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Green scheme could wipe thousands off Aussie home values

It seems carbon pricing is not the only weapon in the Labour government’s arsenal against climate change, with plans to introduce mandatory energy star ratings for homes being sold or tenanted next year.

But what will this mean for vendors and investors already struggling to move their homes in today’s sluggish market?

With many would be buyers putting off property purchasing decisions, our markets have been flat lining and now a new scheme by the federal government threatens to wipe even more off housing values, with purchasers handed another bargaining chip in the form of energy ratings.

It was revealed in a Herald Sun report, that the ratings system could potentially slash tens of thousands of dollars off the market price of many older homes and large McMansions, that are less energy efficient than newer, smaller dwellings.

Additionally, vendors would be hit with yet another selling cost as they are made to foot the $200 bill to have their property independently assessed, which represents a total cost of around $1.1 billion over 10 years.

Director of private energy ratings firm Green Homes Australia, Mick Fabar, told the Herald Sun that many two storey McMansions would be lucky to score zero, while old renovated worker’s cottages and Californian bungalows would undoubtedly be sitting at the bottom of the scale.

This means significant financial implications for owners of these housing styles, who will be forced to either outlay thousands on “green” products to boost their energy rating or lose money when it comes time to sell.

A similar scheme that has been operating in the ACT since 1999, where homes are scored out of 10 stars, provides a litmus test for the effect such ratings can have on house prices. Here, it was found that as little as a one star difference impacted selling prices by 3 per cent.

Now this might not seem like a huge amount, but if the same result occurred in Melbourne a one star variation would equate to a $17,700 reduction in value base don the REIV’s June median house price of $590,000. Knock three stars off the rating and the price could drop by as much as $53,100.

While a spokeswoman for Climate Change Minister Greg Combet’s office claimed the initiative will, “allow buyers and renters to better compare different properties, making it easier to identify a property that uses less energy or water and thereby save money,” many experts are questioning whether it will actually make a real difference to power consumption in Australian households.

Head of campaigns for Choice Matt Levey said that although energy inefficient homes cost more to run, star rating models do not actually factor in actual consumption.

Combet’s representative said they have introduced a $100 million energy-efficiency program for low-income earners, but opposition climate change spokesman Greg Hunt argues it will put greater financial strain on families already struggling to deal with the rising cost of living.

“It could push up the cost of rent for people just when they are feeling the cost of living pressures,” he said.

“It’s another cost imposed on people from the Government.”

Despite the findings of a July 2011 “consultation regulation impact statement” prepared for the federal and state governments, which predicts that the system will affect hundreds of thousands of homes in its first year of operation, Angus Raine of Raine and Horne Real Estate suggests it will have little baring on what people are prepared to pay to get onto the property ladder.

“People look at the physical property first and then (a mandatory disclosure system) is going to be one of their second or third considerations in their purchasing matrix,” Raine said.

There is no doubt that the climate change barrow is being pushed with gusto by the government of today and it’s more a matter of when such a scheme will be imposed on all Australian property owners, rather than if it will be.

If you are an investor who is about to build or renovate a property, it would be wise to take the energy rating system into consideration and spend that little bit more sooner rather than later. The push for a greener lifestyle is not likely to end any time soon and as with any new trends of the future, it always pays to be prepared!



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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