by the Law Centre which were outside the scope of the review but are important in terms of the cost of living for strata owners. I’ll briefly discuss two that government might turn its mind to in 2018: ‘management rights’ and peer-to-peer short-term accommodation.

Management Rights

Simply put, management rights are the contractual rights to manage medium to large apartment complexes and to provide exclusive onsite letting and ancillary services. These are sold by the developer to caretaking companies (some as large as JLL), often for millions of dollars, with a maximum 25-year contract locked in for bodies corporate from the get-go. The MRs are periodically ‘topped up’ to the original maximum contract term at AGMs by uninformed lot owners as the contract runs down, and they are on-sold every three to five years via industry brokers.

The fixed ‘salary’ for caretaking and management duties, often over $300,000 in the large strata complexes (with mandatory annual CPI increases), typically comprises 20% – 30% of lot owners’ strata levies, making it the single largest expense item by bodies corporate.

There is little doubt that larger complexes require onsite management and the current model has many positive aspects. Still, after a few decades in operation, a new comprehensive review is required to bring about much needed reform in this space. An article by a Gold Coast law firm Is it Time to Change the Management Rights Model? makes some interesting observations and suggestions.

Peer-to-Peer Short-Term Accommodation

Most people have heard of Airbnb. In a similar way to how Uber disrupted the traditional taxi industry, it and similar companies allow potential tenants to directly deal with dwelling owners by cutting out the ‘middleman’, which in strata is the local real estate agent or onsite resident manager (see above). State governments have struggled over the appropriate public policy response to ride-sharing disruptors like Uber given the investments in taxi plates. This is also an issue for owners of management rights in Queensland, who have similarly invested in an asset at risk from technological disruption and regulatory change.

NSW is currently finalising a review of Short-term Holiday Letting with their July 2017 options paper outlining three broad policy response options to amend strata legislation, being:

  • By-laws to manage visitor behaviour
  • By-laws to receive compensation for adverse effects
  • By-laws to prohibit short-term holiday letting (STHL)

(see pp.15-17 for more detail & p.27 for a chart summary)

The benefits of providing a legislative green light to strata owners in this space, however, must also be appreciated. Deloitte Access Economics this year released a report Economic effects of Airbnb in Australia: Queensland in which they estimated that ‘Airbnb guest expenditure is associated with $217.4 million in value add to the Queensland economy, and supports 2,115 FTE jobs across the state’ (see p.22).

Strata living is no longer simply a stepping stone to owning a house in the suburbs. Given Queensland’s increasing urbanisation, smaller families and ageing population, we can expect a greater proportion of the population living in this type of housing in the future. In this respect, the Body Corporate and Community Management Act 1997 should increasingly be viewed by government as an important piece of legislation to be regularly reviewed to keep pace with changing technologies, demographics and public expectations.

Dr. Stephen Thornton is a social economist and principal of BG Economics. Disclosure: Stephen owns a strata investment property in Brisbane.

Woolworths_site_development

Proposed mixed-use development on the old Woolworths site in central Toowong. Includes 533 apartments (594 resident carparks), 1,728m2 gross retail area (73 retail carparks). Source: BCC planning & development online portal, accessed 11.11.2017

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8 Responses to Pets, Airbnb and Management Rights: Strata policy challenges for the incoming Queensland Government

  1. Lars says:

    Exciting to read! I am working myself at an Airbnb company, and I know Airbnb is becoming more and more attractive in the Australian market. I am curious what the outcome will be from the latest survey about short-term rentals in Australia. I’ll keep an eye on your blog. Thanks.

    Cheers,

    Lars

    https://madecomfy.com.au/

  2. Robyn says:

    Neither major party is willing to end the “QUEENSLAND Disease”. Only in QUEENSLAND is the developer able to sell management and letting rights to a new building for 25 years. A colossal rort. Newman made it worse by removing the need for managers to live on site. Our building has had two hopeless so called managers in two years. The fact that both have been mainland Chinese may be no coincidence. None of us would ever buy off the plan again.

    • Hi Robyn, certainly some of the issues that you raise are reasons a review of management rights is necessary. A review would determine whether some of the issues you mention are systemic or simply isolated incidences.

      • robyn says:

        The main problem is the apathy of investors. Negative gearing? We had to impose a special levy and call a special meeting because of problems with the Manager. No one other than the committee bothered to turn up. We also had strong reasons to suspect that the two Managers were in cahoots with the hopeless Body Corporate managers foisted on us by the southern based developer. The developer makes a huge profit by selling MELA rights but the unit owners cop the consequences.

  3. Glen says:

    One of the areas often overlooked in the pets, mainly dogs, in apartments debate is the issue of common areas, mainly in regards to obligations from a hygiene and cleanliness perspective. . There seems to be genuine consensus that it will become more difficult to prevent people from having dogs in their own apartments, but the area of main objection is the pets in common areas, particularly lobby and general entry areas and of course lifts. I am aware of some apartment body corporates that have decided to accept dogs in apartments on the provision that the dogs aren’t allowed on the floor of common areas, owners have to pick up their animals and physically carry them through common areas and lifts until they reach their own apartment, I guess you won’t see too many Great Danes or St Bernard’s in these buildings.

  4. Hi Glen, most bodies corporate have general by-laws around littering and damaging common property. More specifically, pet by-laws usually incorporate things such as cleaning up any animal mess and having control of the animal at all times which are reasonable conditions to set. In terms of carrying animals over common property I know this is common in a lot of pet by-laws but this is a little more complicated as adjudicators have found that weight limits for pets are unlawful. This then means that the Great Danes and St Bernards you mention are not allowed to be prohibited based on their size. The Act requires bodies corporates to set reasonable by-laws and as such a requirement to carry dogs of this size would be considered unreasonable.

  5. Joe says:

    Management rights leases should be of a shorter term than 25 years, with bodies corporate committees having the right to negotiate with as many providers as they wish every five years or so. This would stop BCM’s from becoming blasé and treating the residents as a captive audience.

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