“Property buyers don’t care enough about sustainability to warrant the cost”
It’s something we often hear from property developers and builders as an excuse for not prioritising sustainability in their product offerings.
Indeed – such a statement appears - at first glance - validated by the fact that barely any new homes go beyond the 6-star minimum energy performance standard.
But can this be blamed entirely on poor customer preference?
Not in our view. Many builders and developers, for their part, miss opportunities for differentiation when it comes to packaging greener options and educating customers on their benefits. And because of this, there exists an opportunity to do better.
Builders and property developers can build greener homes at low cost. Those that try could capture a major opportunity for product differentiation in the competitive suburban property markets.
We’ve crunched some numbers on this opportunity - the results shocked us!
By applying four simple changes to the typical suburban new-build home in Melbourne, we were able to find over $38k in value for a new home buyer, over ten years.
What's more, these changes reduce carbon emissions by 100t per home over the same time period.
These are the 4 simple changes:
1. Install solar power
Solar power gives the homeowner the biggest bill savings of all measures. A 6.6kW system will cost about $4k to install (at bulk developer rates) but earn the homeowner an estimated $1410 per annum.
2. Upgrade to a 7 star energy rating
According to Renew, the cost of doing this is only $3000, which assumes simple material upgrades such as superior insulation, weatherproofing and glazing and does not include design changes to the home.
Bill savings in heating and cooling are expected to be $425 per annum for a 200m2 home in Melbourne.
3. Go all-electric
Connecting gas to new build homes will become a thing of the past - a trend we're already seeing with our clients.
By going electric - you can avoid the near 'dollar a day' gas supply charge, and also take advantage of cheaper, greener solar energy.
Install reverse-cycle ACs, modern electric cooktops (which have come a long way from their predecessors), and efficient heat-pump hot water heaters (some of which are quieter and more reliable than ever).
We’ve assumed that it will cost an additional $1,000 to go all-electric – purely for the additional cost to install heat pump hot water (after rebates). Savings are conservatively estimated at $355 p.a.
4. Get a Green Mortgage
Just last week, an exciting new lending scheme has been announced by the CEFC[1]
who are underwriting loans to buyers building with a 7-star energy rating or higher.
Bank Australia is the first lender to get on board - offering a mortgage discount of 0.4% for five years (currently the interest rate for this product is 2.88%).
This equates to $1273 per annum in reduced repayments for the average Melbourne new-build.[2]
Tallying up the benefits – a whopping $38k in value!
Over 10 years, the value to the owner-occupier is huge.
Energy bill savings: $22,338
Mortgage savings: $6,365
Capital gain*: $9,773
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Total value: $38,476
*Research shows that properties with better sustainability features sell at a premium. We’ve conservatively assumed that each additional energy star can boost the property value by 1%.
Ok, great – but what about the costs?
If the developer pays the additional upfront costs, the out-of-pocket cost is estimated at $8k.
If the customer pays, by adding it to their mortgage, the total additional cost over 10 years is $4,810[3]
Even factoring in these costs, the net benefit to the customer is just a tick under $34k! [4].
Now that you're armed with this knowledge, I challenge you to put together sustainable packages and sell on value! After all, it's 2020 - and the mainstream is ready.
If you'd like to learn more about putting together competitive product packages that sell homes, reduce your costs and boost your green credentials - get in touch with Chris via email: chris.cooper@newenergy.ventures.
Notes:
[1] Clean Energy Finance Corporation
[2] Assumes $600,000 original property value, 30-year mortgage, and 80% LVR.
[3] This includes an extra $1600 for the home deposit and an extra $321/annum in mortgage payments.
[4] Going to 8 stars costs an additional $5100 upfront (according to Renew) but works out even better for the homeowner. Net benefits to the customer exceed $50k over 10 years, driven by higher bill savings and increased capital growth.
[5] Bill savings assumptions are as follows: 26.4c/kWh electricity retail tariff (Victorian Default Offer in Powercor region) and a 9c/kWh feed-in-tariff. Gas price assumptions are 3c/MJ and 85c/day. 1kg/CO2/kWh emissions factor assumed. In this simple analysis, we've held assumptions constant over the 10 year period.