The residential sector is set for the kind of radical improvement in energy efficiency that transformed commercial property.
According to residential housing analysts CoreLogic the real estate sector, from agents to property technology companies, expects a raft of benefits to flow, including a tsunami of demand for new skills.
When CoreLogic and the CSIRO released a report last week to pinpoint the quality of houses most Australians live in, the news was not good.
The property data specialist and the nation’s top science organisation found that the estimated median Nationwide House Energy Rating Scheme (NatHERS) star rating for many older homes was around two or three stars. That’s an insulation level that’s not much better than a tent, some wry observers noted, and it means huge bills for occupants to heat or cool them.
It proved that people who live in houses built under recent higher standards mandated by the National Construction Code were way better off, evidenced by the higher energy efficiency rating that potentially means lower cost of living.
Tom Coad, CoreLogic’s head of banking and finance, product and solutions said the report was evidence of why the Coalition should not freeze the National Construction Code for 10 years, as it flagged.
Coad’s company is a significant global player in the residential data market. It’s American by origin, has European and UK assets and is well known in Australia for supplying reliable property price and related data to the market. Coad’s company is a significant global player in the residential data market. It’s American by origin, has European and UK assets and is well known in Australia for supplying reliable property price and related data to the market.
Part of its DNA is the hedonic index, which looks at qualitative elements that determined price, such as number of bedrooms or quality of construction, which it acquired through RP data, developed by Rismark.
Its global work means it has eyes on the way the world is heading – especially the financial and investment world that drives underlying trends.
In a wide ranging interview Coad told The Fifth Estate the changes under way in Australia are simply part of that global momentum.
We asked how his comments to urge the Coalition to refrain from its proposal to freeze the NCC for 10 years received?
Coad says there’s a lot of support for his stance from the real estate industry, including agents, and the prop tech sector. It wants the momentum to keep going.
He expects that energy efficiency will soon be part of company’s pricing data for houses, measured by NatHERS, the national energy rating system.
The modelling will be rolled out for investment rental properties first and not long after will also include properties for sale and existing properties.
Next year (2025) will be when much of the modelling and trials will get under way to get this happening.
What it will do, he says, is “democratise” data and insights into the residential market.
The elements of change are already in play
The potential is for massive change, he says, and the important components of that change are already in play.
First is that energy will be a “considerably more important factor in the decision to buy” than it’s been so far.
And then there’s the impending mandatory disclosure of energy efficiency that the government has started work on and that the commercial sector knows can create seismic shifts – for improvement – in buildings.
Mandatory disclosure
“I think properties that are more efficient initially will be perceived as more valuable, but I think that will grow quite quickly, with concepts like mandatory disclosure of energy ratings, which the government started consultation on in July this year,” Coad says.
The company has been watching what’s happening in Europe and the UK and is working with banks and other businesses in Australia that are closely connected to events there.
Coad says: “There’s a real opportunity to accelerate that trajectory and democratise the access to some of that data at the same time.”
Scaling up of the workforce
With somewhere between 600,000 and 1 million homes sold or rented every year, Coad expects we’ll need a significant boost in skills capacity.
The extra work will involve not just the assessments but advice on how to improve performance.
It will be a potentially lucrative bolt-on skill for people such as building and pest inspectors.
“They’ll need to be trained and qualified – that’s a really important part of that overall rollout.”
That’s possibly because it’s a slightly more complex program than NABERS Energy for instance, which relies on looking at the actual bill payments for a property.
But reducing emissions and energy is not clear cut. Not everyone has access to solar or batteries, Coad notes, and adds there is a “much broader opportunity that just solar.
“I do agree solar is a fantastic way to dramatically reduce emissions. Get 100 per cent [solar] and you can almost completely offset your energy costs. What we’d like to see is both offsetting energy costs and ultimately reduced energy usage as well, for those who can’t be on solar – both angles.”
The Coalition’s pushback on the NCC
Coad declines to enter the political fray on energy efficiency, nor on the reasoning behind Coalition Leader Peter Dutton’s promise – or threat – to freeze any more changes to the NCC.
But he does say: “I’d be very, very hesitant to slow down or kind of restrict any kind of improvements or changes to the sustainability side of our construction code.
“Look, it’s a really broad code, and there may be areas that are better suited to freezing than others.”
But in terms of Australia’s commitments to the Paris Agreement to reduce greenhouse gas emissions, the energy efficiency provisions are “not the right area to freeze”.
The evidence on pricing
Is there evidence that in Canberra for instance with its energy efficiency disclosure rules that there is an impact on pricing, as we’ve heard?
Coad says he can’t comment specifically on any price and energy efficiency correlation, but adds: “At this point. We are very, very interested in what is around those energy ratings. There are various factors that make up that energy rating, including kind of where you live, the materials, the other characteristics.
“So solar doesn’t inherently make your property more efficient. It changes the way that you get energy, or power.”
There’s more research that needs to be done, but he expects there will be an impact “on the overall value of a home” and that those with better credentials will command higher prices.
The analytic work to figure that out will kick off in January, he says.
He thinks it will be the first work of its kind in Australia and credits the partnership with CSIRO for contributing the science that will hopefully lead to more transparent outcomes.
In Europe and the UK this is well underway. “We’ve seen some examples in Europe and the UK, and we actually acquired a business in the UK earlier this year called Parity Projects, who have an estimated EPC [energy performance certificate] rating, and so that they’ve got a similar model over there.”
How is the real estate industry responding?
Coad says the real estate industry is jumping aboard.
“I think that they’re a long way ahead of where they might have been previously, with the thinking and the consideration around what it means.”
This is particular so from the prop tech sector with its advocacy of “not just for energy efficiency and not just ratings, but real understanding of what it means to homeowners and how that starts to drive price over time. I think it’s really positive.”
Until now there’s been less legislation and fewer regulatory requirements for the residential sector to be deeply involved in the same way as corporates have, he says. But there’s now “some fantastic work going on there and especially through the Proptech Association Australia, he says.
“They’re very keen on mandatory disclosure. They think that the better understanding of energy performance of a property and energy attributes of a property is only going to be a good thing for everyone and for homeowners and for agents, it will be a selling point.”
According to Cecile Weldon, writing on the association’s website, the Proptech Association is a non-voting member in the Residential Energy Efficiency Disclosure Initiative (REEDI) Governance Forum.
“This gives us a seat at the table where the big decisions are being made … the development of a national framework for disclosing the energy efficiency of new and existing residential property.”
Weldon points out that the finance and insurance sectors will benefit from the disclosure regime.
The framework will help them to generate greater emissions reductions in the residential sector and to report on the decarbonisation of their portfolios.
“These sectors are driven by the need to manage their exposure to physical and transitional climate risks in their residential building stock.”
A tipping point after enormous work in 2024
According to Coad the industry is close to a tipping point.
“Everyone can see where it’s going – the trajectory [towards] mandatory disclosure of energy. We’ve got mandatory disclosure for large corporates for climate reporting from January next year.
“There’s been this real evolution in 2024 – it feels like it’s exploded in terms of that focus and attention.”
Funding support from government through the Clean Energy Finance Corporation, which administers the $1 billion Home Energy Upgrade Fund is adding to momentum for quality and performance upgrades. About $350 million of the funds have already come to market and starting to create impact, he adds.
“So, we’re very excited around the market activity and the momentum. And I think that we really see our role in helping democratise the understanding of [energy efficiency] and bring that data availability to a level that’s never been before, and show where it is really performing, and why is it performing.”