Affordability

Key points

  • The process of buying, renovating or building a home provides opportunities to improve affordability.
  • It is important to recognise that affordability is not just about the upfront cost of the home, but how much it will cost to run and maintain over the long term.
  • Investment in sustainable design and features (for example, good orientation, insulated glazing units, high levels of insulation, renewable energy generation) will save money in the medium to long term, because of lower energy costs and reduced need for renovation.
  • Sustainable design is becoming a sought-after housing feature, and will increase the market value of your home.
  • Investment in energy efficiency can provide annual savings, and is particularly cost effective when future increases in energy prices are taken into account.
  • You can save money by looking for design features that deliver multiple benefits, finding ways to reduce living costs, safeguard health and plan for future changes.

Costs and savings of sustainability features

Housing is a major part of living costs for Australians. Many of the factors influencing the costs of a home are outside the control of individual households (for example, land costs). But many decisions made when buying, renovating, building and maintaining a home can affect affordability over its lifespan. For example:

  • home size can have a major impact on construction and operating costs
  • the way the building envelope (walls, roof and floor) is designed and constructed influences energy costs, maintenance costs and comfort
  • choice of appliances, fixtures and technologies will affect operating costs, particularly in the context of rising energy and water costs
  • choice of home location can influence car dependency and fuel costs

Note

Well-designed, climate-appropriate sustainability features and improvements make a home more affordable and comfortable over its life span. Lower ongoing costs may also offer ‘insurance’ against future rises in energy, water or other costs, or against fluctuations in household income.

Upfront versus ongoing costs

The cost of housing has 2 considerations: the upfront cost of buying, renovating or building; and ongoing running and maintenance costs. When buying, renovating or building, think about affordability both now and in the long term.

Some of the advanced materials, construction methods and technologies associated with sustainability can increase upfront costs (for example, advanced glazing, solar photovoltaic (PV) systems, battery storage), but nearly always deliver a better financial outcome in the medium to longer term. Builders or tradespeople unfamiliar with using these more sustainable options sometimes charge a premium for their use, so it is a good idea to choose from the growing pool of builders and tradespeople with experience and optional accredited training in sustainable house construction.

Sustainability features can also decrease your upfront costs through:

  • smaller, smarter floor plans reducing construction and purchase prices of materials and appliances
  • smaller, simpler heating and cooling systems
  • decreased hot water system size
  • effective lighting design requiring fewer light fittings.

Most importantly, sustainability features can decrease your ongoing costs through:

  • lower energy, fuel and water bills
  • lower maintenance costs for durable, sustainable materials and finishes
  • improved indoor air quality and comfort, reducing health costs and sick days
  • a design that accommodates all life stages and reduces the need for renovations.

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All homes are different. Consider the upfront cost of buying, renovating or building, and the ongoing running and maintenance costs of your home

Photo: Getty Images

Affordability assessment

In determining whether a home or any related product is affordable, there are several ways to assess the combination of upfront and ongoing costs. The most common of these are explained in this chapter.

You should also look at other economic considerations, such as the higher market value of energy-efficient homes and the potential cost of later renovations.

Payback period

A common way of evaluating the value of investment in sustainability features is the ‘payback period’. This simple calculation involves dividing the upfront cost by the expected annual savings, to show how many years of savings would be needed to ‘recover’ the initial cost:

Payback (years)=initial cost/annual savings

This is a very simple way to estimate the investment value, particularly for smaller investments such as appliances. However, it can lead to rejection of beneficial actions if the payback period is long. In these cases, lifecycle costing may be more useful.

Lifecycle costing

Lifecycle costing (or LCC) is a method for considering total costs over the life of a building, including construction, operation and maintenance, and end of life:

Lifecycle cost= initial cost + discounted cost (for operation, maintenance and end of life)

A cost, C, that occurs n years in the future and with a discount rate, d, is discounted to a present value using the following formula:

Discounted cost= C/(1 + d)n

Calculators

Some energy utilities provide home energy calculators or energy audit tools to help you find out where you are using the most energy and where your greatest opportunities to make savings are, which will add to the long-term affordability of your home. The NABERS Home Rating Calculator allows you to compare your home’s energy and water use with that of an existing household, and includes a diagnostic tool to indicate where savings might be made.

You can also ask the supplier of a product or technology you are considering to provide you with the information you need to make your assessment, including upfront costs, estimated operational cost savings, expected maintenance requirements, costs of replacement parts, and guaranteed lifespan of the product. Ensure the assumptions used to estimate operational savings are clear so you can compare them to your own situation.

The Australian Government Energy Rating website provides a calculator you can use to compare the energy consumption and running costs of different appliances.

Net cashflow

This method factors in the costs and savings of borrowing to fund sustainability features, a useful method if you are borrowing for sustainability improvements as part of your mortgage:

Net cashflow = annual savings – annual interest repayment on initial cost

For example, when borrowing $10,000 at 5% interest for sustainability improvements that save $1,000 each year, the net cashflow is $500. This is calculated by deducting the annual interest repayment on the improvements ($500) from the annual savings. Over time, as the loan is repaid and the interest cost reduces, the net cashflow improves.

Rate of return on investment

This method calculates the rate of return on the investment. It can be a simple calculation as follows:

Rate of return = annual savings / initial cost

More sophisticated approaches can factor in the lifespan of the equipment.

Using the same example as above, the simplified rate of return is 10%. This compares favourably to investing money in the bank and is less risky than investing in the sharemarket.

Other costing approaches

There are also more sophisticated costing approaches that can be used –such as net present value – which applies a discount to account for the timing of cashflows, or enhanced asset value which factors in the likely increase to the market value of your home.

Impact on market value

Sustainability features are likely to improve the market value of your home. Concerns about energy prices and climate change are increasing the demand for sustainability features and the market value of sustainable homes. Rating schemes and incentive programs are also having an impact. For example, in the Australian Capital Territory where disclosure of a home’s energy star rating is mandatory when it is sold, higher star ratings have been shown to increase resale value (DEWHA 2008).

Real estate agents are beginning to recognise sustainable features and use them to market homes. The Centre for Liveability Real Estate is training real estate agents to recognise 17 key ‘liveability’ features that add value to a home. These are all sustainable features that make a home comfortable, healthy and cost effective to live in.

Broader economic considerations

In assessing affordability, remember that there are broader economic considerations to your calculations.

Keeping sustainability considerations in mind will help you to achieve a home that is comfortable and affordable to run. If you are building or renovating, now is the most cost-effective opportunity to integrate sustainability features and reap the affordability benefits. Choosing not to include sustainability features may cost you money later on, if you decide to make changes. Many features can be easily implemented (or prepared for) in a new home or major renovation, that will be difficult and expensive to retrofit.

Sustainable housing can have other affordability benefits. With its focus on healthy interiors and thermal comfort, sustainable housing can reduce the likelihood of health problems and the associated expenses. Choosing a walkable neighbourhood that is well serviced by public transport also delivers health benefits, as well as reduced dependency on fuel.

Also consider how you might ‘future proof’ your home to be resilient to future changes and uncertainties. This might include changes in your household (for example, your changing needs as you get older) or the impacts of climate change. Ensuring that your home minimises its energy and water demand, generates its own renewable energy and makes use of alternative water sources (for example, rainwater) is a good strategy for dealing with possible increases in energy and water costs.

Practical ways to save money

Look at the big picture

When planning a new home or renovation, the order in which you implement sustainability features can have an impact on cost effectiveness. The key is first, to find ways to reduce energy demand. For example, correct shading of windows can dramatically reduce unwanted heat gain in summer. The significantly reduced demand for cooling means you can have a smaller air-conditioning system, or perhaps completely avoid the need for one.

Lock in ‘free’ benefits

Though some advanced sustainability measures can add to upfront cost, other high-impact sustainability measures often do not add cost. These include:

  • a floor plan with the right orientation and layout for your climate.
  • design of a simple building shape, which reduces thermal bridges and is easier to seal.
  • correct placement of glazing to suit your climate.
  • house design that uses space efficiently to accommodate all your needs – the smaller a home, the less it is likely to cost to construct, heat, cool, light, clean and maintain. Look for ways to reduce living costs.
  • Include effective passive design features suited to your climate, to reduce energy costs.
  • Select appropriately sized, high-efficiency, durable appliances.
  • Include a rooftop solar PV system.
  • Capture rainwater for use in the house and garden, to reduce mains water use.
  • Include space for productive gardens, including ‘vertical gardens’ or movable modular gardens where space is limited.

Plan for future changes

  • Design for adaptability and flexible use of spaces.
  • Design to allow for ongoing changes to the climate such as hotter weather, less rainfall, increased frequency of storms, increased bushfire risk, and higher flood risk.
  • Make provisions for future installation of features that might be expensive now but cheaper in the future, for example, by:
    • providing wiring or conduits
    • leaving suitable accessible space for rooftop solar and energy storage
    • providing anchor points for future shading

Save on construction costs

  • Build only the spaces you need now while preparing for future needs:
    • Number of bedrooms: In 2020, a bedroom costs $900–$1,500 per square metre. Eliminating a 12m2 bedroom can save enough to pay for a solar hot water service, photovoltaic panels and higher thermal performance, which all reduce energy bills and help pay off your mortgage.
    • Number of bathrooms: How much budget can you redirect with fewer bathrooms instead of a $10,000 ensuite?
  • Use smart design to reduce the quantities and costs of materials and labour.
  • Use contractors who are experienced in working with sustainable products. This is likely to reduce labour costs and avoid potentially costly mistakes.
  • Look for government subsidies and incentives such as rebates.
  • Reduce labour costs by doing the simple tasks that do not require a professional

Use low-cost finance

  • Look for banks that offer lower interest rates or other benefits for homes and renovations that achieve sustainable outcomes. These are often referred to as ‘green’ home loans.
  • Extend a mortgage instead of opting for a short-term higher interest loan.

Affordable multi-housing development

A new way to make housing more affordable is gaining traction in Australia, led by residents who want to live together in multi-housing developments. Known as ‘collaborative housing’ or ‘building groups’, it is an alternative to conventional apartment housing. Apartments in these projects can cost 20–30% less than a similar apartment in the same area.

Note

Collaborative housing projects enable resident participation in the design, delivery and management of the project. They encourage sharing and community building, while providing every household with privacy, security and financial autonomy.

Projects come in different sizes, from a few homes sharing a small block to larger multi-unit developments, with options to suit owner occupiers and renters.

Collaborative housing delivers affordability benefits by:

  • avoiding some of the costs associated with speculative development, such as developer margins and sales and marketing costs
  • paying GST and stamp duty on land costs only, rather than the finished product (this will depend on the legal and financial model chosen)
  • sharing certain spaces and facilities, allowing the private dwellings to become more compact and saving on development costs
  • sharing resources like cars and household goods. In practice this often extends to sharing of skills and services, like babysitting or care for the elderly.

It is common for collaborative housing projects to adopt sustainable design principles.

Collaborative housing is well established in northern Europe and parts of the United States. Though relatively new to Australia, it is gathering momentum.

Case study: White Gum Valley

White Gum Valley is a medium-density residential development by Landcorp located in Freemantle, Western Australia. Covering 2 hectares, it has adopted the One Planet Living Framework to guide sustainable development. The site includes a range of housing options including apartments, maisonettes and single homes. It features water- and energy-saving initiatives that will reduce residents’ bills by up to $1200 every year. All residential lots must achieve high minimum standards (including a 7-star Nationwide House Energy Rating Scheme (NatHERS) rating, solar hot water or heat pump technology and a 1.5kw solar PV system). Residents can also pay an additional $10,000 for sustainability upgrades that will make their net annual energy use zero.

White Gum Valley is also home to the ‘Baugruppe at WGV’ project that is piloting the ‘building groups’ model. Baugruppe at WGV accommodates 17 homes of various sizes that share a common room, guest suite, community gardens and rooftop terrace. Residents will buy the land as a group and develop their own individual strata-titled homes. To service the development loan, each household will contribute 30% of the total cost of their new home, including land cost. The land owner, Landcorp, is selling the land at market rates but offering a deferred settlement. This reduces risks for households and means they do not have to commit equity until construction is ready to commence. On completion, the homes will be strata titled and transferred to each household with their own mortgage. The group will only pay GST and stamp duty on land purchase, not the full value of their homes.

For more information, explore the case studies.

A pair of energy efficient, modern apartments are located close to the southern boundary of the block to maximise northern exposure and natural light.

Photo: ©Monique Manolini, Crib Creative

Concrete floors on the ground level provide thermal mass for stable indoor air temperatures

Two strata-titled apartments that use passive solar design principles, solar and water technologies, and smart home systems were commissioned by friends in White Gum Valley, Western Australia

Photo: ©Monique Manolini, Crib Creative

Evidence for affordability of sustainability measures

Various studies have identified the cost-effectiveness of sustainability measures, especially those relating to energy:

  • A 2019 study by the Australian Council of Social Services and the Brotherhood of St Laurence found that investment in energy efficiency improvements to rental properties and installing rooftop solar PV could provide annual savings of $289 for apartments and $1,139 for houses. A $5,000 investment in energy efficiency for houses and $2,000 for apartments reduced energy expenditure as a percentage share of income from 6.4% to 4.1% for lowest-income households.
  • A study of 60 homes by Sustainability Victoria in 2015 (and updated in 2019) found that building shell upgrades could give average yearly savings of $430 per year in energy bills, 22,600 MJ/yr of energy and 1.4 tonnes of greenhouse gas emissions.

    Sample of data from modelled upgrade measures on 60 existing Victorian houses

    Upgrade measure

    Total average energy saving (MJ/year)

    Av greenhouse gas saving (kg/year)

    Average saving ($/year)

    Average saving ($/year) Average cost ($)

    Average payback period (years)

    Gas Sample

    Low-flow showerhead

    1333

    69

    96

    65.30

    48.80

    .7

    Ceiling insulation (easy)

    958

    32

    63

    24.90

    79

    3.2

    Efficient lighting

    0

    1202

    391

    110.60

    363

    3.3

    Ceiling insulation (difficult)

    1630

    68

    112

    43.60

    278

    6.4

    Efficient heating

    6239

    215

    414

    162.70

    1111

    6.8

    Draught sealing 5779

    5779

    164

    372

    147.40

    1020

    6.9

    Efficient washing machine

    135

    16

    13

    26.00

    191

    7.4

    Efficient water heater

    460

    1004

    352

    62.20

    477

    7.7

    Efficient fridge

    0

    1202

    391

    110.60

    1104

    10

    Seal wall cavity

    903

    24

    58

    22.90

    270

    11.8

    Ceiling insulation (top-up)

    853

    22

    54

    21.50

    335

    15.6

    Underfloor insulation

    1803

    10

    103

    42.20

    785

    18.6

    Wall insulation

    5283

    130

    334

    132.90

    3959

    29.8

    Efficient cooling

    0

    160

    52

    14.70

    465

    31.5

    Drapes and pelmets

    2209

    54

    140

    55.60

    2036

    36.6

    Efficient clothes dryer

    0

    124

    40

    11.40

    728

    64

    Double glazing

    2278

    66

    147

    58.20

    12145

    209

    Total including double glazing

    29,369

    5,575

    3,434

    1,192

    25,594

    21.5

    Source: Adapted from Sustainability Victoria 2019. Note: Payback periods and costs can vary considerably across products, location and individual needs. Refer to the study for more information on what was analysed and how it compares to your options. Many people consider energy efficiency upgrades for reasons in addition to cost; including comfort, resale value, replacing an old or malfunctioning appliance and aesthetics.

  • In another study, the Australian Sustainable Built Environment Council (ASBEC) Building Code Energy Performance Trajectory Project found the most cost-effective energy efficiency opportunities for detached housing. Each of these measures reduces household energy bills by between $45 and $150 per year, with savings more than offsetting additional capital costs. Measures include:
    • reduced air leakage, increasing roof insulation, and using ceiling fans (climate zones 2 and 5) to reduce the need for air-conditioning.
  • A study by Moore et al. (2016) compared 9 Star NatHERS homes to world best-practice standards. The 9-star rated homes:
    • had a resale value up to $40,000 higher per unit compared with lower star rated homes
    • were $1,000 a year less expensive to run (including solar feed-in tariff)
    • purchased 45% less electricity than the control households (and 73% less than the standard industry practice)
    • had 40% less CO₂ environmental impact from power use (63% less than the industry standard)
    • were at a comfortable indoor temperature for 10% more of the time (even without air-conditioning)
    • used 22% less water (30% less than the industry standard).
  • An analysis by the Low Carbon Living Cooperative Research Centre (CRC) on mainstreaming net zero energy housing identified the financial costs and benefits of upgrading typical display home designs in Melbourne, Townsville, Canberra and Perth to net zero emissions standard. Doing this added 6–11% to construction costs, but was found to be cost effective over 25 years when factoring in electricity price increases. The study also found that solar PV and heat pump or evacuated tube hot water systems were the most cost-effective upgrades. Both of these upgrades delivered payback within 10 years at current energy prices.

References and additional reading

  • Allen Consulting Group (2013). Benefit-cost analysis of proposed BASIX stringency changes, report for the NSW Department of Planning and Infrastructure by Allen Consulting Group, Melbourne.
  • Australian Sustainable Built Environment Council (ASBEC) & ClimateWorks (2017). Building Code Energy Performance Trajectory project: issues paper, ASBEC, Sydney.
  • Australian Council of Social Service & Brotherhood of St Laurence (2019). Affordable, clean energy for people on low income, Australian Council of Social Service, Sydney.
  • Australian Government Department of Industry, Science, Energy
    and Resources, Rebates 
  • Byrne J, Eon C & Law A (2019). Mainstreaming net zero energy housing: cost analysis report, Low Carbon Living Cooperative Research Centre, Sydney. 
  • Choice (2017). Consumer Pulse: Australians’ attitudes to cost of living 2014–2017, Choice, Sydney.
  • Clean Energy Finance Corporation, CEFC invests in first green home loan [PDF].
  • Collaborative Housing
  • Council on Federal Financial Relations (2016). Affordable Housing Working Group: issues paper, Australian Government, Canberra.
  • Daly D, Kokogiannakis G, Zwagerman M, Burton C, Cooper P & Lagisz M (2019). What are the effects of residential building energy performance disclosure policies on property values? Rapid review of comparative evidence [PDF], Low Carbon Living Cooperative Research Centre, Sydney.
  • DEWHA (Australian Government Department of the Environment, Water, Heritage and the Arts) (2008). Energy efficiency rating and house price in the ACT: modelling the relationship of energy efficiency attributes to house price – the case of detached houses sold in the Australian Capital Territory in 2005 and 2006, DEWHA, Canberra. 
  • Green Building Council Australia. What is Green Star?  
  • Low Carbon Living CRC. Mainstreaming net zero energy housing: cost analysis report
  • Morrisey J & Horne R (2011). Life cycle cost implications of energy efficiency measures in new residential buildings. Energy & Buildings 43(4):915–924.
  • Moore T, Morrissey J & Horne R (2014). Cost efficient low-emission housing: implications for household cash-flows in Melbourne. International Journal of Sustainable Development 17(4):374–386.
  • Moore T, Strengers Y, Maller C, Ridley I & Horne R (2016). Horsham catalyst research and evaluation final report, report for the Department of Health and Human Services, Victorian State Government, RMIT University, Melbourne.
  • Nationwide House Energy Rating Scheme (NatHERS).  
  • NERA Economic Consulting & BMT Quantity Surveyors (2010). BASIX post-implementation cost-benefit analysis: an economic evaluation of the State Environmental Planning Policy Building Sustainability Index (BASIX), report for the NSW Department of Planning, NERA Economic Consulting, Sydney.
  • Office of the Commissioner for Sustainability and the Environment ACT (2010). Retrofitting buildings to reduce greenhouse gas emissions: factsheet, Australian Capital Territory Government, Canberra.
  • Senate Economics References Committee (2015). Out of reach? The Australian housing affordability challenge, Australian Government, Canberra.
  • Sustainability Victoria (2019). Comprehensive energy efficiency retrofits to existing Victorian houses [PDF], Sustainability Victoria, Melbourne.
  • Townsville Queensland Solar City (2013). Townsville Queensland Solar City final report 2006–2013, Townsville Queensland Solar City, Townsville.

Learn more

Authors

Original author: Chris Reardon 2013

Updated: Murray Hall, Fiona Berry, Alan Pears and Caitlin McGee 2020