Two missing words explain why Sydney’s making a terrible housing mistake

In the mid-1990s, Professor Evan McKenzie, a US lawyer and political scientist, published a book called Privatopia. It charts the exponential rise of private residential communities, with extensive common property, run by residents sitting on owners corporations. Think the Real Housewives of Orange County. Or Breakfast Point in Sydney.

McKenzie demonstrates that the growth of private communities was driven by planning ideals, land economics, developer profit and a neoliberal conviction that the private sector could always deliver services more efficiently than government.

The dispute-plagued Italian Forum in Leichhardt is an example of how strata schemes can go horribly wrong.Credit: Kate Geraghty

What was conspicuously absent was any evidence that homeowners wanted to run their own communities; that they were clamouring to be members of private local governments, responsible for services and finances, including garbage collection, road and park maintenance and even schools. However, today, that is exactly what 75 million Americans, almost a third of the country, must do.

Whether they like it or not, they govern, and are governed by, their neighbours. This also locks them into paying for expensive assistance from the management and other industries that collectively owned housing has spawned. McKenzie says: “One point cannot be overemphasised: the entire institution of common interest housing [strata and community title] rests on volunteer directors, yet they are unpaid, untrained, often unqualified, and almost entirely unsupported by the governments whose work they are often doing.”

To date, Australia has largely avoided this fate. We have private residential government in the form of owners corporations in strata schemes, but the vast majority of schemes are low to medium rise with limited owners, residents and infrastructure. Two or three-storey walk-ups, they are human scale, manageable by lay people, and provide functional, quality housing.

Premier Chris Minns wants to fast-track high-density development in Sydney, but strata termination legislation means apartment-dwellers are in a vulnerable position.

That is now changing. Despite Sydney’s desperate need for affordable housing and a “missing middle”, inadequately drafted strata termination laws are predictably leading to the demolition of Sydney’s existing middle, or their gentrification into luxury apartments. Having drunk the Kool-Aid that residential property is all about building wealth, we’ve been convinced that so long as everyone makes a profit, it’s OK to forcibly take somebody’s home, as the legislation permits.

If you want to put people off apartments, making them live with the threat of involuntarily losing their home is a good way to do it. Of course, that can never happen to people living in freestanding houses, who, unlike those in apartments, contribute nothing to density.

There has also been a steady growth in US-style community title estates, with populations in their thousands. They are private suburbs where homeowners are responsible for roads, parks, infrastructure (increasingly renewable energy) and community harmony. They have complex governance structures with multiple bodies corporate, all required to comply with hundreds of sections of legislation. These communities do not have to be structured this way; they could be ordinary residential subdivisions.

Finally, in the current, frenzied, simplistic push for high-density development, there has been a marked growth in stratum subdivision, which combines retail, commercial and residential development in large high-rise estates, serviced by complex infrastructure and governed by largely unregulated “management statements” drafted by developers. If it is hard for lay people to manage a high-rise building, it is even harder to manage five of them yoked together. Leichhardt’s dispute-prone Italian Forum, which ultimately failed, was a stratum subdivision.

Like the US, these changes in our landscape and society are happening with little understanding of the legal structures being created and the burdens they will impose on homeowners. The NSW Productivity Commission has just produced its third report on housing affordability. Its sole solution is building at high density in areas “people want to live”, aka inner Sydney.

This means large-scale strata title, community title and stratum developments with expensive privately owned infrastructure and professional management. The ultimate authority for running these multimillion-dollar buildings and estates will rest with lay people who just wanted a home. Although the commission highlighted its concern for future generations – the people who will have to pay for and run these large strata schemes – in three Productivity Commission reports, there is not a single mention of the words “strata title”.

A decade ago, I was taken on a 13-hour tour of master-planned estates outside San Francisco by a thoughtful man who had run a strata management company for 30 years. He was ex-US military, and I’d stake my life he voted Republican. In short, the kind of person you think would support “privatopia”, communities with privately owned infrastructure, run by owners rather than government. At the end of the tour, he turned to me and said: “We have made a terrible mistake.” Sydney, we are doing the same.

Professor Cathy Sherry, Macquarie Law School, Smart Green Cities, is the author of Strata Title Property Rights: Private governance of multi-owned properties.

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