How rising energy-efficiency standards are impacting housing affordability

The homes of the future are likely to be much more energy efficient, kinder to the environment, and a great deal more comfortable to live in … but also up to $40,000 more expensive, many builders claim.

While it’s vital that higher standards prevail to meet the challenges of climate change, this will be tough on new home buyers.

While NSW and the ACT have already accepted the new mandate of a 7-star minimum Nationwide House Energy Rating Scheme (NatHERS) – which means a home will be more energy efficient but will still need some mechanical heating and cooling – Victoria and Queensland are due to adopt it mid-2024 with other states later this year.

“It’s a good thing, obviously, as it means our homes are going to be more energy efficient and customers’ energy bills will come down,” said Adrian Popple, design director of national product development of the country’s biggest house builder, Metricon Homes. “But we did have reservations about the timing – coming off the back of COVID-19 and the building boom with the rising cost of materials and shortages of skilled labour. 

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“For us, building over 6,000 homes a year, it means we had to rework the designs of so many homes we were working on to achieve that 7-star rating, but we’re very proud of what we’ve done. It may add 2-5 per cent to the cost of a new home, depending on its state, location, climatic zone and orientation, but we want to do the right thing and lead the way in raising the bar.”

But at AV Jennings, CEO Phil Kearns says it’s all very well to consider the environment, but people also need a place to live. “The industry is fully supportive of the changes to the Building Code but we wanted a slower transition,” he said. 

“Now this makes homes even more unaffordable for the average mum and dad. So many builders have gone broke in the last 12 to 18 months and demand is being tempered by high prices, high interest rates and banks assessing loans at an average of 9 per cent.” 

At the same time, the new regime is driving innovation, he admits. AV Jennings has teamed up with tech firm Pro9, which enables them to put up the walls of a house in a day and complete a build in six weeks. They are now building a factory to give others access to it, too. 

New-home buyers – often first-timers – are also wrestling with split loyalties: on one hand, they’re keen to do what’s good for the environment, and on the other, they want to own a home of their own.

“They’re struggling with the higher cost of homes, interest rates and reduced borrowing capacity and this additional cost could push the price over the cap for first home buyer grants,” said Taj Singh, director of First Home Buyers Australia. 

“While some want to do the right thing, they’re generally more worried about their personal situation and the Great Australian Dream of ownership becoming ever more distant.”

That kind of divide is also highlighted by Master Builders Australia. Chief executive Denita Wawn supports the objective of net zero-ready buildings but says, “the challenge in achieving goals in this space is fairly and equitably managing upfront costs”.

Housing Industry Australia is also lukewarm about the changes. Claiming they will add up to $40,000 to the cost of a new home, they say more attention should be paid to Australia’s 8-10 million established homes that are one to two stars at best.

However, says HIA industry and policy chief executive Simon Croft, energy efficiency modelling software and the provisions for new homes are complex, and there should be a more flexible and tailored approach rather than a one-size-fits-all approach. 

“The timing has been a huge challenge,” he said. “We’re seeing a contraction in new homes supply and sales, and adjusting design and build plans and specs takes time.” 

At Property Council Australia, however, group executive national policy & advocacy Matthew Kandelaars feels that most upgrades from 6 stars to 7 can be achieved with low-cost design changes like adjustments to orientation and shading.

“We are seeing more and more customers in display homes and villages asking about sustainable measures and investors are more and more focussed on sustainable measures within their assets,” he said.

That’s also the view of Jacob Caine, president of the Real Estate Institute of Victoria. He puts the increased cost of a home at $20,000 to $30,000 but believes that most people will realise the benefits ultimately outweigh the extra costs. These can be amortised over time in cost savings and better health outcomes, with electrification not affecting young asthmatics like gas.

“There’s sometimes been a wariness about what the transition to higher standards will mean to the costs of a building, but there’s no question this needs to happen,” he said.

Developer Mirvac has already been delivering 7-star homes ahead of the regulation change and has found that 5 or 6-star homes can save up to $800 annually on energy.

“Our most recent survey in 2022 showed an increased appetite to invest in a sustainable home, with 64 per cent of people willing to pay for sustainable upgrades, compared to our 2017 survey, where it did not rank highly as a factor when selecting a property,” said CEO of development Stuart Penkis.

Third.I Group says its apartments have also been developed to a 7-star standard equivalent. “There will be some winners and losers,” said director and co-founder Luke Berry, “but a 7-star rating is very desirable so hopefully. in the long run, this will make those properties worth more in the future.”