Seven Insights from the Last Australian Strata Data Download
Some surprising statistics show us a potentially different strata future ...
Sometimes you can’t see the forest from the trees. But, when we stop and look at the details of what’s actually going on in strata, we can see that the reality is different [and more exciting] than you might imagine.
In 2018 the UNSW City Futures Research Centre [with the support of Strata Community Association] published their review of statistical data for strata building and stakeholder numbers and activities.
It’s a huge download of useful and interesting facts about strata that I encourage you to explore at your leisure. But, like so often happens after a big download, you can easily get lost in the data unless you’re a bit selective.
So, here are my top 7 insights from the UNSW 2018 strata data.
1. High Rental Occupancy Rates
Nationally, almost half of all strata apartments are tenanted [it’s actually 48%]. And, it’s only in Western Australia that the proportion drops to 40%.
That’s high and that level of residential investment in strata has a number of consequences and impacts as follows.
At an estimated 2% - 3% yield, the rent paid by strata tenants is somewhere between $2.4 Billion and $3.0 Billion per year [based on either the yield as a percentage of strata scheme aggregate replacement value or the average Australian apartment rental of $447 per week times 1,293,698 tenants]. That money funds strata title operations alongside investor owners’ mortgages and other property-related expenses; so it’s a critical funding channel for the strata sector.
It also means that half of all strata owners are investors and not owner-occupiers. And, investors have different interests and priorities that are focused:
more on profit [leading to a propensity to want lower strata levies], and
less on building amenity since most anecdotal comments do not link higher amenity with higher rents [leading to reduced interest in building harmony issues].
Similarly, investors are less likely to participate in strata operations due to their absentee status and the appointment of intermediaries like property managers who don’t generally participate in strata meetings.
So, decisions are mostly being made by minority groups of owners [residents] who do not represent the entire strata community’s preferences.
Finally, since virtually no tenants participate in strata operations [that’s even in NSW despite some limited mechanisms for involvement] their opinions and interests don’t get heard and tenants’ sense of involvement is lower [or nonexistent].
In my view, that’s two significant stakeholder groups [tennants and investors] that need and deserve more attention.
2. Low Strata Employment Levels
A little over 9,000 people are directly or indirectly employed in the administration of 316,227 Australian strata buildings according to the UNSW data. Of those people, two thirds [6,342] are based in New South Wales, Victoria, and Queensland.
That means that [on average] 35 buildings have access to only one person’s direct or indirect administrative assistance. And, even allowing for 1,920 working hours per person per year [48 weeks x 40 hours] that means each of those people can devote just 55 hours to each strata building per year, or, a little over 1 hour per week.
That level of strata building personnel support seems very low to me and helps explain the low service levels many strata owners and occupiers experience in their buildings.
Of course, these numbers may be wrong, managers likely work more than 40 hours per week and there’s a lot of volunteer work by owners and committee members in Australian strata buildings that add to the management resources available.
But, with ever-increasing regulatory requirements, more owner/resident touchpoints, and new communication channels, the work and time required to run strata buildings well is always increasing.
In my view, that demonstrates that the strata sector is seriously underserviced and there’s plenty of opportunity for more people, new services, and alternative strata operational models.
3. Nationality is Largely Non-Australian
Whilst the language someone speaks does not directly correlate with nationality when the data tells us that half of strata residents speak a language other than English, it means there is a significant [if not majority] of non-Australians in strata.
That’s high and, like the high tenancy levels, has a number of consequences and impacts as follows for effective communication in strata buildings.
Most of us have learned and habitual professional behaviours and social instincts but often don’t appreciate how these habits may affect the way we interact with culturally and linguistically diverse customers.
Research suggests that non-English speakers are often left stranded in these situations: finding it difficult to access services, struggling to comprehend the jargon and terminology used by professionals, and are at a distinct disadvantage in the areas of legal literacy and social cohesion as a consequence. There can also be cultural misfires [not everyone celebrates Christmas, and there are many different New Years], unwanted handshakes, misunderstood social conventions [unexpected cheek kisses], etc.
So, it’s not so surprising that there are high levels of non-compliance with strata by-laws and other formal strata building procedures.
A few common techniques that could be adopted to deal with this include:
Being more aware of our ingrained communication style [include non-verbal cues] and how they might alienate non-English speakers and take the time to overcome them.
By not assuming English proficiency in others since that can create anxieties and resistance that lead to inaccurate and unreliable responses.
Not equating English proficiency with knowledge or intelligence and, consequently avoiding communication or dumbing things down unnecessarily.
Offering other communications options that are less wordy [graphs, charts or diagrams] and/or translations or interpreters.
I’m amazed that multilingual information options are not offered to strata owners and residents. [The NSW Strata Living Handbook was once available in a few other languages but it does not appear to be anymore.]
Whilst these non-English speakers may not all be strata owners, that doesn’t mean that it’s not an important factor and shouldn’t be addressed. A little effort here could reap significant rewards.
4. Demographics are Younger [not Older]
Half of all strata residents are millennials, aged between 20 - 40 years. But, only 15% are under 20 years [children and young adults] and only 15% are over 60 years of age.
Again, whilst many of those millennials will be tenants, it’s a significant part of the current strata population. And, more importantly, it’s very likely those strata millennials will also be the strata owners and residents of the future as they displace the older minorities.
Conversely, the older [40 plus] owners/residents who are actually the minority, typically run most strata buildings.
So, there’s an obvious disconnect between the older owners who make strata decisions and the preferences of younger owners/residents who live in the strata buildings. Unfortunately, these differences have never been seriously explored so we don’t know what they are, how wide the differences are, and what can be done to bridge the gaps.
In my view, future-proofing strata for the next generation of owners and decision-makers depends on recognising and accomodating their different needs and wants.
5. Property Values are Significant
The research data suggests that Australian strata buildings are worth almost $1.0 Trillion.
But, that is based on information from strata insurers about the replacement value of the building structures and not the market value of the apartments.
It’s likely that the market value of Australian strata apartments is even higher than that since that the average Australian unit price is $552,000 and there are more than 2,500,000 of them. And, the values are increasing as the number of strata apartments grow and their value also increases with property market shifts.
So, there’s a lot of money invested by owners in strata building assets.
And, perhaps more importantly and less understood, a significant part of those strata assets also affect other less obvious strata stakeholders like banks under mortgages, insurers under policies, selling agents when they are sold or rented, etc.
In my view, that means that as these strata asset values become better understood and appreciated we’ll see:
new investment models in strata as institutions identify a new asset class for stable medium to long term investments, and
higher levels of involvement by stakeholders with secondary interests in strata assets like banks with mortgages who have a security exposure to strata liabilities,
6. Strata’s Proportion in Australian Housing is Accelerating
It’s not in the UNSW data, but whatever the strata numbers were in 2018, they are increasing at an accelerating rate.
In 2015 apartment dwelling construction starts exceeded free-standing homes for the first time ever in Australia. They have consistently done so since then and the difference keeps growing. So, some forecasters now predict that strata apartments will represent the predominant housing model in Australia during our lifetimes [by 2030-2035].
The takeaway insight here is obvious.
Whatever’s happening in strata now will just get crazier as it becomes the most common Australian housing option: think strata on steroids.
7. Total Strata Spend is High [and will get even higher]
The research data suggests that more than $6.50 Billion was spent by Australian strata buildings in 2017.
That’s an extrapolated figure based on limited data, so it’s hard to say if it’s accurate or not. Plus, it only includes ‘Callout Jobs’ and ‘Professional Services’ under UNSW’s constrained research limits.
But, even if you conservatively extrapolate annual Australian strata budgets you get to $3.85 Billion as a measure of annual strata spending [average strata levies at $1500 per apartment per year for 2.5 million apartments]. And, most of that money is spent within the annual cycle.
Either way that’s a lot of money and represents between 2% and 4% of total Australian GDP. Plus, it’s likely to increase steadily as society becomes wealthier and wants more paid-for services, Covid 19 impacts mean more people stay and work at home, and risk management pressures force buildings, committees, and managers to outsource more strata services to share or pass on exposures.
In my view, that means that we’ll see new entrants to the strata sector looking to capture some of that strata spending and new services emerge to increase the spending.
Think particularly about the following strata service areas:
new and different banking and financial transaction services to handle the money and non-stop transactions,
physical building maintenance services [cleaning, gardening, caretaking, etc] since they represent a significant proportion of the spending,
insurance, since it continues to be been a significant, controversial and lucrative part of strata,
consultancies offering assistance around communications, strategy, asset management, risk management, etc, and
on and off site personal and lifestyle-related services for residents like security, concierge, home help, health, wellness, etc.
In my view, there’s huge potential for the future of strata services to get pretty exciting, fun, and satisfying for strata owners and residents [as well as service providers].
Final Thoughts
Even a cursory review of the UNSW 2018 data reveals that strata buildings and the people who own, live, and work with them represent a huge economic and social sector that gets disproportionately low attention.
That needs to change.
Plus, it means there are many opportunities in the strata sector to do something new, rather than just the same stuff we’ve been doing to date or the same stuff everyone else is doing.
You can find the data, detailed analysis, and supplementary material from the UNSW City Futures Research Centre 2018 research here.
And, thanks to the UNSW City Future Research Centre for the great work they’ve done here.
Francesco ...
Feb 03, 2021