By Graeme Salt
Recent analysis by Cotality shows that investing in a home’s sustainability makes financial sense. Its “Watt’s it Worth” report found that adding one star to a home’s energy efficiency rating adds around $10,000 in value, while installing solar panels lifts value by more than double that ($23,100).
The federal government is moving towards mandatory energy disclosure, requiring all homes to publicise their energy rating at the point of sale or rental. Market forces are already pricing energy performance into property values and regulation is catching up.
Major businesses are already required to report on climate risks and opportunities, including emissions linked to the homes they build, own or lend against.
In the UK and Europe, home energy ratings have been required for well over a decade. Many jurisdictions also impose minimum standards for rental properties. It’s not unreasonable to assume Australia will follow that path, with an early version already tabled in Victoria. The impact on lenders, owners and landlords won’t be immediate, but over time it will be significant.
Some Australian banks, for example, Bank Australia’s Clean Energy Home Loan is .25 per cent cheaper than its regular mortgage.
For banks, this shift goes to the heart of asset quality and balance sheet strength. Property valuation has long rested on three pillars: location, land size and dwelling type. But the data shows energy performance is becoming the fourth pillar.
As energy ratings become visible and comparable, efficient homes will sell faster and at higher prices, while inefficient homes will face growing “brown discounts”.
The impact will extend beyond individual transactions. Lenders with large exposure to inefficient stock need to consider the risks as regulators place tougher requirements on housing and as those rules flow into asset values. Australia has precedent: the ACT has required disclosure for two decades and the evidence is clear. Energy ratings influence price.
It’s expected that a national rollout of energy ratings could begin within 18 months. It won’t be long before these ratings are formally incorporated into valuation models. The property industry needs to participate actively in that process rather than watch from the sidelines.
Across millions of homes, these changes could reshape mortgage books, insurance pricing and portfolio risk assessments.
For households, the case is straightforward: energy upgrades deliver lower bills, better comfort and higher resale prices. For the economy, the flow-on effects include construction jobs, energy savings and reduced import dependence.
Graeme Salt is an award-winning mortgage broker. For a no-obligations consultation on your borrowing needs please contact him on 02 9922 5055
