Green landlords: do they exist?

Australian households are going green. With support from all levels of governments, householders are responding to the climate change challenge. They are installing solar panels on their rooftops, insulating, opting for more energy efficient space heating, giving up their generous showerheads and replacing their lawn with native grasses. The streetscape is changing; at least it is in some neighbourhoods.

To date, those leading the way are home owners residing in detached dwellings in Australia’s more affluent neighbourhoods. Not only do these home owners have the available disposable income to buy into the green revolution, but they also have ready access to government subsidies and incentives. Early policy initiatives in Australia have been heavily weighted towards new owner-builders and established home owners. This excludes around a quarter of Australian families residing in private and public rental housing. Despite the promise of a cohesive “low emission plan for renters” by the incoming federal Labor government as part of their 2007 election platform, a tenure-neutral approach to achieving energy reductions in the residential sector is yet to materialise.

It is true that the private rental sector poses unique policy challenges. In a recent paper, we identified some of the key barriers to improving its sustainability profile. Of central concern is “split incentive” problem; that is, while the landlord is generally responsible for purchasing the energy-using facilities, the tenant is generally responsible for the payment of energy bills. Despite being responsible for the initial capital outlay for alternative energy efficient equipment, landlords do not reap the immediate benefits of their investment. Consequently, incentives to adapt a property are weaker for landlords compared with home owners. Private tenants are also constrained in their adoption of low-emission substitutes as they do not have the right to adapt their homes without landlord acquiescence and any gains in asset value that accrue from energy efficient investments are captured by the landlord.

A second major barrier is the relative lack of regulatory control within the private rental sector. Unlike the US, where incentives are provided to private financers to own and manage not-for-profit rental housing, there is a rigid institutional separation between social and private rental housing in Australia.

A landlord’s right to sell the property as they please, whether as a tenanted rental property or as a vacated owner occupied property is enshrined in residential tenancy legislation. This means that there are no mechanisms to prevent landlords from selling their investment. Accordingly, the introduction of any costly or compulsory measures could discourage investment in the sector and, in particular, impact on the long-term supply of low cost private rental housing.

In addition, the lack of mandatory basic housing standards in residential tenancy legislation facilitates a minimal approach to repair and maintenance work. Where minor reforms have been implemented, they have been inconsistent with the Building Code of Australia’s five-star standard requirements. This is a potential area of legislative reform that is yet to gain support across the states and territories.

The third major barrier is the highly dispersed pattern of rental property ownership in Australia. The prevalence of individual and family investors affects the capacity of the private rental sector to adapt promptly and comprehensively to the challenge of reducing carbon emissions. Notably, there is no umbrella organisation for landlords to monitor trends in the private rental sector and disseminate information to landlords. In the UK, such associations have played an active role in enabling landlords to participate in sustainable policy development, directing landlords to relevant auditing and rebate schemes, and disseminating advice and information about current regulations and energy efficiency standards. In Australia, there is a need for a co-ordinating body to foster a shift in attitudes and practices among this group.

The problems are significant, but not insurmountable. In the UK and Canada, there are a range of policy initiatives in place to support a tenure-neutral green revolution in the residential sector. Measures that are yet to be trialled in Australia include: the use of taxation incentives to encourage greater uptake of energy and water efficient technologies among landlords; the strengthening of housing health and safety minimal standards; the introduction of Green Landlord Awards, which acknowledge those landlords who have made improvements to the energy and water efficiency of their properties; and the implementation of an Energy Performance Certificate scheme, which requires that landlords provide potential tenants with information on the energy efficiency of a property.

Of course, waiting for governments to act is not the only way ahead. In the US, there is a growing demand for property management services that link green tenants with green landlords (see here).

The property market has delivered considerable financial rewards to Australian landlords and lined the pockets of real estate agents across the country. Is it too much to ask that some of this windfall be directed back into improving the sustainability and the quality of housing for private rental tenants?

Through our undergraduate studies in planning and architecture, we were introduced to the ideas of urban Marxists who worried about the ethics of home ownership. They asked critical questions about Australia’s home owning democracy such as: “Is it fair that government subsidies underpin home ownership and give some a ‘leg up’ the property ladder at the expense of those outside the market?”. They reminded those of us who enjoyed growing up in a big backyard in the suburbs not to take such a privilege for granted.

Today, the debate has moved on. There are new lines of disadvantage opening up in response to the challenge of climate change and escalating energy costs. We need to kick-start a new ethical conversation about the shape and form of our cities and homes. This includes identifying the most effective ways for improving the sustainability and quality of our homes, regardless of who owns them. If green Australian landlords don’t exist yet, then we need to get on and invent them.