Developers would be wise to consider energy efficiency upgrades with buyers willing to pay a premium for higher star ratings.
The NSW Government may be behind the curve when it comes to the economic and environmental benefits of mandatory disclosure for energy efficiency ratings.
The Government’s Draft Plan to Save NSW Energy and Money Energy Efficient Homes 2016 says there may be ‘a bounded rationality barrier whereby long term energy savings are perceived to be a low priority in the choice of a new home.’ However, new research indicates home buyers are willing to pay more for energy efficient housing.
Home buyers choosing long-term gain over short-term savings
The University of Melbourne looked at thousands of property transactions between 2011-2016 in the Australian Capital Territory where it has been mandatory to disclose the energy efficiency rating (EER) property sales since the late 1990s.
Their analysis found that, the higher the rating the higher the sale price. Properties rated five and six attracted sale premiums of 2 and 2.4 per cent (respectively) when compared with three-star properties. Properties that went further to gain a seven-star rating attracted even greater premiums of up to 9.4 per cent.
University of Melbourne property lecturer Dr Georgia Warren-Myers says the findings provide a clear market signal for developers to install more energy efficient systems. “The data shows people are valuing energy efficiency and making decisions based on the energy efficiency portrayed in these ratings,” she said.
All round benefits for higher EERs in the rental sector
The University of Melbourne study also indicates that landlords and tenants benefit from higher ERRs, with links between greater EERs and increased market value applying to the tenants too. The research showed five and six-star properties rented at a 3.5 and 3.6 per cent premium respectively compared to three-star properties.
“For tenants, who have limited capacity to make changes to a property, not knowing the energy rating means they can effectively be penalised, from the perspective of household bills,” says Dr Warren Myers. “But as this research demonstrates, a boost in rental income and resale value can be offset against the initial outlay of an efficiency upgrade.”
Are you looking to increase the energy efficiency of your development portfolio? The Developers’ Forum is the ideal place to look for advice, support and partnerships to optimise the market value of your next project.