Tuesday, December 6, 2011

Rent Money is Dead Money - part 3

Another interesting comment from a reader regarding the prior post Rent Money is Dead Money:

I am a number of months into my apartment owning experience, and your colum on buy versus rent this weekend was very interesting. 
It has surprised me how relatively expensive apartment living is in comparison to houses.   Unencumbered by the facts, you would think that apartment living would be cheaper due to massive economies of scale:
·         Two pools supported by 400 units not one pool by one house
·         Four large garbage collections from four points rather than traversing a neighbourhood with 400 different pickups – council gets the benefit of this one – and nobody would use tip vouchers.
·         Maintenance of larger grounds, but offset by 400 units supporting, versus grounds per house
·         Economies of scale on hot water heating by using much larger units
·         Economies of scale on water requirements
·         Economies of scale on heating and cooling due to insulation from two sides, roof and floor not being open to environment.
Obviously the above benefits are eroded by the cost and maintenance of elevators, the onsite manager, profit margin for developer, security, etc.
For my apartment, annual fees for rates etc are not $5k per your note but $9k, comprising $6k body corporate and insurance, $2k rates, and $1k water.
The $6k for the body corporate was not particularly out of line for similar units when I was looking around.
The $2k for rates is just as a result of robbery by Brisbane City Council.  My home rates are only $1.4k.  Rates for my apartment should be only $1k but a 2.1 parity factor was put on by the Council when they went through that rate adjustment exercise.
Obviously at home in a house, I have no body corporate, but realistically I should consider the $45 I pay a fortnight for lawns mowed as equivalent, and I look after my own pool.
So I am paying $1.2k/yr for lawns mowed, if I got the pool looked after I am guessing that would be $40 per month or so.  Say that’s $2k per year.  Home insurance is probably $600 per annum, can't tell as it is bundled with contents.  There are other costs with the pool, all the chemicals, the pumps/chlorinators etc and some provision for outdoor maintenace , say another $1k per year.  So in fact that is $3.6k per year, maybe a bit higher than I thought it would be.  And there are probably other episodic costs that I haven’t been quite fair to my unit on.  I just had to spend $3k to get my home pool fence up to spec.  Maybe the comparison is not as bad as I first thought.  If I am honest there would be other expenses on my house that would be covered by Body Corp for equivalent unit.
But still, even with all this, it seems evident that the apartment is still more expensive than house and all those economies of scale are eroded.
Obviously the other cost savings that you really need to be taking with an apartment are as follows:
·         Dropping Gym memberships and using shared facilities at the common areas.
·         Dumping at least one car – that would give a pile of savings, that are only going to get higher.
I don’t see the power bill for my unit, but this is an area where I suspect apartments are losing out to houses.  I've had for over a year solar hot water and solar panels for elec gen on the roof.  These have paybacks of around 5 years or so based on current elec price and are only going to get shorter payback as power bills increase.  How are apartments getting onto the bandwagon of sustainability.  I am sure it is impossible to get a pile of owners to cough up more money to install solar hot water or solar panels.

No comments: