Everyone agrees we’re in a national housing crisis. There are a range of causes – tax policy encouraging investment in housing, limited coordination of housing and immigration policies, and decades of failure to build public housing. Whatever the causes, governments seem to have settled on a single solution: increasing supply through new apartments.
Everyone also seems to agree that high-density housing should be mixed use and mixed tenure. People need somewhere to buy milk and eat dinner with friends, ideally less than 30 minutes away by car. Consequently, the densification of Sydney focuses on masterplans combining residential, retail, commercial and public open space.
The difficulty is that mixed-use and mixed-tenure development is legally complex and financially burdensome for owners and tenants.
Community living with hidden costs
Almost all high-density housing in Australia is strata title. Strata titles are freehold fee simple, government-backed Torrens titles, just like houses in the suburbs, but they have one key difference: strata owners are legally compelled to pay annual levies for the upkeep of common property, such as lifts, corridors, car parks, and gardens. In contrast, non-strata owners only pay their vendor and council rates. They will never be legally compelled to paint their house or buy electricity from a particular supplier.
Strata owners are also members of a governing body, an owners corporation (OC). An OC can be financially and legally responsible for a large building, with its lifts, fire services, pumps, recreational facilities and sustainability infrastructure, as well as hundreds of residents. That’s a complex task for lay owners, and as a result, many OCs engage a strata manager to help – adding more costs to their housing.
Not surprisingly, strata schemes can be difficult, sometimes needlessly so. The media has exposed exploitative practices by the development and strata industries, ranging from building defects to kickbacks for developers and strata managers. The latter are a result of the development and strata industries treating annual levies as an income stream they can tap. If they can add infrastructure and services to a development, provided by them or their mates, owners will be legally compelled to pay. OCs are often tied into contracts with strata and building managers, embedded network operators, landscapers and security firms.
Fair Trading is enacting protections in strata legislation to eradicate these practices. New laws may work, but almost none will apply to new mixed-use, mixed-tenure developments.
That is because mixed-use, mixed-tenure developments are ‘stratum subdivisions’, not strata title.
Shared space, unequal power
Stratum subdivision divides land into separate retail, commercial and residential components, which share facilities like car parks, fire equipment and privately owned but publicly accessible open space. Payment for those shared facilities is mandated by a building or strata ‘management statement’, a document written by the developer and almost entirely unregulated by law. These documents often impose disproportionate costs on residential owners.
While the residential components of a stratum subdivision will have their own OC, the overarching development is run by a Building Management Committee. This is created by the developer, and residential strata schemes will typically have only one vote, allowing them to be outvoted by the retail and commercial owners. The upshot is that apartment owners will have minimal control over the ultimate costs of living in their homes.
In solving the housing crisis, too much attention is being paid to supply through mixed-use, mixed-tenure developments, and too little attention is being paid to who will own and pay for them.
Chippendale’s Central Park, the plant-covered building next to Central Station, is a salutary tale. With a green façade, black and grey water treatment plant, and a vibrant retail food scene, it is the poster child for mixed-use urban density. However, levies for a two-bedroom apartment – the costs of all those facilities – are $15,000 a year.
Affordable housing? Probably not.
Professor Cathy Sherry, Macquarie Law School, is an executive member of the Smart Green Cities Research Centre and a member of the Macquarie University Housing and Urban Research Centre. She is the author of Strata Title Property Rights: Private governance of multi-owned housing (Routledge, 2017).