Australia is in the midst of a housing crisis, and most governments, along with many citizens, believe that the answer lies in high density development.
While we need more apartment construction in Australia, that construction must occur with a proper understanding of the law that will regulate it: strata law. We currently have a bizarre dichotomy in New South Wales, with Fair Trading desperately trying to fix the legion of problems in strata while the Department of Planning incentivises more development with no regard to the problems it currently entails.
This is because planning law has not traditionally had to concern itself with the private property titles it created. That is because most of those titles – ordinary Torrens freehold fees simple – are very simple. People purchase a freestanding home, pay their vendor and their council rates, and the most complex legal relationship they will have is with their neighbour over a dividing fence.
When planning law creates strata titles, they are still Torrens freehold fees simple, but they automatically come with a share of collectively owned common property, membership of a governing body corporate, and regulation by privately-written by-laws and hundreds of pages of legislation. Owners are immediately enmeshed in complex legal and financial relationships with their neighbours and the state.
Most importantly, unlike non-strata owners, strata owners have a legal obligation to pay annual levies for the upkeep of their building, including insurance. While that is logical and fair, this obligation to pay money has been exploited by the strata industry, state and local governments and developers.
First, a section of the strata industry has evolved to milk the income stream created by strata levies. While the rest of us choose how and when we insure or repair our homes, strata owners pay through an opaque system of collective levies. When owners check, they may find they are paying for commissions and services that unreasonably benefit their strata manager at their expense.
Second, underfunded local councils are jumping at the chance to avoid the costs of infrastructure, in perpetuity, by privatising it as common property in strata or community schemes. Every square inch of some high density housing estates on Sydney’s Parramatta River is private property: the infrastructure, pools, as well as the publicly accessible roads, pavements and parks. Ditto vast swathes of northwest Sydney. As private property, a park, pavement or road must be paid for by apartment owners, even if accessible by the whole city. It is also insured by them, so you can bet that skateboarding and rollerblading will be banned.
Finally, developers routinely augment their profits by selling body corporate contracts that owners have to pay. The bigger the development and the more complex its infrastructure, the more likely owners will have to engage professionals to help. Developers take advantage of this by offering those professionals contracts with the body corporate in return for developer kickbacks in cash or kind. Those kickbacks might be free advice on budgets from a strata manager or free physical infrastructure for an embedded network, including solar panels. In return, the developer will cause the body corporate to enter a contract with the service provider. The longer that contract, the more it charges the body corporate, and the harder it is to terminate, the bigger the developer kickback. Those contracts are paid for by apartment owners through levies, often in return for substandard services like overpriced electricity or poor building management.
Fair Trading is aware of these problems and is trying to close gaps in strata legislation. But for many owners, this will prove useless. That is because most of the large-scale, mixed-use developments the government is incentivising will be “stratum title”. Yes, yet another legal complexity.
Stratum title is designed to pull the commercial and retail components of developments out of residential schemes and the consumer protection provisions of strata legislation. These developments are governed by a building/strata management statement, which is a document written by the developer. It allocates costs for the shared facilities (the plazas, parks, car parks, EV charging, car share spaces, public art, etc) and controls the use of space. This document is almost entirely unregulated and typically cannot be changed without unanimous agreement. Any party advantaged by the cost allocations will not agree to a change. Developments are run by a building management committee, on which residential bodies corporate will routinely be outvoted. Apartment owners will have minimal control over their annual levies.
The answer to these problems is not to stop building apartments or to stop using strata title. We need apartments, and like democracy, strata title is not perfect, but it’s the best system on offer. However, everyone involved in development – planners, architects, designers, councils and state planning departments – must understand the strata titles that their work will inevitably become.
First, we need to avoid strata title where possible. The NSW government has just released its low to medium density housing reforms with a glaring absence of attention to strata title. Duplexes, semis and terraces do not need to be strata, but they often are because of irrational rules and insufficient understanding of the inclusion of shared amenities. A few shared parking spaces do not justify 600+ sections of strata legislation.
Second, we need consent authorities to engage with the legal titles that their consents create. They must not turn a blind eye to the fact that the publicly accessible, family-friendly park will not be so friendly when families must pay for it and have the power to regulate its use. Or to the fact that the development yokes multiple buildings and hundreds of owners together in incomprehensibly complex legal structures that will be impossible to ever redevelop. Consent authorities must understand who owns and pays for the sustainability infrastructure they so proudly trumpeted. Is it genuinely sustainable, or is it just extorting owners and residents for a private company’s profit?
Strata title law is complex and often boring. But it is inexcusable for governments and industry to promote its expansion for the benefit of future homeowners, simultaneously not bothering to understand the ways in which it will harm them.