Do a search on real estate sites for rental properties in the growing Melbourne outer-west suburb of Werribee and you are served up with up to 628 or so options, depending on your price.
Drill down further and you see the price, street view, number of bedrooms and several other features. A $330 per week brick house built probably 30 or 40 years ago in Tarmaid Crescent, for example, offers open plan living with large floor tiles, three bedrooms and a reasonable sized front and back yard.
More difficult to tell is how this compares with the also established three-bedroom weatherboard home being offered in nearby Mortimer Street for $375 per week from an energy performance viewpoint. To be sure, you can look at the type of heating and air conditioning the home has, along with its layout and orientation. Determining other factors such as whether the home has insulation or how airtight it is, however, is next to impossible. As a result, prospective tenants and purchasers are being asked to make decisions with little reliable information about the cost to heat/cool one home as against another.
This is less of an issue with modern homes built after the inclusion of energy efficiency requirements within the National Construction Code. With older stock, however, it is a concern.
That raises questions about whether there should be disclosure of an energy performance scorecard or rating for properties offered for sale or lease.
Potential benefits are twofold. First, it would enable prospective purchasers and tenants to make informed housing choices from an energy performance (and cost) perspective. Second, it may deliver a market based incentive (and associated environmental benefits) in the form of potentially higher sale or leasing prices to encourage existing property owners to upgrade the energy performance of their holdings.
This has been talked about before. In April 2009, the Council of Australian Governments agreed to phase-in of mandatory disclosure of residential building energy, greenhouse and water performance upon the sale or lease of properties across Australia. At the time, the energy efficiency component of this was to be phased in by May 2011. Options as to how this might work outlined in a subsequent discussion paper ranged from a full energy rating assessment conducted by an independent assessor through to online self-assessment and checklists. Another option is a ‘mandatory opt-out’ option. Under this system, every house would receive a rating (with a full independent assessment) but owners and landlords would have the option to ‘opt out’, in which case they would be spared the cost of having a rating done but would receive a rating of zero.
Thus far, however, action has been limited. Since 1999, the Australian Capital Territory has required the mandatory disclosure of a property’s NatHERS rating on the sale and lease of homes. Since 2010, Queenslanders selling homes have not had to provide a rating or score but have had to provide prospective purchasers with a Sustainability Declaration under which they provide information according to a checklist about building features such as sustainability, water, safety and access. Victoria earlier this year piloted a Residential Efficiency Scorecard, which the state is looking to expand.
There is some evidence that the market does respond to energy rating disclosure. A study by the Department of the Environment, Water, Heritage and the Arts in 2008 looked at the relationship between detached home sale prices and energy efficiency ratings in the ACT over 2005 and 2006. It found that for every half star increase in ratings, average home sale prices increased by 1.23 per cent and 1.91 per cent in each of the relevant years holding all other factors constant. Whilst the authors acknowledged that factors other than the rating score could contribute to this (double glazing, for instance, not only improves energy performance but also has an acoustic impact), it concluded that there was a ‘significant relationship’ between home sale prices and energy performance ratings.
Robert Crawford, an associate professor of construction and environmental assessment at Melbourne University, supports the idea of energy performance disclosure but stresses that it may not be the most critical area when driving sustainability performance.
Crawford says it is important to distinguish between the transactional issues associated with people having the ability to understand how a particular property might perform from an energy perspective and those surrounding how property owners might be encouraged to upgrade the energy efficiency of their home from an environmental policy perspective. Whilst not mutually exclusive, he says these goals differ in terms of how you go about them.
From a transactional viewpoint, Crawford acknowledges that questions remain as to how much energy performance disclosure will influence decision making. Purchasing and leasing decisions, he says, are often driven by non-energy rating factors such as the location, aesthetics and ‘feel’ of the properties in question.
Nevertheless, he says, energy performance disclosure cannot be a driver of decisions if the relevant information is not provided.
“I think if you had some information (about energy performance) out there, people would be able to make choices based on that. If the information is not there, then they can’t and they are stuck with the performance of the building,” Crawford said.
“I definitely think it is a good idea. I think any information we can provide which can help potential occupants make choices would be very valuable.”
Whilst supporting energy performance disclosure from a transactional perspective, however, Crawford says other initiatives will have a bigger impact in terms of incentives for property owners to boost the sustainability of their homes.
From an owner occupier viewpoint, efforts should be expanded to improve householder awareness about energy efficiency in their homes. Indeed, Crawford says the greatest incentive to upgrade properties rests with those who live in properties they own and who thus derive immediate and ongoing benefit associated with upgrades to these homes through energy cost savings and greater thermal comfort. More help could also be given to low income households in respect of financing models to help with the cost of energy performance upgrades.
Also in favour is Susan Toumbourou, executive director of the Australian Sustainable Built Environment Council (ASBEC). Indeed, in Recommendation 5.4 of its High Performance, Low Carbon report released in March 2016, ASBEC specifically recommended mandatory disclosure of energy performance for residential buildings. This, ASBEC says, should begin with pilot schemes before being followed by a wider rollout. Initially, the scheme would be introduced on a voluntary basis before later evolving to a mandatory arrangement.
In addition to enabling purchasers and tenants to understand the likely energy performance (and cost) of homes they expect to purchase or lease, Toumbourou says a scorecard or rating would help to underpin other policy initiatives.
First, there are mandatory minimum standards. Whilst these are already in place for new homes through the National Construction Code, ASBEC called in High Performance, Low Carbon for the development of a proposal to introduce minimum standards for rental properties. Toumbourou applauds the moves of several states to look at acting in this area – moves she says would benefit low income earners who were largely prevalent in the rental market and had fewer options in terms of improving the energy efficiency (and thus energy cost) of their homes.
For this to happen, Toumbourou says a rating system is necessary to enable performance to be measured against these standards.
In addition, Toumbourou says a performance scorecard would help in dialogue with existing home owners about how they can improve the energy performance of their homes. As things stand, she says much of the language in this space fails to speak to the priorities which matter most to home owners, which often centre more closely around the comfort and affordability of their home.
At a broader level, mandatory disclosure of energy performance ratings would help policy makers to understand how we are performing in respect of the energy performance of established housing. This, she said, would provide visibility from which to determine priorities and evaluate programs.
Less enthusiastic is the Real Estate Institute of Australia. Its president, Malcolm Gunning, said the Institute would not be opposed to energy rating disclosure if it could be rolled out nationwide on a consistent basis. Given that a COAG options paper in 2011 made clear that in fact any schemes would have to be run by states at the state level, however, he says that REIA is unable to support it.
In contrast to the study outcomes referred to above, Gunning says feedback which the Institute has received in respect of ACT scheme indicated that the energy rating disclosure scheme there had not had a significant impact upon purchasing decisions. Instead, he says behaviour is being driven by greater awareness about energy efficiency among householders. This, he says, has been underpinned by the rise in energy prices along with the growing popularity of home renovation programs.
Given the costs to sellers and landlords associated with the ACT scheme (ranging from between $500 to $850 per assessment), he says the benefits of something similar in other states could not be justified unless it was rolled out on a nationally consistent basis.
Also less enthusiastic about mandatory disclosure in particular is Michael O’Brien, chief executive officer of the Tenants Union of Victoria. Talking specifically about the rental market, O’Brien says the TUV feels mandatory disclosure is unlikely to be any more effective compared with voluntary disclosure at driving improvements to the energy performance of buildings.
O’Brien says low or very low-income tenants would derive little benefit from energy performance disclosure as they often have little choice in respect of their properties and are forced to accept whatever homes they can find. For higher income tenants (those with professional employment who are renting in desirable locations), meanwhile, leasing decisions often centre more strongly around location and amenity, though energy performance disclosure may have some impact. For these tenants, O’Brien says mandatory disclosure of energy performance would not be beneficial as those who desired this information would ask for it.
Between those extremes, O’Brien says mandatory disclosure may help (but voluntary arguably would not) in the middle ground of tenants who often have moderate incomes and who have some choice in respect to properties they rent.
Moreover, O’Brien points out that requirements associated with any star-rating system which is reliable and all-encompassing would be costly for landlords to comply with as they would (like the ACT system) require independent assessment – costs he said would be passed on to tenants and which may drive up rental costs for low-income tenants. A features based disclosure system may be less costly but would also be less easy for purchasers or tenants to understand.
Instead, O’Brien would like mandatory energy efficiency standards for all rental stock, which he sees would create a ‘floor’ in the market and benefit low income tenants. This, he says, would largely be a features based approach and would include issues such as insulation, draft-proofing and a central source of heating which he says are relatively affordable for landlords to implements.
Australia must improve the energy performance of existing housing stock.
Whether mandatory disclosure of energy performance ratings is part of the answer remains subject to debate.