I recently read Jimmy Thomson’s editorial piece in the ISTM Newsletter called “And for my next Trick” about why strata owners won’t pay money for things and it got me thinking about why that’s so true.
Everyone knows that when it comes to getting strata corporations to spend money you need to use every strategy imaginable and, even then, it may never happen. This so even when it’s patently obvious the money needs to be spent, the strata corporation is liable or will become liable to damages and penalties if it doesn’t, apartments and common areas are less attractive, secure, waterproof, etc and the value of apartments are affected and declining. And, logically it will cost the strata corporation more in the future anyway.
I think this is a result of a few things as follows (none of which are easily resolved).
1. There’s generally never enough money available to strata corporations (either in the current budgets or saved) which makes everyone reluctant to spend. In other words most strata corporations are always too poor for their actual or ideal circumstances.
2. Strata owners don’t have enough money either. Whether the owners are new buyers who have borrowed heavily to buy so don’t have spare savings or cashflow, older owners with fixed incomes who can’t manage unexpected extras, retirees who want to preserve assets for later life, or investors who make better returns with lower expenses; they all have a personal incentive to spend less in strata.
3. Strata corporations and strata owners are risk averse when making group decisions so are unlikely to borrow money to pay for things.
4. There is aggregation thinking amongst strata owners. By that I mean that rather than 100 strata owners seeing a $50,000 expenditure as only $500 for each of them, they see it as a $50,000 expenditure by each of them.
5. Most strata owners have a short term horizon, so medium and long term benefits are less valuable to them. If free standing homeowners move or sell every 7 years, then strata owners do so more often (every 4-5 years) and 4 years is not a long time to wait if you plan to sell.
6. It’s too easy to delay decisions and action in strata corporations. Things need to wait for meetings, meetings don’t happen that often, meeting quorums are not always achieved, suggestions to delay hard decisions are often agreed without dissent (usually on the pretext of finding out more details and options), individual strata owners' ability to force action is limited, and it often appears more sensible to investigate things further.
7. Strata committees and managers have a mindset that saving money (in absolute terms) is doing a good job. That’s not surprising in all the other circumstances but it demonstrates a misunderstanding of the difference between getting better value and saving money.
8. The real cost of not doing things (and spending money) is never measured and known. So it always looks like delay, reducing activity and saving are financially better. But, it’s probably true that in many cases the true cost of strata situations to owners and occupiers is hidden and much higher than the savings.
9. There’s very little leadership in strata governance circles for strata owners to follow. So, decisions tend to degenerate to consensus only matters or the lowest common denominator (which is rarely prompt action and expenditure).
10 . Very few strata corporations have a strategy, objectives or medium term plans so there is no co-ordination of activity, no defined objectives by which to assess actions (and expenditures) and no measures to apply to determine progress (or not).
11. There’s very little regulation and enforcement of strata corporation obligations to act and spend. And, when owners do enforce those obligations by legal action the strata corporation acts as though it’s being victimized and the protagonist strata owners are demonized. So, inaction and saving are condoned.
There’s probably many more reasons and I’d like to hear from others about them.
But, even these 10 reasons are powerful influencers for strata corporations to keep things lean and spend as little as they can get away with. And, I can’t see much happening to change any of them.
So, see you at the strata poor house again next year.
Francesco …
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