Sustainability: The New Luxury for Property Buyers in 2020

The summer of 2019-20 was the second hottest on record in Australia, with temperatures 1.88C above average, just below the previous year’s which was 2.14C above average, according to the Bureau of Meteorology.  The intensely hot summer alongside the unprecedented bushfire disaster which devastated many communities and wildlife across the nation Regional settingswas part of a long-term warming trend since 1910. 

The majority of Australians are very much aware and concerned about how climate change is affecting their lives, and for those looking to purchase property, this concern is being translated into the sustainability features and attributes buyers are seeking today.

In a competitive market, buyers are spoilt for choice in the types of properties available such as detached homes, townhouses, apartments, villa units, house-and-land packages etc. Considering property is a major financial commitment, buyers are seeking investment for the long-term and sustainability is becoming ‘the new luxury’.  Hence, in the already-choppy economic waters of 2020, this aspect is increasingly setting some property developments above their competition.

On a global scale, sustainable property investments have developed from a niche concern to a mainstream product for new real estate developments over the past decade. Green buildings represent a significant share of global development projects and are expected to further grow.

How is Sustainability Measured?

Energy ratings are the best way for consumers to understand a building’s energy efficiency performance. The Nationwide House Energy Rating Scheme (NatHERS) is the official national rating system in Australia that provide the star rating for all new buildings and used for regulatory purposes through the National Construction Code (NCC). Ratings are conducted by an accredited assessor and issued in the form of a NatHERS certificate with a star rating of between 1 and 10. 

What is Assessed for a 6 Star Energy Rating?

The star rating is determined by the amount of energy required by the building to heat and cool year-round. Thus, the higher the rating, the more efficient the building is. Since 2010, a 6-star minimum efficiency rating has been the standard across most states in Australia. In order to achieve the 6-star energy rating and all other forms of assessments, the following key elements are considered in assessing a building’s thermal performance:

• Location
• Orientation
• Building resources and materials
• Window specifications and glazing
• Insulation
• Roof and wall colours
• Ventilation
• Ceiling fans
• Lighting
• Floor coverings

Buyer Awareness of Sustainability Features

As a property and wealth creation professional, I find my clients are now proactively asking about the materials used and the energy rating of properties being considered. Property is a major purchase decision regardless of income level, and buyers understand that running costs over the property’s life cycle are a factor that needs consideration before purchasing. If planning to live in the home, these costs translate to a significant direct saving on utility bills every year or if an investment purchase, reduced electricity/gas/water bills are a strong incentive to entice tenants.

The properties I seek out are often NatHERS 7.5 star rated and offer that desirable edge of sustainable luxury. This means they have additional features over and above the most common, such as:

• Energy Recovery ventilation (EVR) to maintain superior air quality
• 5 Star water efficiency in all appliances
• Solar electricity systems which can generate the property’s entire electricity needs 
• Specialised gas storage systems to minimise the use of gas
• Battery charging stations for electric vehicles
• Motion sensors to reduce unnecessary lighting cost
• Biophilic design such as green living walls, blended indoor and outdoor spaces, greater use of natural materials 

One upcoming project by Barwon Water is Salt Torquay which is the first estate located in regional Australia to be recognised as a One Planet Community, a globally recognised leadership program based on 10 simple principles that enable organisations to plan for, deliver and communicate sustainability.

‘Brown Discounts’ may be coming

Consumers increasingly understand that there are existing properties without any star rating which mean colder winters, hotter summers, more expensive utility bills and less comfort all-round. The average home built in the 1990s had an equivalent energy rating of 0 due to homes not having any ceiling insulation or many other of today's’ standard features.

I think it is likely that some of these properties will not be considered ‘future-proof’ and will successively fall behind when competing for buyers and investors in the mid to long-term future. 

What I expect for those properties is that savvy buyers will demand a discount for the lack of sustainability features and/or compliance with current energy requirements. This is sometimes referred in the as a ‘brown discount,’ a great contrast to a ‘green premium.’

Short-Term Pain for Long-Term Gain

From the perspective of owners and investors, sustainability costs are not immediately equal with resulting energy savings. In other words, energy-saving measures require significant one-off capital expenditures which must be borne by developers in building costs initially, then owners and investors prepared to pay a premium for quality, but the resulting reduction of operating costs will certainly pay off over time.

Following this summer’s global warming wakeup call with increased temperatures resulting in unprecedented bushfires, coupled with escalating utility costs, the choice of ‘sustainable luxury’ is one I expect more buyers to be making.