Price Carbon; Shift Houses?

What might an agent be looking at?

So this problem won’t go away, and homeowners and others are becoming increasingly interested. What then might real estate agents take into account in assessing a home and advising their clients?

1. Is a knock–down re–build a better option?

The first thing to keep in mind is the difference between “operating energy” and “embodied energy”. The average household contains about 1000GJ of energy embodied in the materials used in its construction. That’s about 15 years’ worth of normal operating energy – the energy used by the people living in the house. If the house lasts 100 years, then the construction accounts for about 13% of the household’s total energy footprint over that century. Buying or renovating an existing home obviously retains some of that embodied energy. A knock–down re–build may waste it, though better design and thermal properties may make up for the loss over time.

2. Does the home meet minimum energy standards?

Energy standards take into account embodied energy, but more so the thermal dynamics, insulation and design elements that determine how much energy those living in the house will use for heating, cooling, hot water, cooking and lighting.

New homes must comply with those standards, while there is a push to disclose the energy performance of homes for sale. This trend to disclose energy efficiency has already swept through industry, vehicles, commercial property, household whitegoods and listed public companies. Residential housing won’t long stay an exception.

For new homes, the Building Code of Australia has ratcheted up minimum energy performance standards three times since 2000. From 2003, new homes were to be built to a 4–star minimum energy efficiency ratings. Stricter regulations (to 5–star in 2005, and to 6–star in 2009) have followed. The federal government claims that the building cost impact of 6–star ranges from a saving of $8000 to an additional $2,240, depending on the building’s design and use of newer, lighter materials. Many builders agree the cost impact is negligible, but that energy use may drop by 20% to 25%. The HIA disputes this, claiming that the 6–star standards overstate the proportion of heating and cooling costs on total energy use. Nonetheless, the 2009 6–star standards were adopted in ACT, Qld and SA in 2010, with other States following through a national agreement.

3. Disclosing energy performance?

The ACT and Queensland has led the charge on vendor disclosures, though their approaches are miles apart and the best solution may lie in the middle.

In Queensland, sustainability declarations have had to be issued by vendors since January 2010. They need no particular expertise to fill out, and the requirement is only to answer “to the best of the sellers’ ability and knowledge” rather than pay for a sustainability expert. But a great number of vendors take the allowed opt–out option: “If you don’t know the answer to any question, please leave the box blank”. Blank forms are of course a waste of everyone’s time; and few buyers have got used to knowing what to look for. Time may change this.

In the ACT, a “star” rating has been required for houses for sale since 1999. It’s not been universally popular, as you need to pay for an expert’s report, and not everyone agrees with the accuracy of the star rating. However, an owner’s investment in better energy performance has proven to be a good one. Studying the sales of over 5000 houses in 2005–06, the federal government study found that a half–star rise in rating equates to a 1–2% rise in property value; while a one–star rise adds about 3%. photo

4. Will there be any new financial options?

One problem with environmental investments is that the party who controls the initial investment (the builder/developer) can’t necessarily pass on the cost to the party who recoups the benefit (the home occupier), because the up–front price hike may be too great. New financial instruments are being investigated by banks and energy retailers to close this gap. For example, the additional costs of rooftop PV solar and other more expensive investments may be added to a mortgage, and energy bills kept at the pre–existing level despite the energy savings. The energy retailer then agrees with the bank to apply the ‘overpayment’ for energy directly to the mortgage, so that the underlying mortgage is paid off more quickly than otherwise.

5. Is the house at risk from climate change?

There is no question that some of Australia’s beautiful though low–lying seaside areas may not be the wisest place to build new houses or buy existing ones for the longer term. Councils are taking legal advice on their liability if they approve a new construction in an area at risk. The larger real estate groups may be seeking similar advice on potential liabilities for selling houses in the same areas, without disclosure the risks.

Insurance companies are under no doubt where those risks are, and are in constant talk with their reinsurers about whether they can remain insurable. Similar concerns have been raised in councils and insurers of the ability of our housing stock to stand up to more frequent and more extreme storms.

Is this all a little unreal? Not this decade or perhaps the next, but after that there could be some rude awakenings. The 2011 report by the Australian Government on “Climate Change Risks to Coastal Buildings and Infrastructure” went through the evidence. While our shoreline rose only 3cm over the last decade, the rate of sea–level rise is accelerating and is now faster than at any time in the last several thousand years. It is predicted to rise by about 1.1 metres through to 2100. If major slices of the Greenland or Antarctic ice sheets calve off, as many anticipate, that rise will occur more quickly.

At last count, there are between 187,000 and 274,000 residential buildings at risk of such a seal–level rise, valued at between $51 billion and $72 billion. New South Wales and Queensland would be most affected.

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