This year is a significant year for the building industry, with the release of NCC 2022, a revised Australian national construction code. The new code includes many updates and changes – and most importantly will result in more sustainable buildings, greater energy efficiency and progress our community further towards net zero emissions by 2050.
However, for many residential designers, specifiers and builders, the increased stringency of energy efficiency provisions for both Class 1 and Class 2 buildings will be a big shift.
Context is important here. The residential building sector is a major source of energy demand and use, currently accounting for approximately 7.4 per cent of Australia’s total energy use and around 29 per cent of electricity use. As a result, it contributes to approximately 11 per cent of Australia’s total greenhouse gas emissions.
A fundamental driver of a low emissions trajectory is reducing energy use (and associated emissions) along with reducing demand; this ensures the needs of a growing population can be bet with renewable energy. Reducing energy bills also helps with pressures from the rising cost of living, so it is good for the economy as a whole.
NCC 2022 addresses this through several key changes for residential energy efficiency provisions. There is a stringency increase in the thermal performance of homes to the equivalent of a seven-star NatHERS energy rating, and a new whole-of-home approach has been introduced. This includes an annual energy use budget for the regulated equipment in the home (i.e. space conditioning, heated water, lighting, pool and spa pumps etc.).
At a high level, the increase to a seven stars energy rating will require all new houses and apartments to be better built and to a higher quality, ensuring they are warmer, drier (that is, less prone to condensation and resulting mould issues) and better insulated. Suffice to say, higher quality may come with higher costs. It is expected that builders/sellers of houses who make additional investments in energy efficiency measures to comply with the proposed NCC changes will likely seek to raise house and apartment prices to compensate for the cost of additional higher performance inclusions.
There is some concern that this cost uplift may contribute to a multitude of factors which are fuelling rising house prices and compounding Australia’s lack of housing affordability.
With some level of certainty, we can assume that the costs of complying with the NCC are likely to be passed through to property buyers. However, according to CoreLogic data presented by ACIL Allen in their Consultation Regulation Impact Statement for a proposal to increase residential building energy efficiency requirements, it may not be as significant as we think.
It is estimated that on average, the price of dwellings across Australia would only increase between 0.1 and 1.7% to compensate for built inclusions to uplift dwellings from 6 to 7 stars. To put this in context, the cost of building a house in NSW exceeded the higher end of this projection threshold within just a year, with a 2.1 per cent increase from December 2019 to December 2020.
There are also opportunities to balance out small increases in cost through reduced operational costs resulting from better performing glazing, additional insulation and thermal bridges through changing other aspects of project specifications. Consider the types of fixtures and finishes in kitchens and bathrooms for example, the dimensions of spatial layouts or the type of floor coverings specified. When specifying for air conditioning, there is sometimes a tendency to over-specify – a check of a resource like Fair Air may reveal that slightly smaller split systems will be more than adequate, and the savings from that can help balance out the cost of installing a heat pump hot water system and also help balance the whole-of-home energy budget.
Also keep in mind economical design features such as the orientation of the dwelling to maximise passive solar potential, the colour and material of roofs and walls to absorb and mitigate solar heat gains or altering the position and shading of windows so that less sun hits the glazing in summer. All these features directly contribute to the NatHERS calculations.
Then there is the buyer perspective to consider. The revised NCC proposes installation of ceiling fans in habitable rooms, for example. This is something that is extremely popular with the market as people see it as an affordable way to keep cool. The minor uplift in budget for that would be imperceptible for something that so obviously contributes to quality of life.
The value case for buyers is clear: whilst the proposed changes to the NCC may require a small, additional up-front investment, the economic benefits of lower energy consumption associated with greater energy efficiency and improved building thermal performance accrue over time. Reduced energy bills will have the financial benefit of contributing to household disposable income, including the availability of additional funds for spending on other expenses such as mortgage repayments.
Assuming the increased disposable income is used towards a mortgage, the savings arising from reduced energy bills is predicted to be more than enough to offset the projected increase in property prices, in the form of annual repayments.
The timeframe to realise this net benefit is expected to vary between houses (Class 1) and apartments (Class 2). Energy cost savings of all houses and some apartments across Australia are expected to be able to offset any increase in annual mortgage associated with compliance cost uplift within the first year of occupancy, while it is expected to take longer for owners of most apartments.
Overall, it is somewhat challenging to predict the true financial implications of the new residential energy efficiency provisions on Australian housing affordability. However, the changes will almost certainly promote occupant health and wellbeing through improved thermal quality, indoor air quality and reduced building dampness.
Additionally, as it is likely that residential property will in the coming years need to disclose its energy performance at point of sale or lease, building better performing homes now is the best way to ensure a buyer’s investment remains relevant and valuable in the future property market.
Daniel Lia, Senior Sustainability Consultant, Cundall
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