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.
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.
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