Energy efficiency rating pushes more out of home ownership

What is causing the housing affordability crisis in Australia? Land restrictions and low interest rates are typical answers. But people forget about the impact of seemingly minor government rules like regulations that stipulate minimum dwelling sizes and quality.

Next year, the government will impose another layer of hidden regulation. The National Strategy on Energy Efficiency will require all residential and commercial properties, new and existing, to have consistent energy efficiency ratings. The idea is buyers and renters will then make better choices about energy efficiency – thereby mitigating climate change and saving themselves a few dollars to boot.

Like most government regulation, it sounds nice in theory, but the reality will be otherwise. Mandating ratings will impose real costs on sellers, lessors and taxpayers, which will exacerbate the housing affordability crisis. Licensed assessors will require training and charge fees to make assessments; bureaucrats will have to enforce and administer the assessments. These costs will ultimately find their way into higher house prices, taxes

The supposed benefits – lower greenhouse gas emissions and household savings – are tentative at best.

Australian residential buildings emit 10% of Australia's greenhouse emissions, and Australia as a whole contributes 1.5% of the world's emissions. Even if slowing the growth of 0.15% of the world's greenhouse emissions would effectively mitigate global warming, will these measures actually work?

As anyone who's bought or rented knows, the energy efficiency of a home is a marginal consideration. Location, appearance, size and quality overwhelm any other factors. Indeed, renters tend to care even less about a dwelling's energy efficiency if they are sharing (household utility bills tend to be split equally).

Moreover, everyone already has the ability to calculate the payoffs from more energy efficient fittings and appliances. And businesses have a natural incentive to advertise any potential savings from such installations – many appliances and white goods already feature prominent energy efficiency labels. It is surely not the role of government to nanny how people manage their household utility bills.

The government claims buyers and renters suffer from 'uneven information': that owners and sellers have superior information. That might be true at first, but it is no bold feat for prospective buyers and tenants to inspect appliances and fittings. Indeed, inspecting a house is vastly easier than assessing the reliability of a used car's engine – and the government does not mandate assessments there.

Moreover, the proposed mandatory efficiency standards undermine the role of real estate agents. Agents exist to bridge any knowledge gap between buyers, sellers and renters.

If the government wants to encourage energy-efficient products, it should alter the price of energy directly, which would make the installation of energy efficiency products more appealing and avoid the administration costs of heavy-handed regulations. By contrast, the imminent compulsory efficiency standards will impose certain costs only to elicit dubious benefits.

The new efficiency ratings are only one of many impending incursions into the housing market as a result of the National Strategy on Energy Efficiency, which was updated in July 2010. Minimum energy efficiency standards for new residential and commercial buildings will be rolled out alongside government-funded campaigns to promote efficiency energy use. These will also diminish housing affordability and undermine the government's professed support for 'market-based' measured to mitigate climate change. Bureaucratic standards are in no way market-based.