Mandatory Energy Ratings
This BLOG discusses all-electric heating and cooling systems adding value to your home.
In the UK and Europe, mandatory energy ratings have been in force for more than a decade and it is slowly catching on in Australia.
The Australian Capital Territory is the first Australian jurisdiction to adopt this practice. It encourages homes to be built or renovated to a high energy performance standard (at least Star Rating 6) and increases the value of these homes.
Mandatory disclosure drives lower carbon emissions in housing to meet the challenge of climate change.
The Australian Bureau of Statistics did a study on the effect of Energy Efficiency Ratings (EER) on house prices in Canberra. Read More.
‘’This study has found a statistically significant relationship between the EER and house price for detached dwellings in the ACT’’.
The key factors affecting house value included:
- Floor area
- Block area
- Distance to CBD
- Socio-economic advantage
- Window area
- Percentage of 5-bedroom homes in local area
- Whether the house had previously been a government rental property
- The Energy Efficiency Rating (EER)
Energy Efficiency Trend
Governments across Australia have been driving energy-efficiency in the Built Environment for several decades now. Affordable housing projects are now meeting higher standards than the minimum 6 Star standard.
For example, the Victorian Government recently announced a new public housing project featuring high performance homes with a Star Rating of 7.
These homes will give the poorer people of Victoria very low heating and cooling costs, a great outcome for public housing. Also, projects like this raise the expectations of new home buyers generally. Read More.
Hydrosol is often asked to justify the price premium of all-electric, energy-efficient heat pumps over gas boilers for hydronic heating. The premium is around $10k for a typical 3-bedroom house. Essentially, the justification is:
- Lower running costs with solar power
- Improved value of your home
- Reduced Greenhouse gas emissions
If price is the biggest barrier then install a Split reverse cycle air conditioner. This is still an all-electric solution and can be powered by solar panels.
Reverse cycle air conditioners heat via convection, blowing air through hot coils. Hydronic heat pumps heat via radiation, running hot water through wall panels or underfloor. In reverse cycle, heat pumps absorb summer heat from inside and transfer it outside. Radiation is a more comfortable and efficient method of heating, particularly for people with asthma.
Both methods of all-electric heating and cooling add value to your home. Choose the former for least capital cost or the latter for greater value. Read More.
The market ultimately decides the value of a house.
The market reflects people’s perceptions of value and their ability to pay.
Banks provide mortgage funds to assist people’s ability to pay on the basis of house value as determined by house valuers. In Australia, house valuers are yet to properly reflect the value of energy efficiency of houses in their valuations, including thermal performance, energy efficient appliances and solar power.
This is because it is not yet well understood nor required for home sales except in the ACT.
However, things are changing.
A study found that house valuers outside ACT are still not very aware of Energy Efficiency Ratings (EER) as a factor in house valuations.*
They found that location, amenity, air conditioning, layout and heating were the highest drivers of house value. However, energy efficiency factors such as energy efficient appliances and thermal performance did not have much weight in their EER. Of the energy efficiency factors identified, solar panels had the highest valuation effect.
They concluded that: ‘’… mandatory disclosure and certification are essential if energy efficiency is to be considered by the market and reflected in residential valuation.’’
*Reference: Warren-Myers, G., Kain, C. & Davidson, K. (2020). The wandering energy stars: The challenges of valuing energy efficiency in Australian housing.
Mandatory Disclosure & House Prices
Another study** looked at property sale pricing and rents in the ACT housing market. It found that compulsory disclosure of EER on house sales was reflected in prices.
However, the rental market with only quasi-voluntary disclosure caused selective information to be provided to renters. Hence, the study found that: ”EER disclosure increases in line with the number of energy-efficient features a property has.”
In essence, selective disclosure creates market distortions. It concluded: ”From a market and asset-pricing perspective, it thus seems preferable to extend the mandatory requirement to obtain and disclose a valid EER to the rental market.”
**Reference: Fuerst, F., & Warren-Myers, G. (2018) . Does voluntary disclosure create a green lemon problem? Energy-efficiency ratings and house prices.