NSW Productivity Commissioner Calls for Immediate Ban on Strata Manager Commissions
The New South Wales productivity commissioner, Peter Achterstraat, has issued a strong recommendation to ban commissions for strata managers "sooner rather than later." This call to action comes as apartments are projected to constitute half of all Sydney homes by 2041, highlighting the growing importance of fair management practices in the housing sector.
Conflicts of Interest and Rising Costs
Apartment owners typically hire a strata manager from a private company, who receives a fee for managing the affairs of the owners' corporation. However, these managers often also earn commissions for securing insurance and other contracts, such as energy and telecommunications services. Achterstraat's report identifies this practice as a significant source of conflict of interest, leading to poor practices and a trend toward "vertical integration," where managers direct business to providers with personal or business connections.
In one notable case study from inner Sydney, a strata manager accepted insurance commissions at 15% of premiums. Over four years, commission payments surged from $8,000 to $27,000 annually, despite no substantial increase in work required. When the strata committee engaged an insurance broker directly, premiums dropped by 30%, underscoring the potential savings for owners.
Impact on Housing Affordability
With over a million people living in strata apartments across NSW, Achterstraat emphasizes that protections are essential. He notes that apartments are increasingly "the only place people can afford to buy," particularly for younger first-time buyers entering the housing market. The commissioner warns that without reform, this issue could escalate, affecting a larger portion of the population.
The review, which received more than 550 submissions, found that some in the strata management industry resist change, arguing commissions compensate for resource-intensive work. However, Achterstraat proposes an upfront, fee-for-service model, which could make NSW the first Australian state or territory to ban commissions. This reform is estimated to generate over $300 million in benefits over the next 15 years through improved competition.
Industry and Political Response
The Strata Community Association, the peak body for the industry in NSW, supports moving away from commissions. Meanwhile, the NSW government, through Minister for Fair Trading Anoulack Chanthivong, has welcomed the reform options but has not yet committed to implementation. The opposition spokesperson for fair trading, Tim James, stated they would consider any proposals, including a potential ban, provided there is a compelling basis.
Achterstraat recommends phasing out commissions over three years to allow for a smooth transition. He outlines four reform options, ranging from voluntary industry phase-outs to legislative bans. While the removal of commissions might increase management fees, the report expects this to be offset by reduced premiums and other costs, ultimately benefiting apartment owners.
This push for reform aligns with broader concerns about housing affordability and transparency in NSW, as highlighted by Achterstraat's previous warnings about Sydney's demographic challenges. The outcome of this review could set a precedent for strata management practices nationwide, impacting millions of residents in apartment communities.
