The government giveth, and the government taketh away

Much of the news media lapped up the surprise announcement that Queensland will double the first home buyer grant to $30,000, effective immediately as of the weekend.

The new grant, which applies only to new builds of up to $750,000, is intended to help stimulate supply rather than boost the overall market.

To that end, despite being what economist Saul Eslake has labelled “bullshit”, I can see some merit in it.

But what the media and many commentators seem to have missed is that while the government giveth, it also taketh away.

Only recently, there was a proposal to introduce changes to the National Construction Code in order for new homes to meet higher energy efficiency standards, along with increased accessibility standards.

Those changes were estimated by Queensland Master Builders to add – wait for it - $30,000 to the cost of a new home.

"It's the first homebuyers who are most impacted, who are struggling to get a deposit together, to make the repayments, and then the cost of construction goes up," Master Builders CEO Paul Bidwell said. "$30,000 is a significant amount."

Yep, it sure is.

The same amount in fact as the increase in the first home buyer grant.

Other estimates suggest the code changes could add up to $70,000 to the cost of a new home.

There was a predictable outcry from the industry – which argued increasing the cost base at a time of worsening affordability, especially for new home buyers who are typically younger families was a very bad idea.

The outcry won and the introduction of the code changes has been deferred to May 1, next year.

So as of May next year, the increase in the first home buyer grant will be cancelled by the increase in code compliance costs, if not outweighed by them.

Savvy first-home buyers will want to get in before that happens.

But there’s another reason the proposed construction code changes are a seriously bad idea

They will impact most of the people who can afford it, and make little to no difference to household energy or water consumption because they only apply to new builds and not to the established market, which is responsible for nearly all domestic energy and water consumption.

There are around 2 million dwellings in Queensland.

At present, we are building around 35,000 new dwellings each year.

So that’s just 1.75% of stock that will affected in year one, rising of course the more years it’s in effect.

But who is driving that 1.75% of the market?

60% of these starts were houses and the balance units.

We know that new detached houses are some of the cheapest forms of housing, and are typically favoured by younger families on lower incomes.

Apartments, especially in this market, are expensive to build and that market is drifting quickly to the wealthy end (a new mid-spec two-bedroom apartment now needs to sell for over $1 million for an apartment project to be viable).

Who do you think is going to be more impacted by a $30,000 cost increase?

As ideas go, can it get any worse?

Yes, it can!

And the reason is that the biggest consumers of household energy and water are not the young families living in detached homes but the wealthy – irrespective of whether it’s a detached home or apartment.

Because the wealthy more typically congregate around inner cities, this is also where the greatest excesses of energy and water consumption are.

Don’t take my word for it: this was proven some years back in a study by the Australian Conservation Foundation in conjunction with the University of Sydney.

“Inner cities are consumption hotspots” the report declared:

“… despite the lower environmental impacts associated with less car use, inner city households outstrip the rest of Australia in every other category of consumption.

Even in the area of housing, the opportunities for relatively efficient, compact living appear to be overwhelmed by the energy and water demands of modern urban living, such as air conditioning, spa baths, down lighting and luxury electronics and appliances.”

Back in 2007, I was running the Residential Development Council and we commissioned a report to investigate this in detail.

“Housing form in Australia and its impact on greenhouse gas emissions” was the result.

Lots of graphs to explore if you’re interested but this one helps tell the story:

Think it through.

The wealthy inner-city resident in their $2m plus townhome or apartment has no access to a hills hoist to dry their clothes and is unlikely to worry about leaving the lights on when not in a room or running the air con on a semi-permanent basis.

Long showers are not a problem either.

They can afford it.

So how can an increase in energy code requirements that will most affect lower-priced homes favoured by young families on lower incomes make any discernible difference to the biggest energy and water wasters?

It won’t.

By applying only to new builds and ignoring the majority of the market, particularly those households in established dwellings in inner urban areas, this is a highly distorted and regressive policy that ultimately favours the inner urban wealthy and penalises the suburban working- and middle-class families.

If we were genuinely concerned about reducing household energy use, we’d wake up to the fact that buildings don’t consume energy or water: it is the habits of the occupants that drive that.

So celebrate while you can the increase in the first home buyer grant because, from May next year, it’s going to be worth nothing thanks to new energy codes for buildings that don’t even touch the biggest energy consumers but which will make new detached homes for families even more expensive, for no environmental gain.

About Ross Elliott Ross Elliott has spent close to 30 years in real estate and property roles, including as a State Executive Director and Chief Operating Officer of the Property Council of Australia, as well a national executive director of the Residential Development Council. He has authored and edited a large number of research and policy papers and spoken at numerous conferences and industry events. Visit www.rosselliott.com.au