There’s been a lot of talk about house prices lately. Up, down, flat, frothy – it seems like everyone’s got a prediction about where they are and where they are headed.
Of course, house prices often fluctuate for reasons such as employment rates, interest rates or the wider economy. But the current fluctuations in the current market are linked to a new factor in Australia: the tightening of credit. Banks being investigated by the Banking Royal Commission are starting to tighten up their mortgage eligibility criteria, particularly for investors, applying more stringent scrutiny to their assessments of buyers’ capacity to repay loans.
In the way of the financial inquiry, banks are tightening the rules around mortgage borrowing. This reduced availability of credit has been cited as a factor in potential house price dips by major banks and other analysts.
Although this might look like a challenge for the building industry, it also presents new opportunities. This is where energy efficient building can really come into its own.
Built to Perform, the new report produced in partnership by Australian Sustainable Built Environment Council (ASBEC) and ClimateWorks Australia, shows that stronger energy performance in new buildings can, between now and 2050, save the Australian economy up to $27 billion in energy costs. For households, this could translate to savings of up to $900 per year.
Obviously this will help to lower emissions (the report estimates energy efficiency measures using existing technology could save at least 78 million tonnes of cumulative emissions savings) and assist Australia to meet our obligations under the Paris Climate Change agreement. But it could also help to keep the Australian housing market healthy.
As house price growth slows or even goes negative, it is likely to be younger, first home buyers who take up the slack from investors to purchase new residential real estate. That is, if they can access mortgages. Banks know that living costs will matter more to these homeowners, who are likely to be less established in their careers and more likely to have young families to provide for.
In Europe, with major banks have partnered to launch new specialist ‘green mortgage’ products. This is based on the simple premise that homes with lower energy bills are a less risky investment, for both purchasers and the banks who extend them credit in order to buy. In the UK, major player Barclays recently unveiled a new Green Mortgage option, with a significant rate discount for energy efficient properties.
Here in Australia, investors have also expressed interest in taking advantage of the savings provided by energy efficient homes. NAB recently released the first tranche of Climate Bond Certified investments, with a $2 billion offering, including $300 million based on mortgages secured by certified energy efficient houses. The response was huge, with NAB finding themselves oversubscribed by a factor of more than two to one.
With billions of dollars in Australian superannuation money invested in ethical or environmentally focused funds, all the evidence suggests that this will be a growing market not just for home loan providers but for big investors.
With energy prices tipped to keep rising, simple energy efficiency measures like improved insulation, or better orientation can help to keep a lid on future living costs. At the same time, micro generation such as solar hot water and rooftop generator systems can reduce the overall energy needs of the building. At a time when Australia’s ageing power infrastructure needs investment, this reduced demand could also save the nation up to $7 billion in costs to maintain and replace energy infrastructure.
The take home message? When it comes to credit to purchase property, sustainability itself is likely to help keep the Australian building industry sustainable.