Why “later” is the most expensive word in strata
Small problems don’t stay small forever. CEO & Founder Paul Morton and Mitchell Lipscombe from BAC Insurance Brokers put the cost of delay under the microscope and give owners, committees, and strata managers the tools to start acting before "later" becomes a crisis.
Major capital works test the decision-making abilities of owners corporations and their strata committees like few other agenda items. Agreement on a way forward, and particularly how to pay for it, can be elusive. The easiest option to turn to is to do nothing, kick the can down the road and hope that a consensus will somehow emerge over time.
It may be the easiest option, but also the most expensive, as Lannock’s Paul Morton and Gemma Davey, joined by Mitch Lipscombe from BAC Insurance Brokers, spelt out in a recent webinar for 400 owners and service providers.
The evidence presented was compelling. Inflation erodes all budgets over time, but its corrosive impact has been supercharged with construction costs. The benchmark Consumer Price Index has risen 31 per cent over the last 10 years. But the more directly relevant Labour and Materials Index rose 31 per cent in just four years from 2020.
Delay also invites scope creep. Buildings deteriorate over time, and the impact spreads from the failure of key elements such as waterproofing. Both the scale and cost of work compound rapidly.
Examples given include:
In Campbell Street, Parramatta, a rectification first identified in 2016 at a cost of $1 million. Owners decided not to do the work. Seven years later, in October 2023, they resolved to borrow $5.5 million after the insurer refused to renew cover if the work did not proceed.
In Abercrombie Street in Darlington, also in Sydney, owners resolved in 2023 to proceed with a project costed at $500,000. But it didn’t go ahead because they decided to try to raise the funds with special levies. Barely 18 months later, the cost had blown out to $1.5 million.
In Melbourne’s Flinders Street, owners took out a loan for work estimated at $250,000 in 2022. Two years later, the cost reached $1 million due addition work and defects.
There is no one reason why inflation in strata works far outpaced costs in the wider economy.
More stringent regulation dealing with major safety and quality issues has added to the upfront costs of many projects. But it has also reduced the risk that the work will need to be redone down the track, as well as the risk of more catastrophic outcomes. Examples include combustible cladding rectification, waterproofing remediation, fire safety upgrades, electrical compliance, asbestos handling and EV charging infrastructure.
Then there is the unavoidable reality of competition for trades pushing up their rates. Huge infrastructure projects with vast budgets, such as Sydney Metro, are a lot less price conscious than your average owners corporation.
Things can be more complex in strata. People want to stay in their homes while work is underway. Most other major projects are on vacant sites. That adds more cost.
So how do committees overcome owner resistance? According to Paul Morton, a good start is the right language. Substitute words like cost and expense with investment and return. Invest this much now or invest more later. Which offers the best return?
No owners corporation sets out to triple the cost of its own repairs. It happens one deferred motion at a time. The good news is the fix is equally simple: make the decision while the number is still small.
Don’t delay, start your works today with fast, flexible and fuss-free funding: https://lannockstratafinance.com/start