It’s about the value. Or not: RICS conference and valuers, Pixel, mandatory disclosure, the Tara Effect and the Urban Task Force

29 October 2010 – The Royal Institution of Chartered Surveyors held its annual sustainability conference, Riding the Carbon Wave, on Wednesday at the Museum of Sydney to an almost packed auditorium, a testament to the growing interest in the field from the valuation industry.

This in itself is a major milestone because most valuers simply fail to “get it” when it comes to attributing value to sustainable properties, and argue that there is no evidence for a premium. Strange, because the industry seems to be able to make fairly sophisticated judgement calls on so many issues. Such as the valuations of major CBD buildings during the global financial crisis, for instance, despite the absence of any comparable sales whatsoever.  At least that’s how it seems to an outsider.

The reasons why this is so and what on earth the valuers are thinking, will be the subject of upcoming coverage in these pages.

At the conference, however, Bond University academic Dr Lynne Armitage said that what valuers do is hold up a mirror to society and what is valued by society – no more.

“You never know at any point in time what makes a difference,” she said

“Until there is a price on things like carbon you can’t value them… and you  can’t measure the things that are unmeasurable, so valuers are doing the right thing the best they can There is no magic bullet, no hidden answer, it’s just the way it is, so deal with it.”

But valuers aren’t just picking on sustainability as something they particularly want to ignore, pointed out the event’s MC, Property Council’s chief executive officer Peter Verwer who  MC’d the event.

When airconditioning was introduced to the industry it was also considered a major technological breakthrough, he said, but from the valuers there was the same response: no premium assigned, but before long, buildings without airconditioning faced accelerated depreciation.

Many people think the same will happen with buildings that are not sustainable.

Among the highlights of the conference was undoubtedly David Waldren from Grocon whose amazing building Pixel in Melbourne faces a similar valuation conundrum.

Pixel was designed as a 1000 square metre living “laboratory” to demonstrate to clients what the future could be in buildings, said Waldren, and it has duly scopped the awards pool with a perfect score from Green Star, a Banksia award and no doubt more gongs on the way. (The Fifth Estate brought you coverage, here, first) .

Waldren only partly explained the building to a fascinated audience, holding back on details of innovations that the company hopes to roll out under licence in what is clearly a new strategic direction for this pace-setting private developer (see our interview with Grocon chief executive officer Daniel Grollo ). Items such as the concrete with half the regular carbon content, a vacuum system toilet that uses only a litre of water, and a sewage treatment that treats waste in a kind of shaker for 15 days to extract methane, which is then used to heat the building.

Much of the heating and cooling for the building comes from ambient temperature control through the concrete slab and only 26 per cent by convective energy, Waldren said. Then there are the wind turbines on the roof, a breakthrough technology for urban environments, which are notoriously bad for producing wind power, and solar panels that track the sun, producing 40 per cent more energy than fixed panels.

All great concepts with massive potential. But what’s the value premium on the asset? Probably nothing at all, said Waldren, even though he could nominate exactly what the extra costs were to reach each major Green Star level (16 per cent to go from four star to five star, for instance)

Lucky for Grocon it does not plan to sell the building for the next four years at least.

Mandatory Disclosure – the bell tolls for you
Only three more sleeps until the property world wakes up the mandatory disclosure or commercial building disclosure regime that hits on Monday 1 November. And if you don’t know that there will be penalties of up to $110,000 for breaching the rules that you must disclose a NABERS Energy rating for an office of 2000 square metres or more when it is sold or leased, then you are probably in the wrong industry.

The PCA’s Peter Verwer thinks the industry will be waking up to a nightmare.

According to Verwer, who could not resist a slam dunk at the CBD legislation in the closing minutes of the RICS event, told TFE in an earlier interview that the whole thing be a “shemozzle”.

There are buildings which were not meant to be netted but will be – buildings such as industrial properties and hospitals, which have single meters but must somehow segregate their office energy use, he said.  And still no guidelines have been released.

Verwer tips a new task group will be formed to trowel through the issues, but even this will be last minute.

In TFE’s view, if past performance is anything to go by the federal government will roll over backwards to bring concessions to the table. Well, it’s probably got no choice where the compliance is actually “impossible,” as Verwer says of some cases.

And besides, all this must start to look like a conditioning exercise beloved of real estate agents when dealing with their clients.

The Tara Effect
In the Report of the Prime Minister’s Task Group on Energy Efficiency two lines signalled that the wave of energy reforms would keep rolling and get bigger – with minimum performance standards now officially on the strategy board.

Consideration needed to be given to “provide?a?mechanism?to?investigate?possible?future?minimum?standards?for?existing?buildings.” (Page 149)

The PCA will have loads more work to do when that one comes along.

And come it must if the CBD proves to be as ineffectual as many people expect it will be. The B and C grade laggards simple don’t care if their building get a 1 star or a zero star rating.

Another valuation question perhaps? Or the absence of a way to spell out to these owners what the potential risk of not upgrading will be.

Let’s call it the “Tara Effect” after the other southern belle – the house, that is – in the film Gone with the Wind, and the immortal lines uttered on its threshold: “Frankly my dear, I don’t give a damn.”

Urban Task Force wants a even playing field
And again on value, the NSW Urban Task Force has been at it once more, this time attacking Dr Alan Hawke’s review of the Environment Protection and Biodiversity Conservation Act because it proposes that the environment be given a greater weighting than social and economic issues under its powers.

This would stymie development of our cities growth boundaries, says chief executive of the Task Force Aaron Gadiel, who calls for equal weighting of the criteria as supported by the Federal Government under the Water Act.

“The Review recommends that the Act … emphasise that environmental considerations are to be considered first when making decisions under the Act,” Gadiel said in a recent media release.

“If this proposal is adopted, we could see the expansion of our cities halted on the flimsiest of environmental arguments.

“The accepted approach to ecologically sustainable development requires environmental, social and economic factors to be considered together in an integrated decision-making process.”

Let’s go with Gadiel’s flow. Let’s put environmental, social and economic factors on an equal footing.

To do that you need to measure these properly. (Like the valuers say) So let’s assign an economic value to the all the on-costs of putting low income families in cheap homes in the sticks including the cost of the cars and petrol they have to buy and the road tolls they have to pay in order to get anywhere. After that’s done, let’s work out the cost of the social, health and personal dysfunction that results from the inability of many people in these places to live like everyone else.

Not to mention what it will cost the taxpayer to pick up the bill to extend the massive urban infrastructure.

(We don’t hear anything from the Task Force about how these new communities can live sustainably, grow their own food, create their own distributed energy.)

And we haven’t even started on the cost of losing farmland and relatively clean low carbon food.

Only when all of this is valued and calibrated can talk about equal footing.

The Fifth Estate – your on-line newspaper for sustainable property news
“We can’t wait for the future.”