Residential Developer Issue 14, Winter 2009. P 31
By Marcus Spiller
How will COAG's decision that residential housing will be required to meet a national standard of a minimum 6 stars by 2010 impact industry? Residential Developer Magazine asked a panel of experts, including Dr Marcus Spiller
Expectations from our expert panel.
Dr Marcus Spiller, Director of SGS Economics and Planning
"In theory, the Carbon Pollution Reduction Scheme (CPRS) will put a higher price on emissions and this will send a signal to new home buyers to consider upgrading the energy efficiency of their home.
This brings into question the need for heavy handed prescription of 6star. One might expect the market will sort out the problem for us, with households making their own optimal trade-offs as we collectively mitigate climate change.
Setting aside the adequacy or otherwise of the cap on emissions under CPRS, the problem with the market argument is that it will take a long time for behaviours to change in relation to modest price signals. Also, only a proportion of households will respond to higher energy prices by modifying their new home order. Those that don't will bequeath community assets which are not environmentally up to scratch and have 50 to 100 year lives.
So there is a role for prescriptive regulation working in harness with market mechanisms to accelerate the desired improvement in housing sustainability.
Although not widely promoted by industry advocates, theory also tells us that the extra costs associated with a mandatory 6 star rating are unlikely to be directly and fully passed on to buyers.
These costs will be shared between buyers and builders / developers depending on the elasticities of supply and demand. In competitive and flexible markets, suppliers tend to be more innovative and responsive to community demands. While they may absorb the lion's share of the cost burden in the near term, they are motivated to find clever ways of meeting the regulations at little or no cost. For example, cares have generally become cheaper in real terms regardless of successive regulatory requirements covering safety, emissions and recycling.
Unfortunately, we tend to put a lot of barriers in the way of efficient and responsive housing markets in Australia. These include cumbersome or ill-considered planning regulations often coupled with dysfunctional planning governance, restrictive work practices in some housing sub-sectors, and punitive or arbitrary infrastructure charges in a few jurisdictions.
These are the real culprits, not the necessary step of accelerating achievement of more sustainable housing."
The full article, including other experts' opinions on this issue, can be found in The Residential Developer Magazine.
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Residential Developer is the magazine of the Residential Development Council of Australia, a division of the Property Council of Australia.