Over the years, property fees have been increasing. However, the current situation in terms of the amount of increase and the reason behind it is quite different. The typical 3-5% annual increment in the levy that many owners’ corporations had long depended on to meet the rising costs is now insufficient. The sooner buildings adjust their budgets, the fewer financial hardships they will have to confront down the track.
The triple threat driving costs up
A combination of factors has caused maintenance to genuinely become more expensive, as opposed to inflation-adjusted slightly more costly.
First, and most obvious, is that as we all know, skilled tradespeople are in short supply in most markets. They can charge more because there is demand for their work and not enough of them to go around. Labor costs in these categories have risen well above general CPI.
Secondly, and less talked about, material costs are still high. Those supply chain issues that began a few years ago never really went away. Steel, copper wiring, and structural timber all remain at a higher price point today than prior to supply chain issues stemming from the Covid-19 pandemic.
Finally, insurance costs have become a material line item in its own right. Insurers are aggressively repricing buildings with known cladding issues, older-than-average fire systems, and buildings in flood-prone areas. For many owners corporations, insurance is now the second-highest outgoing after maintenance and is simply no longer “negotiable”.
The combination of these three pressures means that whatever budget you set on levy two or three years ago is almost certainly underfunded today.
Planning forward instead of reacting
An expertly prepared 10-year capital works fund plan is the most effective antidote to financial shock an owners corporation has. It identifies when the building’s major assets will need to be replaced, estimates those costs at future prices, and then works back to determine how much the sinking fund needs to accumulate each year.
Buildings that choose not to do this planning don’t avoid the costs – they just face them unawares.
For an individual owner wanting to pin down the implications of proposed budget changes on their quarterly contributions, an OC fee levy calculator enables them to test different scenarios in advance of the AGM vote – so the sums aren’t abstract and the decision is less arbitrary.
The real cost of deferring maintenance
Delaying maintenance to keep levies low is a short-term play but a long-term lose. When you skip the service of a lift, HVAC, or your roofing, these crucial components don’t just sit at their current level of performance – they deteriorate more rapidly. Something that could have been fixed during a routine callout now necessitates an emergency capital replacement. Something that could have been fixed during a routine callout now requires an emergency capital replacement — and that cost comes out of your sinking fund whether you planned for it or not.
And suddenly, you have a special levy. Owners stretch to keep their quarterly levies unchanged for three years and then are hit with a bill that swamps all their savings. For some, that means financial hardship and disputes at the general meeting. For all, it’s the suboptimal outcome that could ultimately have cost implications when your unit is sold. The maintenance bill may not come with declared interest, but you always end up paying more for deferring it.
Finding savings in the existing budget
Increased trade costs don’t necessarily mean an increase in every spending category. An audit of your budget often reveals some flexibility. For instance, utility contracts for common property such as electricity, water, or gas, are often on expired rates as they’ve been rolled over for years without review. Similarly competitive tendering for service contracts where a perceived monopoly on an incumbent arrangement exists, such as cleaning or garden maintenance, can reveal savings that have no negative effect on the level of service.
Maintenance scheduling is another area where inefficiency pushes up prices. Buildings that run reactive maintenance end up paying through the nose for after-hours call-out costs for problems that could have been discovered during a regular inspection in business hours. Consolidating trade visits where possible and building proper preventative schedules reduces both the frequency of emergency cost visits and the per-visit rate.
Again these won’t fully offset what’s happening in the trade labor and materials markets, but they can reduce the gap between what fees need to rise and what owners are willing to accept.
The ownership lens
How owners view property fees impacts their voting at general meetings and interactions with their strata manager. Viewing levies as something to be kept as low as possible results in postponed maintenance, reduced funds, and buildings deteriorating quicker than necessary. Conversely, considering them the necessary expense of safeguarding a substantial asset – one that requires safe and operational lifts, a watertight roof, and appropriate insurance cover – results in a building that retains its value and escapes the cycle of crisis spending that ultimately impoverishes both the common property and each and every owner in the building. The costs are real. So are the benefits of meeting them.