BRINGING RENTAL HOMES UP TO SCRATCHenvironmentvictoria.org.au/wp-content/uploads/2017/... · Why inefficient rental housing matters If Victoria’s entire pre-2005 housing stock has

BRINGING RENTAL HOMES UP TO SCRATCHEFFICIENCY STANDARDS TO CUT ENERGY BILLS, reduce pollution and create jobs

September 2017

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CONTENTSSUBTITLE

06 Spiralling electricity and gas bills

07 Rentedhomesarelessefficientthanowner-occupiedhomes

08 Inefficientrentalhousingputspeople’shealthatrisk

09 Morepeoplearerentingforlonger

10 Aquickandlow-costwaytocutclimatepollution

12 Marketforcesarenotencouraginginvestmentinefficiency

12 Thesolutionisstandards

13 Efficiencystandardsareaffordable

14 Renters can be protected

15 Carefulimplementationwillmaximisebenefitswhileminimisingcostsandrisks

17 Stagedimplementationtimetable

18 QualityjobsforVictoria

20 Cuttingcostsforhouseholdsandgovernment

21 Acheaper,fastertransitionto100%cleanenergy

22 Savingwaterforourrivers

24 Aren’tmostrentalpropertiesalreadyingoodcondition?

24 Aren’trentalpropertiesalreadyrequiredtomeetbuildingstandards?

25 Dovoluntaryincentiveswork?

25 Isn’trentingnormallytemporary?

26 Can’ttenantsjustavoidpoorqualityhouses?

26 Whataboutrentsandevictions?

27 Whatcouldthecostbeforlandlords?

27 Whatcouldtenantssaveontheirbills?

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11 Settingefficiencystandardsundertherevised Residential Tenancies Act

The opportunity – Delivering lower bills and safer rental properties

Why inefficient rental housing matters

The solution - Efficiency standards for rental properties

Benefits for Victoria’s renters, economy and environment

Myths and facts about efficiency standards for rental homes

introduction

LeadAuthor:AnneMartinelli

Email:[email protected]

Phone:(03)93418117

©EnvironmentVictoriaSeptember2017.

AuthorisedbyN.Aberle,ActingCEOEnvironmentVictoria,Level2,60LeicesterSt,CarltonVictoria3053.Phone(03)93418100,[email protected]

www.environmentvictoria.org.au

This report is printed on 100% recycled paper.

ThisworkhasbeengenerouslysupportedbytheLordMayor’sCharitableFoundation.

4 BRINGING RENTAL HOMES UP TO SCRATCH | EFFICIENCY STANDARDS TO CUT ENERGY BILLS AND CREATE JOBS

RisingenergycostsareamajorworryformanyVictorianhouseholds.Whilethousandsofhomeownershaveimprovedtheefficiencyoftheirhomestocutbills,improvecomfortandhelptackleclimatepollution,rentersaremissingout.Unlikehomeowners,rentershavelittlecontroloverefficiencyimprovementssuchasinsulation,whichmakethebiggestdifferencetocostsandcomfort.Thereislittleincentiveforlandlordstoinvestinupgradesbecausethebenefitslargelyaccruetotenants.

Thisisknownasthe‘splitincentive’problem,anditleavesrentersbearinganunfairshareofthefinancialandhealthcostsofinefficienthousing.Giventhatlow-incomeVictoriansaremorelikelytorent,thegrowingqualitygapbetweenowner-occupiedandrentedhousingisentrenchingdisadvantage.AndwithmoreandmoreVictorianslockedoutofhomeownershipandrentinglong-term,theimpactsofinefficienthousingarebeingfeltacrossagrowingproportionofourcommunity.

TheVictoriangovernment’sFairerSaferHousingreviewofrentallawsisanopportunitytofixthisproblem,whichhasbeeninthetoo-hardbasketfortoolong.Recentlyannouncedreformsprovidingforlonger-termleasesareapositivestep,buttheyneedtobeaccompaniedbymeasurestoensuretenantsarenotlockedintosubstandardhousingoverthelongerterm.

The only way to address this market failure and improve the efficiency of rental properties is to require them to meet minimum efficiency standards.

The revised Residential Tenancies Act must create the power for the Minister for Consumer Affairs to make standards for health, safety and efficiency.

Encouraginginvestmentinefficiencyupgradesacrosstherentalsectorwouldunlockbillionsofdollarsininvestmentandsupportaround4000jobs(gross)peryearoverthefive-yearimplementationperiod.Jobsintheefficiencysectortendtobeinsmall-tomedium-sizedbusinessesandcommunityorganisations,andcoverarangeofoccupationsintrades,servicesandmanufacturing.Thesearejobswhichcan’tberelocated

01introduction

As a community, we are already comfortable with the idea that cars are required to pass a roadworthy test. Why shouldn’t a house meet a basic ‘homeworthy’ test before it can be leased?

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01introduction

off-shore,becausetheyarelockedintoVictoria’slocaleconomy.Atthesametime,moneyfreedupbyenergybillsavingswouldbeavailableforspendingelsewhereintheeconomy,supportinganestimated1600morelocaljobsonanongoingbasis.

EnvironmentVictoriahasbeenworkingwithourOneMillionHomesAlliancepartnerorganisationstohighlighttheopportunitytodeliverthislongoverduereform.Thisreportmapsouthowefficiencystandardsforrentalpropertiescanbeintroducedinawaythatprotectstenantsandkeepscostsaffordableforlandlords.Thekeystoasuccessfulroll-outaretosetinitialstandardsatalowandachievablelevel,givelandlordsplentyofnoticeandaccesstoaffordablefinance,andprovidestrongprotectionsagainstunjustifiablerentincreases.

Establishingefficiencystandardsforrentalpropertieswillhelptackleenergyhardship,housingaffordabilityandhealthproblems,deliveringsignificanteconomicandenvironmentalbenefitsforVictoria.Let’snotmissthisimportantopportunity.

Introducing efficiency standards for rental properties would support an estimated 4000 jobs over five years, and free up household expenditure to support an estimated 1600 ongoing jobs.


Spiralling electricity and gas bills Heatingandcoolingaccountforabout40percentoftheaverageVictorianhousehold’senergycosts,butmuchofthatenergyiswastedbecausemostofourhousingstockisrelativelyinefficient,averagingonly2starscomparedwiththe6-starstandardrequiredfornewhomes.

Withelectricityandgaspricesrising,moreandmoreVictoriansarestrugglingwiththeirenergybills.AccordingtoEssentialServicesCom-missiondata,thenumberofhouseholdsdisconnectedfornon-paymentofutilitiesbillsdoubledbetween2010and2016.1TheenergywewasteinourhomesisneedlesslyaddingtoenergyhardshipforalargeandgrowingproportionofVictorianhouseholds.

Thefinancialimpactofinefficientenergyuseisparticularlysevereforlow-incomehouseholds,whoaremorelikelytorentthantoowntheir

02Why inefficient rental housing matters

Figure 1. Where an inefficienthomegainsandlosesheat.2

1EssentialServicesCommission,2016,EnergyRetailersComparativePerformanceReport–CustomerService,Table4.1

2http://www.sustainablelivingguide.com.au/house/insulate-shade-weatherproof-your-house

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ownhomes.Higherenergybillsaddtothepressureonlimitedhouseholdbudgets,forcingmanyrenterstomaketrade-offsbetweenpayingtherentandotheressentialssuchasbuyingfood.A2015analysisofABSdatafoundprivaterenterswerethelargestgroupofhouseholdsunabletoheattheirhome(37percent)orunabletopaytheirbillsontime(42percent).3

Rented homes are less efficient than owner-occupied homesRentalhomesarecurrentlyonlyrequiredtomeetwhateverbuildingstandardswereinplacewhentheywereconstructed–whichforsomehomescouldhavebeen100yearsago.4Landlordsarerequiredtoprovideacleandwellingatthestartofthetenancyandtomaintainthepremisesingoodrepair,butthisonlyrequiresapropertytobereturnedtotheconditioninwhichitwasleased,nottobringituptoanydefinedstandardofliveability.

Thereislittleincentiveforlandlordstoinvestinimprovingefficiency,becausethebenefitsoflowerbillsandbetterlivingconditionsaccruetotenants.Meanwhile,tenantstypicallylackthefinancialcapacitytomakechangesthatwouldimproveefficiency,ormaybedeniedpermissiontodoso.IndeliveringEnvironmentVictoria’sFuturePoweredFamiliesefficiencyretrofitprogram,wefoundthatmanytenantswereunabletoobtainthelandlord’sapprovalforupgradesorwerereluctanttoseekit.5Manyprivatelandlordsdonottakeadvantageofvoluntaryincentiveprogramsevenwhentheyoffersubsidies,asisevidentfromtheirlowratesofparticipationinthefederalgovernment’shomeinsulationscheme.6

WhileresearchundertakenfortheFairerSaferHousingreviewconcludedthatabouttwo-thirdsofrentalpropertiesareingoodcondition,7 this is notanaccuratemeasureofefficiency.Manyhomesthatareingenerallygoodrepairareneverthelesslikelytobeinefficient.

3F.Azpitarte,V.JohnsonandD.Sullivan,2015,FuelPoverty,HouseholdIncomeandEnergySpending:AnEmpiricalAnalysisforAustraliausingHILDAdata,BrotherhoodofStLaurence

4Retrospectiverequirementsforsmokealarmsandpoolfencingalsoapply

5EnvironmentVictoria,2015,FuturePoweredFamilies2013–2016–FinalReport

6M.Lovering,2013,CanLow-incomeTenantsRentanEnergy-efficientHome?,AHURIEvidenceReview040

7ConsumerAffairsVictoria,2016,RentalExperiencesofTenants,Landlords,PropertyManagers,andParksResidentsinVictoria,FinalReport,preparedforCAVbyEYSweeney


CHAPTER 02Why inefficient rental housing matters

IfVictoria’sentirepre-2005housingstockhasanaverageratingoflessthan2stars,theratingforrentalhomesislikelytobeevenlowerbecausefewhavebasicefficiencymeasuressuchasinsulation(seeFigure2).Asaresult,rentersarehitparticularlyhardbyrisingprices.

Inefficient rental housing puts people’s health at riskLivinginhomesthatarehotinsummerorfreezinginwinterhassignificanthealthimpacts,particularlyfortheelderly,theveryyoungandthosewithpre-existinghealthconditions.Inefficienthousingalsomagnifiespeople’svulnerabilitytoextremeweathereventssuchasheatwaves,increasingthepressureonhealthandemergencyservices.

Forexample,theheatwaveinsoutheastAustraliainJanuaryandFebruary2009ledtoa46percentincreaseinambulancecall-outsanda12percentincreaseinemergencydepartmentpresentationsinMelbourne,andwasestimatedtohavecontributedtoanadditional374deaths.9Attheotherendofthescale,arecentinternationalstudyconcludedthatmorepeoplediefromtheeffectsofchroniccoldinAustraliathaninSweden,largelyduetothepoorqualityofourhousing.10

Figure 2.Householddwellingcharacteristicsbytenureandlandlordtype.8

8AustralianBureauofStatistics,2013,HouseholdEnergyConsumptionSurvey,Australia:SummaryofResults,cat.4670.0

9DepartmentofHumanServices,2009,January2009HeatwaveinVictoria:anAssessmentofHealthImpacts,StateGovernmentofVictoria,Melbourne

10A.Gasparrinietal.,2015,“Mortalityriskattributabletohighandlowambienttemperature:amulti-countryobservationalstudy”,Lancet,vol.386,p.369

“Our house gets to 35 degrees inside in summer and as low as 10 degrees in winter. I’m worried about climate change, so I don’t want to run the heater all day if I know all that energy is just blowing straight through the roof.” – Margaret, Balwyn

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More people are renting for longerAshomeownershipslipsoutofreachforanincreasingnumberofVictorians,rentingisbecomingamoremainstreamlong-termhousingtype.Nearlyone-thirdofallVictorianhouseholdsnowrentinintheprivatemarket,whiletheshareofhouseholdsrentingforlongerthan10yearshasmorethandoubledsincethemid-1990s.11 There is also a growinggroupofpeople,particularlyolderwomenandsingleparents,whohavefallenoutofhomeownershipasaresultofrelationshipbreakdownorjobinsecurityandhavelittlechanceofre-enteringthehousingmarket.

Thetypesofhouseholdsthatrenthavealsoseenamarkedshift.Whereasoncesinglesandyoungpeopledominatedtheprivaterentalmarket,since2011familieswithyoungchildrenhaverepresentedthelargestgroupofrentersinVictoria.12

Thehealthandaffordabilityimpactsofpoor-quality,inefficienthousingcannolongerbetreatedasamarginalortemporaryproblem.Theseimpactsarebeingfeltbyalargeandgrowingcross-sectionoftheVictoriancommunity,particularlyyoungfamilies.

11AustralianBureauofStatistics2017,2016Census:Victoria,http://www.censusdata.abs.gov.au/census_services/getproduct/census/2016/quickstat/2?opendocument;W.Stoneet al.,2013,Long-term Private Rental in a Changing Australian Private Rental Sector,AHURIFinalReportNo.209

12W.Stoneet al.,2013

“I thought we would own our own home at this life stage,” says Charlotte. “House prices are so high, there’s just no way we can save hundreds of thousands of dollars to get a deposit together for a home large enough for a family when we’re renting a house to accommodate a family. It’s not a decision. We’re not renting by choice. It’s just how our life is.”

“Our house is so poorly insulated that it’s basically uninhabitable in hot weather. We’ve had to buy a portable cooler, which helps a bit but costs a lot to run. I’m on a disability pension, so we’re having to dip into my super to pay bills.” – Duncan, Box Hill South

Charlotte and James have been renting in North Fitzroy and Clifton Hill for 14 years. They and their two daughters have put down roots in the community, but they now can’t afford to buy in the area.


CHAPTER 02Why inefficient rental housing matters

A quick and low-cost way to cut climate pollutionEnergyusedbytheresidentialsectoraccountsforabout20percentofVictoria’stotalemissions,influencedlargelybyourrelianceonbrowncoalforelectricity.13DespitehavingasmallerpopulationthanNSW,Victoriahasthehighestresidentialenergyconsumptionofanystate,reflectingourcoolerclimateandgreaterrelianceonwinterheating.14 As rental housesrepresentnearlyathirdofVictoria’stotalhousingstock,energyuseinrentalpropertieshasasignificantbearingonoverallemissions.

Cuttingwastebyimprovingefficiencyisoneofthequickest,mostcost-effectivewaystoreduceemissions.Efficiencyimprovementsrepresentabouthalfoftheopportunitiesforcost-effectiveemissionsreductionintheAustralianeconomy.15

ThereisnowaytomeettheVictoriangovernment’semissionreductiontargetsandachieveafairandfar-reachingresponsetoclimatechangewithoutsignificantimprovementsinefficiencyanddemandmanagementacrosstheeconomy.

Unnecessarilyhighenergyusebyinefficienthomesalsoputsadditionalpressureonourenergysupplysystemduringpeakperiodssuchas

13 GWA, 2008, Victoria’s Greenhouse Gas Emissions: End-use Allocation of Emissions,preparedfortheDepartmentofSustainabilityandEnvironmentbyGeorgeWilkenfeld&Ass.

14DepartmentofEnvironment,Water,HeritageandArts, 2008, Energy Use in the Residential Sector 1986–2020

15ClimateWorks,2014,Pathways to Deep Decarbonisation in 2050: How Australia can Prosper in a Low Carbon World

16InternationalEnergyAgency,2015,World Energy Outlook: Special Report on Energy and Climate Change,www.iea.org

As rental houses represent about a quarter of Victoria’s total housing stock, energy use in rental properties has a significant bearing on overall emissions.

Figure 3.Relativecontributionofmeasurestoreduceglobalemissions.16

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03The opportunity – Delivering lower bills and safer rental properties

Setting efficiency standards under the revised Residential Tenancies ActThecurrentreviewoftheResidential Tenancies Actpresentsauniqueopportunitytoaddressalong-standingproblembyintroducingminimumstandardsforhealth,safetyandefficiencyforrentalproperties.Standardsforhealthandsafetyshouldincludemeasuressuchasensuringstructuralsoundness,electricalandgassafety,andfreedomfromdampandvermin.17Thesebasicstandardsforsafehabitationneedtogofurtherbyincludingrequirementsforminimumenergyandwaterefficiencyperformance.

Inthecontextofrisingenergypricesandtheincreasingfrequencyandseverityofextremeweathereventsunderclimatechange,energyefficiencyneedstobeconsideredacoreelementofanystandardsregimeseekingtoimprovethehealth,safetyandaffordabilityofrentalhousing.Growingclimateandpopulationpressuresonourpreciouswaterresourcesmeanweshouldnotmissthisopportunitytoincludesensiblewater-savingmeasuresatthesametime.

Standardsarenotanewconcept.Regulationsgoverningrentalpropertieswereallowedtolapseinthe1990s,leavingacriticalgapinVictoria’sregulatoryframework.Furthermore,NewZealandintroducedinsulationstandardsforrentalpropertiesin2016,whiletheQueenslandgovernmentintroducedlegislationforrentalstandardsintoparliamentinmid-2017.

Efficiencystandardsforrentalpropertiesarethemissingpieceofthejigsawinthegovernment’ssocialjusticeandenvironmentalagenda.Addressingthisproblemwilldeliverrealreformthathelpstackleenergyhardshipwhilecuttingclimatepollution.

New Zealand introduced insulation standards for rental properties in 2016, while the Queensland government introduced legislation for rental standards into parliament in mid-2017.

17SeesubmissiontotheFairer,Safer Housing Review bytheVictorianCouncilforSocialService,https://engage.vic.gov.au/fairersaferhousing


04The solution – Efficiency standards for rental properties

Market forces are not encouraging investment in efficiencyThereisampleevidencethatmarketforcesarenotencouraginginvestmentinimprovingrentalproperties’efficiency.Prospectivetenantsarenotprovidedwiththeinformationrequiredtohelpthemchoosemoreefficientproperties,whileefficiencymeasuressuchasinsulationaredifficulttoassessonthebasisofashortinspection.Inanycase,tenantsfaceahighlycompetitiveprivaterentalmarketinwhichtheyhavelittlemarketpowertochoosebetweenpropertiesofdifferingquality.Asaresult,rentstendnottoreflectdisparitiesinefficiency,andthereisnopricesignaltoencouragelandlordstoinvestinupgrades.

Furthermore,evenwherelandlordsdotakestepstoimprovetheefficiencyoftheirproperties,theyoftenprioritisemeasuresthatwillimproveassetvalueoverlessvisiblebutpotentiallymoreeffectivemeasuresthatwoulddeliverhigherbenefitstotenantsandthewidereconomy.

The solution is standardsTheonlywaytoaddressthismarketfailureandimprovetheefficiencyofrentalpropertiesistorequirethemtomeetminimumefficiencystandards.

TherevisedResidential Tenancies ActmustcreatethepowerfortheMinisterforConsumerAffairstomakestandardsforhealth,safetyandefficiency.

Effectiveactionrequiresanintegratedwhole-of-governmentapproach.WhiletheActestablishesthepowertomakestandards,theexpertiseoftheDepartmentofEnvironment,Land,WaterandPlanningcanthenbeharnessedtodefinethecontentofstandardsinaccompanyingregulations.

“I tried to get our landlord to do draught-proofing, but they declined and installed ducted heating instead, because it improved property value. But we couldn’t afford to use it, particularly with the house being uninsulated.” – Richard, Pascoe Vale

13

efficiency standards are affordableResearchbySustainabilityVictoriasuggeststhatapackageofthemostcost-effectiveenergyandwaterefficiencymeasures–includinginsulation,draught-sealingandlow-flowshowerheads–wouldcostabout$5500perhouse(seeTable1).Thisislikelytorepresenttheupperendofcompliancecosts,asresponsiblepropertyinvestorswhorecognisethebenefitsofkeepingtheirpropertiesingoodconditionarelikelytohavealreadyinstalledmanyofthesemeasures.

Thespecificcontentofefficiencystandardswouldbedefinedinseparateregulations,basedontechnicalworkcurrentlybeingundertakenbytheDepartmentofEnvironment,Land,WaterandPlanning.

Withoutpre-emptingtheoutcomeofthiswork,EnvironmentVictoriaseesvalueindefiningtheinitialstandardsintermsofbasic,prescriptiverequirementsthattargetthebottom10percentofthemarket,andthenmovingtomoreperformance-basedstandardsinsubsequenttranches,ideallylinkedtotheVictorianResidentialEfficiencyScorecard.

Atthehouseholdlevel,costsofthismagnitudeareaffordable,particularlygiventhatsubsidiesforseveralofthesemeasuresareavailablethroughtheVictorianEnergyUpgradeProgram.22 Median rentalincomeforVictoriaiscurrently$20,000peryear,andobviouslywellabovethatacrossmuchofmetropolitanMelbourne.Spreadinginvestmentoverthefive-yearimplementationperiodcorrelatestomaximumcompliancecostsoflessthan$1155ayearoraround5percentoftotalrentalincomeof$100,000forthatperiod.23

Efficiency measure Retrofit opportunity (%)18

Estimated maximum cost per house ($)19

Investment across rental housing stock ($m)20

Estimated annual savings per household ($/yr)

Ceiling insulationa 75b 1125c 506.3 133.5

Draught-sealing 50 1037 311.1 157

Hot waterd 30 818 147.2 100

Low-flow shower rose 60 86e 31.0 102

Efficient lighting 93f 574 320.3 100

Heating upgradeg 80h 1388 666.2 157

Dual-flush toilets 20 450 54.0 100i

Total $5478 $2036 million $849.5/year

a.Averageofcostofinsulationdeemed‘easy’or‘difficult’to install

b.Estimatebasedon36-50%ofrentalhomesbeinguninsulatedwithafurther20-25%requiringatop-up

c.Plannedre-inclusionofceilinginsulationundertheVictorianEnergyUpgradeProgramwouldlowercostsforlandlords

d.End-of-lifereplacementGaspriceincreasessincethisresearchwasdonecouldmeanlower-emissionheat

pumpsystemsnowabetteroption(seeAlternativeTechnologyAssociation2014, Are we still cooking with gas?)

e.FreetopropertyownersundertheVictorianEnergyUpgrade Program

f.Itislikelythatsomeofthisupgradepotentialhasbeentakenupinowner-occupiedhomessinceresearchwasdone.21However,participationinVEUPhasbeenlowerforrentalhomes,sooriginalupgradeopportunityhasbeenretained.

g.End-of-lifereplacement.Gaspriceincreasessincethisresearchwasdonecouldmeanlower-emissionreversecyclesystemsnowabetteroption(seeATA2014)

h.End-of-lifereplacement.SustainabilityVictoria2016,Energy Efficiency Upgrade Potential of Existing Victorian Houses

i.FromYarraValleyWateratwww.yvw.com.au/help-advice/saving-water/home,35,000litressavedperyearat$2.87/kl(averageoftwolowestblocktariffs)

18DepartmentofSustainabilityandEnvironment,2009, Housing Condition/Energy Performance of Rental Properties in Victoria,preparedforDSEbyEnergyConsultPtyLtd

19Unlessotherwisespecified,datasourcedfromSustainabilityVictoria,2014,Household Energy Report, Tables 3 and 4

20Basedon600,000totalrentalhouseholdsinVictoria,fromhttp://www.censusdata.abs.gov.au/census_services/getproduct/census/2016/quickstat/2?opendocument

21I.McNicol,2017.“EnergyEfficiencyUpgradePotentialofExistingVictorianHouses”,ImprovingResidentialEnergyEfficiencyInternationalConference,IREE2017

22FormerlytheVictorianEnergyEfficiencyTargetscheme

23 Rental Trends – March Quarter 2017 athttps://www.dhhs.vic.gov.au/publications/rental-report

Table 1. Estimated average costs of efficiency measures and household savings.


CHAPTER 04The solution - Efficiency standards for rental properties

Furthermore,themajorityofpropertyinvestorsareinthetoptwoquintilesforincome,andover50percentareinthetopwealthquintile.24 Recentresearchsuggeststhereisahighlevelofsupportforefficiencystandardsamongstlandlordsprovidedstandardsareintroducedinastagedwayandaccompaniedbyappropriateincentivesandinformationtoenablecompliance.25

Renters can be protectedIfstandardsareinitiallysetatalowandachievablelevelandlandlordsaregivenplentyofnoticeaswellasaccesstoaffordablefinance,unreasonablerentincreasesshouldnotoccur.ThereislittleevidencethattheintroductionofstandardsinotherjurisdictionssuchastheUK,CanadaandNewZealandhashadanysignificantimpactonrentsorthesupplyofrentalhousing.

However,additionalprotectionsarealsoneededintherevisedlegislationtoguardagainstanyunjustifiableincreaseswhichdooccur,andtomakecompliancesimplerandmoreeffective.

• New legislative protections against excessive rent increases: These wouldmandateamaximumannualrentincreaseandestablishanew,simplemechanismtoallowtenantstochallengeincreasesthataredisproportionatetothecostofcomplyingwiththestandards.

• Right for tenants to challenge non-compliance:TherevisedActshouldmakecompliancewithstandardsadutyandspecificallypermittenantstousetheAct’sexistingcompensationandcompliancemechanismstodealwithbreaches.

• Repairs and maintenance bond:Landlordswouldberequiredtosetasideabond(mirroringthebondalreadyrequiredoftenants)thatcouldbeaccesseduptoadefinedamountiftheydidnotcarryoutrepairswithinstatutoryperiodsorrefusedtocomplywithmandatedstandards.ThiswouldallowtenantstoremedystraightforwardbreacheswithouthavingtonavigatecomplexadministrativeprocessesthroughConsumerAffairsVictoriaortheVictorianCivilandAdministrativeTribunal(VCAT).Itwouldalsogivelandlordsanincentivetominimiseclaimsbybringinghomesuptostandardbeforetenanciesbegin.

24R.Wilkins,2016,The Household, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 14 – The 11th Annual Statistical Report of the HILDA Survey,MelbourneInstituteofAppliedEconomicandSocialResearch

25K.WrigleyandR.Crawford,2015,“Bridgingthegap:energyefficiencyimprovementsforrentalProperties”inR.H.CrawfordandA.Stephan(eds.),Living and Learning: Research for a Better Built Environment: 49th International Conference of the Architectural Science Association 2015,pp.322–331

“As a landlord, keeping your house up to a good standard means that you get respect from the renter. Everyone should be entitled to a minimum standard in their home, even if you do not own it.” – Martin, Yarraville

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Careful implementation will maximise benefits while minimising costs and risks Thekeytomaximisingeconomicandsocialbenefitswhileminimisingadverseimpactsistointroducestandardsinastagedway.Thisreducesupwardpressureonrentsbyallowinglandlordstospreadcostsoverseveralyearsandensuringthatthedemandforgoodsandservicesdoesnotexceedsupply.

1. Introduce standards at a low, achievable level. Standardsshouldinitiallytargettheworst-performingproperties,whichrepresentabout10percentoftherentalhousingstock.Landlordswhoalreadykeeptheirpropertiesinliveableconditionshouldhavelittletroublemeetingthesebasicstandards.

2. Design initial standards as a features-based list. Thiswillenableeasyandcost-effectiveassessment,includingbylandlordsthemselves.Allowexistingassessmentstobeusedtodemonstratecompliance.ConsumerAffairsVictoriaandtheDepartmentofEnvironment,Land,WaterandPlanningshouldcollaborateondevelopinganintegratedsetofstandardsforhealth,safetyandefficiency.

3. Give landlords time to comply. Governmentshouldcollaboratewiththerealestatesectortodevelopclear,accessiblecommunicationmaterialsaboutwhatthestandardsrequire,whoisaffected,whenchangesneedtobemadeandhowtoaccessadviceandassistance.Governmentshouldalsoprovideeligiblelandlordswithconcessionalfinancetosupportcomplianceandavoidupwardpressureonrents.

4. Require compliance at the start of a new lease.Thiswilldeliverrollingcomplianceacrossthetotalhousingstockasleasestakeeffectatdifferenttimes,avoidingsuddenshockstothemarketandminimisingtheriskofevictions.Finaldatesforcompliancewouldalsobesettoavoiddisadvantagingtenantswithlonger-termleases.

There is little evidence that the introduction of standards in other jurisdictions such as the UK, Canada and New Zealand has had any significant impact on rents or the supply of rental housing.


CHAPTER 04The solution - Efficiency standards for rental properties

5. Use existing compliance mechanisms. Enforcementcostscanbeminimisedbymakinguseofexistingprocessesforbothregulatorandconsumerenforcement.Regulatorenforcementwouldbeachievedbymakingnon-compliancewiththestandardsanoffenceundertheResidential Tenancies Act,enablingtheDirectorofConsumerAffairstouseexistingpowerstoensurecompliance.Regulatorenforcementisvitaltoprotecttheinterestsofvulnerableanddisadvantagedtenants.AnadditionalconsumerenforcementmechanismwhichmakescomplianceadutyundertheAct,wouldallowtenantstodealwithbreachesofthestandardsthroughthenormalcompensationandcompliancemechanismsintheAct.

6. Progressively tighten requirements for efficiency performance. Oncetheworstperformingpropertiesarebroughtuptoscratch,efficiencystandardsshouldbeprogressivelytightenedoverseveralyearssothatalltenantsbenefitovertime.Itwouldmakesenseforthesesubsequenttranchesofstandardstobelinkedtoperformance-basedtoolssuchastheVictorianResidentialEfficiencyScorecardtoensurethatinvestmentistargetedtothemostcost-effectivemeasuresforeachhome.

26LinkingsubsequenttranchesofstandardstotheVictorianResidentialEffi

ciencyScorecardavoidsduplicatingtimeandinvestm

entindevelopingaparallelratingsystemand

capitalisesonthepublicawarenessofeffi

ciencyratingscreatedbytheroll-outofthescorecard.Italsomeansthatpropertyow

ners’obligationsundersubsequenttranchesofthestandardsw

ouldbeknownatthebeginningoftheprocess,sim

plifyingcommunicationw

ithpropertyownersandpropertysector.

27LinkingnextstageefficiencystandardstotheV

ictorianResidentialEfficiencyScorecardw

ouldavoidduplicatingtrainingbeingdeliveredforScorecardassessors.

Stag

ed

imp

lem

en

tatio

n tim

eta

ble

2018

2019 - 20

2020

21 - 2022

2023

Legislation drafted and passed in Parliam

ent

“On/off” prescriptive standards for

health, safety and efficiency targeting bottom

10% of rental housing stock are

developed and outlined in accompanying

regulations. Regulatory Impact

Statement com

pleted.

Properties are required to comply w

ith basic standards at end of lease or by end of 2020.

By end of 2020, all properties comply

with basic standards for health, safety

and efficiency. Only 10%

have required upgrades.

Development phase for next stage of

standards targeting the bottom 50%

of the rental housing stock. 26

Rolling compliance w

ith next stage perform

ance-based energy and water

efficiency standards at end of lease or by end of 2022.

Development of standards to bring

all rental housing stock up to a 5-star equivalent standard.

Rolling compliance w

ith final-stage perform

ance-based efficiency standards at end of lease or by end of 2023.

CAV works w

ith DELWP to develop and dissem

inate clear, accessible information to real estate sector and landlords about health, safety and efficiency standards, com

pliance obligations, eligibility for assistance and w

here to get assessments and advice.

CAV works w

ith DELWP to develop and deliver training for assessors and advisers to assess com

pliance against standards and provide advice about upgrade options. 27

Rollout and promotion of the Victorian Residential Efficiency Scorecard continually builds evidence base for developm

ent and refinement of subsequent tranches of efficiency standards.

Government provides affordable finance to eligible landlords to facilitate com

pliance.


05Benefits for Victoria’s renters, economy and environment

Quality jobs for VictoriaEncouraginginvestmentinefficiencyupgradesacrosstherentalsectorwouldunlockbillionsofdollarsininvestmentandsupportanestimated3000to5400jobs(gross)overthefive-yearimplementationperiod.Jobsintheefficiencysectortendtobeinsmall-tomedium-sizedbusinessesandcommunityorganisations,andcoverarangeofoccupationsintrades,servicesandmanufacturing.Thesearejobswhichcan’tberelocatedoff-shore,becausetheyarelockedintoVictoria’slocaleconomy.Atthesametime,moneyfreedupbyenergybillsavingswouldbeavailableforspendingelsewhereintheeconomy,supportinganestimated1600morelocaljobsonanongoingbasis.28

Thisinvestmentandjobcreationwillnotoccurwithoutefficiencystandardsforrentalproperties.

The Victorian Energy Upgrades Program(formerlytheVictorian Energy Efficiency Targetscheme)wasestimatedtobesupporting2000jobsin201429andthishaslikelyincreasedsincehighertargetsweresetin2015.However,asmostactivityundertheschemeiscurrentlybeinggeneratedthroughcommerciallightingupgrades,thereissubstantialscopeforexpandingresidentialactivity.

Introducingminimumefficiencystandardsforrentalpropertieswillcreateapredictablemarketforservices,encouraginglong-terminvestmentandjobcreation.Thiswouldhelpavoidtheboom–bustcyclesthathavesometimesattendedprogramsreliantongovernmentfundingorincentives.

Astableinvestmentmarketandalargerpoolofefficiencyopportunities

Introducing efficiency standards for rental properties would support an estimated 3000 to 5400 jobs over five years, and free up household expenditure to support an estimated 1600 ongoing jobs.

28BasedonmethodologyoutlinedinEnvironment Victoria 2015, Six Steps to Efficiency Leadership, assumingtotalrentalhousingstockof600,000andestimatedinvestmentsummarisedinTable1occurringover5years.Grossjobsincludethosewhichmaymovefromotherpartsoftheeconomy.

29AnalysisundertakenbyEnergyEfficiencyCertificateCreatorsAssociation,2014

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willalsoboostinnovationanddrivedownthecostsofkeyefficiencymeasures.Muchofthechallengeofrespondingtothecleanenergyrevolutionliesincapturingtheopportunitiescreatedbynewtechnologies.CreatingawelcominginvestmentclimatecouldhelpVictoriacaptureashareofthosenewmarkets,openingupfurtheropportunitiesforlong-termjobcreation.

Thepolicycertaintycreatedbystandardswillalsosupportlong-terminvestmentintrainingsothatthenecessaryworkforceisinplacetomeetdemand,andprovidehigh-quality,securejobsinanindustrywithalong-termfuture.

Enviroflex, KnoxfieldEnviroflex has been in the business of improving the efficiency of Victorian homes and businesses for over 50 years, and currently employs 20 people in the manufacture and installation of insulation and other efficiency products. Enviroflex’s general manager, Kayne Bourillon, sees huge potential for improving the efficiency of rental properties.

“We’ve been seeing an increasing number of tenants coming to us for quotes because they know insulation can help lower bills and make their homes more comfortable. But only a relatively small proportion of those jobs end up going ahead, as most tenants struggle to get the landlord’s consent to pay for it,” says Mr Bourillon.

“That’s potentially a large business opportunity going begging. Setting basic insulation standards would create a predictable pipeline of work that would encourage us to employ more staff and invest in their training.”

Assuming conservatively that 75 percent of Victoria’s 600,000 rental properties – or 450,000 homes – are uninsulated or under-insulated, implementing standards over five years would see an additional 75,000 homes insulated each year. Mr Bourillon considers increased demand of this magnitude could be easily met by the industry and would create additional jobs for local businesses such as Enviroflex.

However, setting standards would need to go hand in hand with a requirement for workers in the insulation industry to undergo accredited training. This would not only protect consumers, but also ensure reputable companies were not undercut by competitors employing untrained workers at lower pay rates.


CHAPTER 05Benefits for Victoria’s renters, economy and environment

Cutting costs for households and governmentWhiletenancyagreementsmaybeaprivatecontract,theyhaveverypublicconsequencesforcommunitywellbeing.Thecostsofenergyinefficiencyarecurrentlybornebytenants(viahighbillsandadversehealtheffects),communityorganisationsandenergyretailers(whofundhouseholdenergyauditsandbasicenergyefficiencyimprovementsforhardshipcustomers),andgovernment(viaconcessionpaymentsandhigherhealthexpenditure).

SustainabilityVictoriaresearchsuggeststhatthatthepackageofmeasuresoutlinedinTable1onpage13couldsaveahouseholdaround$850ayearontheirenergyandwaterbills.Recentelectricityandgaspriceincreasesmeanthatsavingsforsomehouseholdsmaynowbeevenhigher.Ontheotherhand,householdsthatarerationingtheirenergyuseorcuttingexpenditureinotherareastocoverhighenergybillsmayseelowerbillsavingsbutarelikelytoreceivehealthbenefitsfromimprovingtheefficiencyoftheirhomes.

Forexample,arecentCSIROstudydemonstratedthatretrofittingahomewithbasicefficiencymeasuressuchasdraught-sealingandinsulationcouldnearlyhalvethetimeresidentswereexposedtosevere

Elderlypeopleareparticularlyvulnerabletothehealthrisksoflivingininefficienthomes.

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healthrisksduringaheatwave.30Furthermore,acost-benefitanalysisofNewZealand’shomeinsulationprogramfoundthatitdeliverednetbenefitsof$1.2billion,largelythroughsavingsinhospitalisationcostsandreducedmortalityratesforvulnerablegroups.31

AssistingVictoria’sonemillionlow-incomehouseholdstoreducetheirenergybillswouldalsosavethegovernment$2.5billionfromitsenergyconcessionsbudgetover20years.Morethanhalfofthesehouseholdsarerenters.

A cheaper, faster transition to 100% clean energyLikeeverywhereelseintheworld,Victoriafacesthechallengeofprovidingaffordable,secureandreliableenergyserviceswhiletransitioningto100percentrenewableenergyasrapidlyaspossibletoavoidcatastrophicclimatechange.

Cuttingwastebyimprovingefficiencyisoneofthequickestandmostcost-effectivewaystoreduceemissions.Efficiencyimprovementsrepresentabouthalfofallcost-effectiveemissionsreductionopportunitiesintheAustralianeconomy.32Giventhehugepotentialforefficiencyimprovementsacrosstheresidentialrentalsector,whichcomprisesmorethan600,000homes,efficiencystandardscouldmakea

A basic suite of efficiency measures could save rental households around $850 a year on their energy and water bills.

30G.Barnettetal.,2013,Pathways to Climate Adapted and Healthy Low Income Housing,CSIROandNationalClimateChangeandAdaptationResearchFacility

31A.Grimeset al.,2011,Cost Benefit Analysis of the Warm Up New Zealand: Heat Smart Programme, preparedfortheNewZealandMinistryofEconomicDevelopment

32ClimateWorks,2014,PathwaystoDeepDecarbonisationin2050

Efficiencyreducesourrelianceondirtycoal-firedelectricityandhelpsmaintainreliablesupplywhenpowerstationslikeHazelwoodclose.Imagecredit:DougGimsey


CHAPTER 05Benefits for Victoria’s renters, economy and environment

significantcontributiontoachievingtheVictoriangovernment’semissionreductionobjectives.

Improvingefficiencyintheresidentialsectorcanalsoreducepeakdemandattimesofhighenergyusesuchasheatwaves.Cuttingpeakdemandhelpsdelayoravoidcostlyinvestmentin‘polesandwires’infrastructure,whichhasbeenakeydriverofrisingpricesoverthelastdecade.Loweringpeakdemandalsoreducesourrelianceonadditionalelectricitysupplyfromgas-firedpowerstations–anincreasinglyexpensiveoptiongivenrecentgaspriceincreases.

Saving water for our riversWhileVictorianssignificantlychangedtheirwaterusehabitsduringthesevere1997-2009drought,wateruseisagainontherise.Melbourne’sresidentialsectorused272gigalitresin2016or166litresperpersonperday,upfromalowof147litres/person/dayin2010-11.33

Cutting waste by improving efficiency is one of the quickest and most cost-effective ways to reduce emissions.

Onaverage,halftheYarraRiver’sflowsareextractedforMelbourne,leavingtheriverinpoorhealth.

33https://www.melbournewater.com.au/waterdata/wateruse/Pages/default.aspx

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ThevastmajorityofMelbourne’swatercomesfromourrivers.Thisextractionisleavingmanyofourriverecosystemstryingtogetbyonhalfthewaterwhichwouldnaturallybethere.Atthesametime,climatechangeisrapidlyerodingourwatersupplies,withsomeofourriverslosing70percentoftheirflowsoverthelast20years.Thesepressureswillonlyworsenconditionsinourriversandwetlandsunlesswemaintainastrongfocusonreducingconsumptionthroughefficiency.

Wethereforeshouldnotmissthisopportunitytoalsoensuresensiblewater-savingmeasuressuchasdual-flushtoiletsandlow-flowshowerheadsareinstalledinallrentalhomes.


06Myths and facts about efficiency standards for rental homes

Aren’t most rental properties already in good condition?Rental properties are falling behind other building standards. Currentlawsgoverningrepairandmaintenanceonlyrequirelandlordstoreturnapropertytotheconditioninwhichitwasleased.Ifapropertydidnothaveinsulationorafixedheater,thereisnoobligationundercurrentlegislationtoprovideit.

Furthermore,thegenerallypoorefficiencyperformanceofVictoria’shousingstockmeansthatmanyhomesthatareingenerallygoodconditionareneverthelesslikelytobeinefficient.Rentalpropertiesareworsethanaverageintermsofefficiency,withmuchlowerratesofbasicmeasuressuchasinsulationinrentedversusowner-occupiedhomes.

Aren’t rental properties already required to meet building standards?Buildings in Victoria are subject only to the standards that applied at time of construction. Arentalhomewhichmetbuildingstandardsinplacewhenitwasconstructedisnotrequiredtomeetanyupgradedstandardswhichhavebeenintroducedsincethen.34 Asstandardsfornewbuildings,particularlyforefficiencyperformance,havebeenprogressivelyraisedsince1990,thelackofmatchingstandardsforrentalpropertiesiscreatingatwo-tierhousingsector.

34Buildingsaresubjecttoretrospectiverequirementsforsmokealarmsandpoolfencing,butnothingthatprescribesanobjectivestandardofqualityorliveability.

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Do voluntary incentives work? Unfortunately, voluntary market incentives often don’t encourage landlords to invest in efficiency upgrades because the benefits of lower bills and better living conditions mainly accrue to tenants. This is known as the ‘split incentive’ problem.

Weknowfromexperiencethatmostlandlordsdon’ttakeadvantageofvoluntaryefficiencyprograms,evenwhentheyaresubsidised.Ontheotherhand,tenantsareoftenreluctanttorequestefficiencyupgradesforfearofevictionorrentincreases,especiallyiftheyaredisadvantaged.

Isn’t renting normally temporary? Not any more. The latest Census data shows 1 in 3 households are now renters, up from around 1 in 4 in 1991.Ashousepriceshaverisen,puttinghomeownershipoutofreachforanincreasingnumberofVictorians,rentingisbecomingalong-termsituationformanyhouseholds.Theproportionofhouseholdsrentingforlongerthan10yearshasdoubledsincethe1990s.

Thefaceofrentalhouseholdsisalsochanging.Whereasoncesinglesandyoungpeopledominatedtheprivaterentalmarket,since2011familieswithyoungchildrenhaverepresentedthelargestgroupofrentersinVictoria.35

35AustralianBureauofStatistics2017,2016Census:Victoria,http://www.censusdata.abs.gov.au/census_services/getproduct/census/2016/quickstat/2?opendocument;W.Stoneetal.,2013,Long-termPrivateRentalinaChangingAustralianPrivateRentalSector,AHURIFinalReportNo.209


CHAPTER 06Myths and facts about efficiency standards for rental homes

Can’t tenants just avoid poor quality houses?Tenants don’t always have this choice. In a highly competitive rental market such as Melbourne, many tenants have little market power to choose between properties in their price range.

Thislong-standingsituationaffectingvulnerabletenantsisgettingworseasanincreasingnumberofmiddle-incometenants,whoagenerationagowouldhavemovedintohomeownership,arenowstayingintheprivaterentalmarket,pushinglower-incomehouseholdsintomoreandmoremarginalproperties.

Becausethesemarginalpropertiesarenotrequiredtomeetanybasicstandards,alreadyvulnerablepeoplearebeingexposedtoadditionalhealthandcostoflivingpressures.

What about rents and evictions? A staged, well-managed implementation will give landlords time to adjust, and the legislation can include protections against rent increases.

Introducingstandardsatalowandachievablelevelandflaggingcompliancedateswellinadvancewouldallowlandlordstospreadinvestmentoverseveralyears.Thisshouldminimisepressureonrentincreases,whilerequiringcomplianceatthestartofanewleaseshouldprotectagainstevictions.However,additionalprotectionswillalsobeneededtoguardagainstanyunjustifiableincreasesthatdooccur.

ThereislittleevidencefromotherjurisdictionssuchastheUK,CanadaandNewZealandthattheintroductionofstandardshashadanysignificantimpactonhousingsupplyorrents.

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What could the cost be for landlords?Sustainability Victoria research indicates that a package of basic efficiency measures could cost around $5500. Thisisnotanonerousobligationforpropertyinvestorsearningupwardsof$20,000everyyearinrentalincomeor$100,000overthe5-yearimplementationperiod.Compliancecostsarelikelytobelowerforlandlordswhoalreadykeeptheirpropertiesingoodrepair.Furthermore,mostpropertyinvestorsareinthetoptwoincomequintiles,whilemorethanhalfareinthetopwealthquintile.36

Itisnotunreasonabletoaskpropertyownerstoruntheirbusinessinamannerthatavoidsendangeringotherpeople’ssafetyandwell-being,inthesamewaythatrestaurantoperators,transportprovidersandawealthofotherbusinessesfaceobligationsrelatingtopublicsafety.

What could tenants save on their bills?Abasicsuiteofenergyandwaterefficiencycouldsaveahouseholdnearly$850ayearontheirenergyandwaterbills.Recentelectricityandgaspriceincreasesmeanthatsavingsforsomehouseholdsmaynowbeevenhigher.Ontheotherhand,householdsthatarerationingtheirenergyuseorcuttingexpenditureinotherareastocoverhighenergybillsmayseelowerbillsavingsbutarelikelytoreceivehealthbenefitsfromimprovingtheefficiencyoftheirhomes.

36R.Wilkins,2016,TheHousehold,IncomeandLabourDynamicsinAustraliaSurvey:SelectedFindingsfromWaves1to14–The11thAnnualStatisticalReportoftheHILDASurvey,MelbourneInstituteofAppliedEconomicandSocialResearch

Level2,60LeicesterSt,CarltonVictoria3053 | (03)93418100 | [email protected] | www.environmentvictoria.org.au

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