The madness of freezing the National Construction Code

The economic reform roundtable prepares to meet next week and look likely to freeze the National Construction Code. One of Australia’s most respected voices in the field of energy efficiency Alan Pears lays out the logic of why this would be a mistake, with significant costs to national productivity.

As a person who has worked on building energy policy since 1983, I have seen a lot of blood on the floor.

In order to introduce Victoria’s residential insulation regulations in 1991, I had to put my public service career on the line. While I was driving introduction of government policy, I was opposed by all the senior management in the industry department, where I worked.

It took intervention from a key government policy player Andrew Herington to back me and overrule public servants who backed the intense building industry opposition. I left the public service when the regulations were locked in.

While the ACT government introduced residential star rating regulations in about 1994, no other state government introduced effective regulations.

The Productivity Commission’s inability to value measures considered important by building ministers highlights its narrow perspective. The economic analysis also applies a 7 per cent a year discount rate to future benefits. This ignores the impacts on the many people who will live in these homes over much of their 75 year average life, whose health, comfort and energy costs will be impacted.

I was the community advocate on the steering committee set up in 2000 when the Labor government committed to building energy regulation.

After five years of analysis and negotiation, the 5 star regulations just squeezed in, in December 2005, with state representatives outvoting the federal government. Three (conservative Howard government) ministers published a press release condemning the state governments for damaging the building industry: I still have this.

In 2005, the Productivity Commission published a report critical of energy efficiency, which I and others hotly debated.

The 2005 version of the National Construction Code also introduced Australia’s first commercial building energy regulations, 20 years after the progressive Victorian Building Owners and Managers Association [Property Council] published excellent guidelines, and 6 years after NSW introduced the Australian Building Greenhouse Rating Scheme for office buildings, later renamed NABERS. 

In 2010, residential regulations [Nationwide House Energy Rating Scheme] were increased to 6 stars under a Labor government.

We should be clear, the 2022 National Construction Code changes, which have been delayed, came more than a decade after the last significant change. The process was “interesting”.

The draft Regulatory Impact Statement estimated a cost-benefit ratio of 0.35, well below the “breakeven” of 1.0 and recommended rejection of the proposed 7 star regulations. A strong campaign led by social justice groups, progressive building industry organisations and designers challenged this.

It costs a lot more to retrofit performance improvements than to incorporate them during construction. Has this cost, driven by climate change, been considered by the Productivity Commission?

This led to a review of the RIS and a revised estimate was produced. This gave a cost-benefit ratio of 0.8, still below the breakeven threshold of 1.0. But it included a long list of factors that had not been included in the RIS because they were too difficult to quantify.

On this basis, building ministers approved, on balance, adoption of the 7 star requirement.

The 2022 NCC also included a lot of other changes. In particular, the requirements for “universal access” included wider hallways, wheelchair accessible ground floor bathrooms and toilets and other measures that increased building costs and forced redesign. These have added to building costs but have clear social benefits.

The Productivity Commission’s inability to value measures considered important by building ministers highlights its narrow perspective. The economic analysis also applies a 7 per cent a year discount rate to future benefits. This ignores the impacts on the many people who will live in these homes over much of their 75 year average life, whose health, comfort and energy costs will be impacted.

Many other countries apply a 3 per cent discount rate, but even this underplays the value of reducing long term carbon emissions and social carbon costs.

It costs a lot more to retrofit performance improvements than to incorporate them during construction. Has this cost, driven by climate change, been considered by the Productivity Commission?

The Australian Prudential Regulatory Authority and Australian Accounting Standards Board are introducing requirements for big businesses to report on their scope 3 carbon emissions. This includes emissions from the consumers of their products. This should include energy use in buildings that is related to design and construction. If this were applied to housing, we might well go beyond the 2022 NCC 7 star regulations.  

Sadly, mainstream building industry organisations are part of the problem. In contrast, there is strong progress with commercial buildings, where NABERS, Green Star and major increases in building regulatory requirements have progressed.

In my view this reflects the reality that major commercial building industry groups such as the Property Council of Australia have both building supply and building operation/management businesses as members.

The latter have a strong interest in improved performance and accountability from the supply chain, so they support schemes like NABERS and Green Star. This sector also has many competent technical experts who recognise the benefits of improved energy performance.

Mainstream building industry organisations are part of the problem. In contrast, there is strong progress with commercial buildings, where NABERS, Green Star and major increases in building regulatory requirements have progressed

The residential sector has few advocates in the institutional frameworks and (I may be wrong) no representatives on the boards of mainstream industry associations. Certainly they have little influence.

For me, this helps to explain why mandatory energy disclosure in commercial buildings was phased in from 2010, only a year after the Council of Australian governments agreed to introduce energy disclosure, while we are still waiting for this in residential buildings 15 years later.

The mainstream residential building industry has to move beyond seeing housing as a commodity, to be sold before moving on. It is public infrastructure that impacts on the lives of occupants, most of whom were not involved in the original design, construction and purchase decisions for decades in a time of changing climate.

The building industry has had several years of warning about the need to improve energy performance. Many businesses have invested in capacity to deliver the products needed to deliver high performance. Why should home buyers, future occupants and future victims of climate impacts have to pay for an industry that has buried its head in the sand?

---

---