Rents, roof space and EVs

We all know there’s a housing shortage and we are seeing signs of overseas workers and students coming back to our cities, so it should be no surprise that rents are going up.

Yup, that old supply and demand equation never fails.  But the surprise part of all this is how rents on apartments are going up by so much more than on houses.

We kick that around with some astonishing figure on this week’s Flat Chat Wrap – especially looking at some unexpected areas where unit rents have soared.

Then we look at the potential for apartment blocks to go up in the world. Got a crumbling block that badly needs fixing? Add a couple of penthouses and sell them to rescue the rest of the building.

It’s not quite “the sky’s the limit” – the height restrictions in your local council area are.  However, according to an expert in roof space additions, there’s billions of dollars of untapped potential right above our heads.

Finally, we look once again at electric cars and growing grumbles that being forced to install the infrastructure for car charging will add extra costs to new buildings. 

How much?  Listen to the podcast or read the transcript.

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Flat Chat is all about apartment living, especially in Australia.
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Send comments and questions to mail@flatchat.com.au.
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Recorded by Jimmy Thomson & Sue Williams; Transcribed by Otter.ai.
Find out more about Sue Williams and Jimmy Thomson on their websites.

Transcript

Jimmy  00:00

It’s funny, isn’t it, how the rest of the media kind of ignores things that are going on in apartments and then suddenly, it’s like they’ve discovered it for the first time?

Sue  00:09

Yeah, well, I guess there’s so many people now living in apartments, that they ignore it at their peril.

Jimmy  00:13

They do, but they do seem to ignore it. It’s usually around about this time of year, when there aren’t that many stories happening.

Sue  00:15

They go out seeking stories and…

Jimmy  00:23

Find out there’s this whole world, in strata. So we’re going to be talking about a few stories you’ve dug up. One of them is about rents going up. The other one is about owners going up, into the airspace above their buildings. And, there was a story the other day about electric vehicle charging (The Daily Telegraph, I think it was). So there’s a lot to talk about; we better move on. I’m Jimmy Thomson, I write the Flat Chat column for the Australian Financial Review.

Sue  00:50

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

Jimmy  00:53

And this is the Flat Chat Wrap.

[MUSIC]

Jimmy

Rents, Sue; they’re going up?

Sue  01:10

Yes, and by a huge amount, as well. Domain brought out its annual rent report this week and it showed (really interestingly), that apartment rents have gone up even more than house rents. I mean, house rents have gone up by a huge amount, too. They showed that house rents have gone up nationally, because they look at capital cities around the country. They’ve gone up by 14.6% for houses, over the past year. But,  for apartments, they’ve gone up 17.6% In a year, which is quite incredible, really. And that’s the seventh consecutive quarter of house rent rises, and the sixth of unit rises.

Jimmy  01:52

Has this got anything to do with post-COVID stuff? Are people coming out of their shells, or is it people coming back to live in the cities, or what? What’s going on?

Sue  02:03

Well, generally, the rising rents for houses and apartments is all about the supply of housing; there’s just not enough housing. Also, post -COVID, we’ve got a rise in overseas migration and the return of overseas students. And of course, we’ve got the tourism industry kicking back again, and some owners putting their properties back on short-term letting platforms, like Airbnb. So that reduces the amount of supply of rental properties.

Jimmy  02:32

According to Airbnb, it doesn’t, so it can’t possibly be true!

Sue  02:38

I mean, I guess, the supply of housing; it’s all about rising interest rates, as well. It’s making some landlords; investors in property, who traditionally rent out their places… They might be trying to pass on the higher cost of mortgages, in the form of rising interest rates, to tenants. That may be happening as well; that may be pushing up rents, too. But it’s quite astonishing, that apartment rents have gone up by more than house rents. We think it’s all about affordability. People who can no longer afford to rent houses are now looking at apartments. People realise that apartment living is a really pleasant way to live.

Jimmy  03:21

Can be.

Sue  03:22

Well, yes, it can be, I suppose. I mean, there are really awful apartment buildings in suburbs which aren’t as salubrious. You know, that can be hard work. A lot of people are really scrambling to find nice units to rent, instead of houses. You know, they’re moving down from houses and townhouses; they’re going to apartments instead. Because traditionally, they’ve always been a bit cheaper, but really, the gap is narrowing in rents between houses and apartments. So, it’s looking pretty dire for tenants out there.

Jimmy  03:51

Well, I got a call from a friend of ours, who said somebody in their office had just had a notice from their landlord, giving them 60-days’ advance warning, that their rent was going up by 40%.

Sue  04:03

40%?!

Jimmy  04:08

And,he said “surely, this isn’t legal?” My response was “well, actually, it is legal,” because they’d given the appropriate term of notice. They are probably thinking well, we can take this to a tribunal and say this isn’t legal. They can take it to a tribunal and say it’s excessive, but the tribunal will look at the average of rents for similar properties in that area. They don’t look at the amount of the increase, although it does flag (to some extent), that it may be excessive, and certainly worth looking at. But what they will look at, is similar apartments in the same area, and what the average rent for that is. And if it’s in excess of that, then a tribunal will say “well, no. You can have some increase, but not all that you’re asking for.” And then what usually happens is that the tenant gets notice a few weeks later, saying that they’re not going to renew their lease.

Sue  05:05

But the difficulty is, I think, during COVID, some landlords put the rents down and now maybe, they’ve been slow to put them back up again and now, they’re actually seeing this huge rental increase around Australia and are now putting up the rents by a huge amount, because they’re making up for not only their losses during COVID, but also catching up with the rest of properties in an area. I mean, areas in Sydney (that have traditionally been a lot cheaper); somewhere in the southwest, like Bass Hil… Rents there have gone up in the past year, by 44.2%. You know, so 40% isn’t kind of really…

Jimmy  05:19

It’s not off-the-scale.

Sue  05:43

Spectacular, in lots of ways. In inner city Melbourne, units have gone up 33.3% over the past year. Even in Queensland (on the Gold Coast); units in Runaway Bay have jumped 36.8%. All around Australia, they’ve had huge rises in apartment rents. We’ve just never seen that kind of thing before.

Jimmy  06:10

So what I did for our friend was point them in the direction of the Tenant’s Union website, which has a fantastic fact sheet, about what to do when you get a huge rent rise as a tenant. It’s very clever; it tells you what the law says the landlord must do. It even has a little section on how to negotiate a lower rent rise, because that’s the first thing that would be advisable to any tenant who has an excessively-high rent rise.

Sue  06:41

What kind of tips do they offer?

Jimmy  06:43

Well, the first thing is, go back and ask the landlord to moderate; maybe offer less… Just say “look, we’ll pay this amount,” for a longer lease. There is also the thing up their sleeve; the thing of saying “well, look, we’re going to take this to tribunal.” I mean, if the landlord proves to be reluctant, they can say “well, we’re going to take it to a tribunal,” and the landlord might go “oh, god,” and prefer to take the lower rent and live with that, rather than go through all the hassle. It’s all about engagement, rather than threats. There’s always the danger (they should know this; their agents will be telling them), that if you go to a tribunal with something that’s way off-the-scale, then it’s going to get knocked back anyway and you’re going to have to go through the hassle of going to a tribunal. I’s interesting; I was talking to Leo Patterson Ross, the head of the Tenant’s Union in New South Wales and I was saying, well, if if the landlord comes back, and agrees on a lower rent, or whatever, and then says “okay, you’ve got to move out,” as a retaliatory eviction… You know, in terms of “at the end of your lease, I’m not renewing it.” He said that that’s very rarely approved by the tribunal; it has to happen within two or three weeks. If the landlord comes back two months later, and says “okay, I’m not renewing your lease,” then the tribunal will say, well, that’s not retaliatory, because it’s happened at a different point. So it’s kind of really worth the tenant engaging with the landlord; engaging with the agent, to try and find a reasonable outcome. But the simple fact is (as you pointed out), rents are going up.

Sue  08:35

But most landlords are reasonable, and they will want to keep a good tenant really, even if they’re not paying quite as much rent as they hoped. And it’s difficult, because I think during COVID (as we know), a lot of people bought properties in the country, and also on the coast. And some of those people are now deciding…. They bought them and they rented them out for a while and they were always thinking “well, maybe I’ll go and live there later.” Some people have decided no, they’re not going to go and live there later (like us). Other people have decided “well, I’m going to go and live there sooner, rather than later.” My brother bought a seachange place in Port Macquarie. He lives in Sydney, and the tenant broke the lease agreement, so he decided, why not just go and live there, instead? Sooner, rather than later.

Jimmy  09:22

Bring it forward.

Sue  09:23

Yes. So, he’s gone to live there now and he’s selling his house in Sydney. So you know, that means one less place to rent, for people in Port Macquarie, and that might be happening on a much larger scale, as well.

Jimmy  09:35

I also think in these country and seaside places; they’re absolutely prime spots, for short-term lets. A local rental market.

Sue  09:40

That’s right, because often, they don’t have the traditional rental market. You know, people in Sydney buy a place on the coast and expect to rent for as much as mortgage repayments, but sometimes in those little seaside towns, they don’t have a big rental market. That’s right, so they will pay much less rent than maybe the mortgage would cost and the negative gearing wouldn’t make up for some of their losses.

Jimmy  10:07

Well, this is the dilemma for a lot of these places; Byron Bay being the prime example, but also other traditional holiday areas… The owners can make a lot of money on holiday rentals, but the people who service the holiday-makers; the bar people and baristas, and cafe owners and shop assistants…

Sue  10:32

The cleaners…

Jimmy  10:33

 They can’t afford to pay…

Sue  10:35

They can’t afford to live there.

Jimmy  10:37

So, how do you get the people in?

Sue  10:39

It’s crazy, isn’t it? It will work out in time; it will kind of smooth out, hopefully in time, but in the meantime, there’ll be an awful lot of pain there. But the glimmer of hope on the horizon is that the pace of rental increases is actually easing, so that is a good thing. Hopefully, this time next year, maybe rents will completely stabilise, because by then we will have stopped (hopefully), having interest rate rises. The Reserve Bank of Australia will stop that and that will stabilise; maybe even come down, by early next year. So hopefully, the market might settle down again, as well.

Jimmy  11:15

All right; we’ll keep an eye on that. But I mean, the fundamental issue is, there’s a shortage of housing. Of all kinds. When they start building new homes for people, they’re going to be concentrating on apartments, because the quarter-acre block (or whatever size it is these days), the McMansions, are the least efficient way of housing people.

Sue  11:21

Absolutely.  That’s right. We just need good apartments, well-planned, in areas with lots of amenity for people going to live there. You know, cafes, parks, swimming pools; we need all that kind of stuff. And it’s interesting; you look at Green Square in Sydney and I think many of us thought “oh, that’s going to look awful…” In fact, it’s a very high-density area; lots and lots of apartments, but actually, it’s pretty well-planned. They’ve  got that fantastic aquatic centre there… They’ve got great cafes; they’ve got great restaurants now. They’ve got that fantastic library. You know, well-planned, high-density living can be really good.

Jimmy  12:16

And a railway station.

Sue  12:17

Yes, absolutely. We know people who live there and absolutely love it.

Jimmy  12:21

When we come back, we will be talking about making use of the airspace above your apartment block. That’s after this.

[MUSIC]

Jimmy

And we’re back. Sue, you found another story in (The Daily Telegraph again! Oh my god, they’re on the ball. They’ve discovered apartments; well done)! The story is about the billions of dollars of unused property sitting above apartment blocks. I guess we’re talking about small apartment blocks, with roof space. So, what’s the story?

Sue  13:02

I was contacted by this guy last week and he calls himself a ‘rooftop property development specialist,’ and he says he’s making a business (he’s been going for a while now), going to apartment buildings and talking to owners and saying “you’ve got unused airspace above your building, that you could be building on. You’re allowed to go up maybe, ten storeys in your area, and you’ve only gone up eight storeys, so we could build maybe, two penthouses on top… Two storey penthouse on top of your building and you as owners corporation members can sell those, make money and upgrade your entire building.” I mean, it’s not a new concept, obviously. There’s been lots of other developers who’ve been going around; particularly in beachside suburbs, where there are traditionally smaller buildings, and they’re crumbling, because of the sea air and the salt and foundations. They’re all 50’s and 60’s buildings, that could really do with an upgrade.

Jimmy  14:01

So we’re not talking about the two storey walk-up with the roof space above their top apartments so much; we’re talking about roofs on…

Sue  14:09

Kind of moderate buildings, yes; eight to ten storeys… That kind of thing, really. It’s a much more difficult engineering process, if you’ve got a really tall building, but you’ve got a bit of space on top. Mostly, it’s kind of small; you know, maybe even four storey buildings with eight or ten owners; that kind of thing. Because it can be really difficult to corral owners together and get them to agree, as anybody who lives in an apartment building knows. It can be hard to get them to agree to anything!

Jimmy  14:37

It’s only in times of crisis… Traditionally, it’s always been the people on the top floor, who want to move into the roof space. And usually, it’s taken from the misconception that nobody else is using the space above their apartment, so they can, and they move in (often, without telling anybody else in the building that they’re doing so). I remember friends of ours had an apartment down in (was it Bondi? Was it Tamarama? Somewhere around there)… It was a two storey walk-up, and people had moved into a flat on the top floor and just taken out the ceiling and moved and opened up the roof space, to give themselves this vaulted cathedral-like apartment on the top floor. Basically, when they said “you can’t do that,” they said “but nobody else can use it; nobody else can go in there, so we can.” Of course, there is a formula for that kind of thing, which is basically, the increased value of the extended property, minus the cost of extending it, as all that money then has to go back to the owners corporation. But it has to be done with the owners corporations’ approval. People can’t just do it (although they do). This is a different thing; this is a more commercial operation.

Sue  15:55

Yes, that’s right. And obviously, you have to lodge a development application with the local council, to make sure you can do it. I mean, you’ve got to get it done properly, by a proper developer, or construction company, or engineer. But look, it’s a great way to go, for people to refurb old buildings. You could actually end up giving yourself a strata levy holiday for two years or something, on the extra money. So you know, there is a lot of untapped room there, that people can use. The other developers go in… I mean, this guy’s looking at roof space, particularly. But other developers go in and look for empty spaces in the building and one developer found some unused space in the basement of a building and reconfigured it and turned it into another apartment, which benefited everybody.

Jimmy  16:44

I think somebody on the top of that building actually moved; extended upwards as well, didn’t they?

Sue  16:48

That’s right, yes.

Jimmy  16:50

So you know, it basically gave a building a whole new life and fixed up all the things that needed fixing in it.

Sue  16:56

And as buildings get older, this is an area which I think more and more people are looking at, because you can use that money… You can add balconies onto a building that doesn’t have balconies. Especially if you aren’t by the coast; it’s incredible to have a building without balconies, when you’re at the seaside.

Jimmy  17:12

And it’s interesting that David Chandler, the Building Commissioner, is taking an interest in these refurbs of older buildings, because as he’s pointed out, you could have an extension or refurbishment done by professional builders and engineers, or it could be somebody working on the weekend.

Sue  17:35

He’s inspecting those, isn’t it he, and making sure the work is up to scratch?

Jimmy  17:38

Yes, and that the people doing the work, have actually got a good track record. So that’s going to be the next thing. Now that the new buildings’ have come under close scrutiny (and he’s got a team working on them), I think that’s going to be his shift in focus. But he’s talking about older buildings that need work and older buildings that have had work. In a lot of cases, some of the work that’s been done is just not up to scratch and the owners are left with a bill to fix it.

Sue  18:06

Yes. I think it is an area that a lot of buildings should be looking at. It’s interesting; in our building (which was a new building, 20 years ago), we found some spaces that weren’t being used and one of them we turned into a building manager’s office, because we didn’t have one of those. Another one was a big room that was for meetings, but we thought “that’s never really going to be used for meetings.” It’s such a big room, so we turned it into a second gym. So we’ve got two gyms, effectively, which people use much more than a meeting room.

Jimmy  18:42

When we come back, we’re going to talk about electric vehicle charging, and something I didn’t know, that’s in the offing this year. That’s after this.

[MUSIC]

Jimmy

And we’re back. Our third story this week is about apartment blocks and electric vehicle charging, which we have covered in the past. Now what I didn’t know is apparently (as of October this year,) all new apartment buildings have to be wired for electric vehicle charging. And obviously, that’s going to increase the pressure on existing buildings to upgrade their systems and the general thinking these days seems to be, get the infrastructure in for the cabling. Even if there’s only one or two electric cars in your building at the moment, they are going to increase; we can see that. The number of electric vehicles coming into Australia is going up and the prices are going down. Apparently statistically, apartment residents are more likely to change their cars over more frequently. A somewhat weird statistic, but a lot of people are saying that the next car they get is going to be an electric vehicle.

Sue  19:59

It’s quite controversial… I went and visited an old friend the other day in their building, in the inner west of Sydney. They live in a huge complex, and they’ve just put in two vehicle chargers, so you can actually go and park in a car space and plug your car in for three hours, or maybe overnight, then you have to drive away and let the next person in. They’ve only got two for this…

Jimmy  20:25

It won’t be overnight.

Sue  20:26

Oh, okay.

Jimmy  20:28

You shouldn’t take more than an hour to charge a vehicle with a fast charger.

Sue  20:32

Okay. So they’ve got two, but for this massive building. The person I was talking to was saying “it’s such a waste of money. We only have one electric car; why can’t they go and charge it somewhere else? Why should we have to contribute money towards that?” Some people are really resisting.

Jimmy  20:50

There is a lot of resistance. In our building, they put up all the cabling and infrastructure and as far as I can tell, there are only two cars that are using it. But, I still think it’s a good thing. It’s future-proofing. It costs about $400 per apartment more (according to this story in The Daily Telegraph), to include this when the apartment is being built… $400 more per apartment, which, when you consider that you’re not going to get an apartment in a new building for less than $800,000, it’s a drop in the ocean and it’s helping the environment. I’m not sure about the information in this story, because it says that using your domestic power supply to charge your car can take up to three days. That’s just nonsense.

Sue  21:46

Is it? So if we were able (miraculously), to get our car into our apartment, we’d just put it into a regular plug?

Jimmy  21:53

Yes, overnight. When you consider that most electric cars are only used in the city for short runs, and you charge it (and they only charge up to 80% capacity, anyway), and they very rarely get down to nothing… So when you’re charging up, you’re actually just topping up. Our cars are sitting in their parking space overnight, anyway. It just takes an overnight charge, to get you up to the point that when you’re going to need it, you can use it for the next time.

Sue  22:24

Because when I think of my electric scooter; five bars is my top charge… Usually, when I go down to say, two bars, that’s when I charge and that would take maybe, two hours.

Jimmy  22:41

We’re talking about a different thing here, but the domestic electricity supply is perfectly capable of charging up an electric car. Obviously, it would take longer to do from scratch. But you park your car at night. When you come home from work, you plug it in… You go and have dinner and sleep and get up in the morning and it’s been sitting there for eight hours, charging up (probably more). So it may be three days to charge a huge vehicle from scratch.

Sue  23:12

But you’re only going to do that once.

Jimmy  23:13

Yes, that’s true. And also, real estate agents keep reporting that one of the first questions people ask when they’re coming to look at an apartment to buy is, does the building have electric vehicle charging? It annoys me, when people just throw out information like that, because this constant drip feed of negative information about electric cars; we’re getting it from all sorts of sources. It’s based on prejudice and it’s based on rumour and it’s based on worst-case scenarios. In fact, it just makes a lot of sense for apartment blocks. Put the infrastructure in. Now, that infrastructure could be charging stations, which as somebody pointed out, if you only have two charging stations, then you will only charge up two cars. This thing about “oh, there’s only two electric cars in the building…” It’s a piece of nonsense, you know. Everybody who has put electric charging into their apartment block says virtually within hours (literally), an electric car appears, because that car has been owned by a resident who’s charged it somewhere else.  I did a story a couple of months ago, for the AFR about this. And you know, there was somebody there who’d championed electric vehicle charging in their building and one of the arguments that got across the line was that somebody had come to the building, planning to rent or buy and asked “do you have electric vehicle charging?” They said “no.” “Do you have plans to instal it?” “No.” “Okay, well, I’ll look somewhere else.” I mean, it’s one person and one anecdotal story, but it’s the kind of thing that makes (investors, especially), go “oh, are we missing out here?” Actually, you’re not just missing out on a potential tenant, or a potential purchaser; you’re missing out on a kind of person in your building who is a bit more environmentally conscious. These are the kind of people that you want in your building.

Sue  25:11

Yes. Forward-looking and innovative.

Jimmy  25:17

Talking about being environmentally conscious… Next week, we are going to be talking about garbage chutes and how they are expensive.

Sue  25:27

Oh, that’s rubbish!

Jimmy  25:29

And how they undermine the whole recycling programme in your building. But that’s next week. Thanks, Sue, for digging through the newspapers and finding all those stories for us, and bringing us up-to -date on rents. And thank you all for listening. We’ll talk to you again soon.

[MUSIC]

Jimmy

Thanks for listening to the Flat Chat Wrap podcast. You’ll find links to the stories and other references on our website, flatchat.com.au and if you haven’t already done so, you can subscribe to this podcast completely free, on Apple podcasts, Google podcasts, Spotify, Stitcher, or your favourite pod-catcher. Just search for Flat Chat Wrap with a ‘w,’ click on subscribe, and you’ll get this podcast every week, without even trying. Thanks again. Talk to you again next week.