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Energy-efficient properties could soon be worth $125k more - featured image
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Energy-efficient properties could soon be worth $125k more

The cost of living is a hot topic at the moment, with surging energy, food, and fuel prices and rising interest rates forcing many homeowners to recalculate their budgets and how they spend their money.

The trend for energy efficiency, then, has never been more important.

When it comes to energy-efficient properties, not only do these types of properties help to lower your utility bills, but they also reduce our carbon footprint, Domain’s latest Sustainability in Property report 2022 explains.

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This is an essential part of tackling climate change as well as helping household budgets that have become frayed by the escalating cost of living.

And this is particularly important right now because Australians face some of the highest energy bills in the world with a large portion reporting bill shock over the last year, according to the report.

Demand for energy-efficient homes

Energy efficiency is becoming more of a necessity rather than an option, according to Domain’s latest report:

“As we become more climate conscious, together with the escalating costs of running a home, it is assumed that buyers will turn towards energy efficient homes.”

Domain’s research shows that two-thirds of home buyers have a preference for energy-efficient homes when given a choice but how this plays out in a real-world scenario of searching for and buying a home is another matter.

Surprisingly, in Australia, the number of buyers who are actively using keywords associated with sustainability is proportionately low, at less than 1%.

While the proportion overall is low, it is the trend change that provides the greatest insight, the report explains.

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Search behaviour from buyers showed a slightly higher demand for sustainable homes as a proportion of total housing demand from 2019 to 2020, according to the data.

However, the demand dropped in 2021 as Australia witnessed its steepest price upswing on record.

“This suggests that more buyers were using energy efficient keywords as a starting point for their property search before the pandemic but perhaps the fear of missing out (FOMO) distorted preferences and liveability requirements that arose during the pandemic took priority, such as a home office and outdoor living areas,” the report said.

Supply of energy-efficient homes

On the supply side, there looks to have been a notable uplift in the number of sellers taking energy efficiency into account when they come to market their property.

“This perhaps suggests that some sustainable features are more easily added to a house than a unit. For example, solar panels and many sustainable features such as grassed areas and sunroofs are not typical for units,” the report explained.

“However, while the smaller living size of a unit means it should technically use less energy, it is not necessarily more efficient.

It could also be argued that houses are often more expensive to run, and therefore including more property features that can help save a homeowner money on everyday bills could be an added extra to help attract more buyers or sway decisions.

“Another aspect to consider is the amount of older unit stock transacted that could be impacting the overall proportion of energy efficient keywords.

Over time, redevelopment of older sites and the rise of new, more sustainably built developments should vastly improve this outcome.”

Domain’s data shows that in 2022, 57.4% of houses listed for sale had energy-efficient keywords compared to 44.6% of units.

When we look at the figures across the states, the Northern Territory (70.2% of listings) has the most references to energy efficiency, followed by South Australia (68.7% of listings).

New South Wales has the lowest figure, with just 49.1% of listings containing energy-efficient keywords, falling far behind many of the other states.

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“The differences could reflect local market habits, with energy efficiency keywords being more ingrained historically in property listings,” the report explained.

“It could also reflect the diverse climates across our states, for example heating or cooling being more or less essential depending upon location and extremities of weather.

“Or, perhaps, government financial incentives that have driven more homes in certain regions to add solar panels, as an example.”

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Green homes come at a premium

Interestingly, Domain’s data shows that the median price of sustainable homes comes with an attached price premium.

In Australia, consistently we have seen houses and units that have energy efficiency features sell at a higher price than those without, showing that these houses have a higher percentage price premium than their unit counterparts.

In 2022, houses with energy efficiency features have sold for around 17.1% more than those without - that’s a huge $125,000.

For units, the price differential is around 12.7%, or $72,750.

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“This evidence shows that eco-friendly homes are less attainable for first-home buyers, considering it comes at an additional upfront cost when purchasing,” the report said.

“An approach to encourage and make sustainable homes attainable for all budgets is essential for improving the carbon footprint of our homes and reducing household bills."

This could take the form of incentives for developers or homeowners to provide greener living; once all homes have an expected minimum standard of inclusions, perhaps there will be less of an impact on price.

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A final word

Domain’s data shows that while sustainability might be playing on our minds, other criteria rank higher in importance when placed against the backdrop of affordability, availability, lifestyle, and location.

The price premiums show that it is clear that energy-efficient additions are being used more within property listings to attract, persuade and prove the homes’ value to prospective buyers, and homes with energy-efficient features also have greater buyer interest and sell quicker.

When it comes to property investment, while sustainability might be at the top of your list, the most important thing is that you buy an A-grade or investment-grade suburb in the right location.

About Robert Chandra is a Property Strategist at Metropole and has an intrinsic understanding of property markets backed by many years of real estate experience. This coupled with several degrees gives him a holistic perspective with which he can diagnose clients’ circumstances and goals and formulate strategies to bridge the gap.
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