Green shoots in the residential space

19 Sep 2017

Could the emerging build-to-rent asset class accelerate the uptake of Green Star homes? The GBCA’s new Chair, Rod Fehring ponders the possibilities.

Every year, we add an extra 220,000 homes to our building stock. Few of these homes meet the levels of sustainability routinely delivered in the commercial sector – making “mainstreaming” sustainability one of the Green Building Council of Australia’s greatest challenges, Rod says.

Chief Executive Officer of Frasers Property Australia, one of the nation’s largest diversified property groups, Rod took over the reins of the GBCA board from Tanya Cox in June.

He’s set several priorities, deepening the GBCA’s influence in key sectors and achieving better alignment between rating systems among them. But perhaps his most ambitious and strategic priority is to drive the sustainability agenda in the residential space.

“Australia’s residential market is highly fragmented. There are more than 42,000 builders and most of them build less than 10 houses a year,” he says.

In such a fragmented space, where do you start? Rod says some efforts, like those led by the Housing Industry Association, have been laudable.

“But the regulatory differences between states present a huge challenge. We are still a bunch of colonies in that respect. We don’t have a uniform approach to benchmarking residential building performance and compliance, for example.

“We have a disparate array of measures and metrics that are too confusing and too complicated – and it just dilutes the message with consumers who really just want to understand the benefits they get from buying better performing homes.”

There have been “gimmicks” to entice home hunters, like one off carbon zero homes, but these “don’t get mainstream acceptance because they are generally more expensive and the benefits aren’t well understood”.

Residential buildings currently account for half the built environment’s emissions. The average lifespan of a residential building in Australia is 47 years, compared with 28 years for commercial buildings. The homes we build today will still be around well after the 2050 deadline for a zero carbon economy.

Build-to-rent could be a solution to enhance the performance of new residential stock, help GBCA gain a foothold in new markets, and address Australia’s housing affordability crisis.

Build-to-rent is driven by a broad investor base which fund and hold apartments, offering them to the market with longer-term leases. More than one million build-to-rent homes have been constructed in the United States in the last three years alone.

Australia has some of the least affordable housing markets in the world, and home ownership has dipped to its lowest level since the aftermath of World War II. Property leaders, such as Mirvac’s Susan Lloyd-Hurwitz and Lendlease’s Kylie Rampa, have been vocal about build-to-rent’s potential to address shortcomings in the tenant experience in Australia.

Rod agrees that build-to-rent may provide people with more affordable, secure housing. He also thinks it is one of the few emerging opportunities to “up the ante in terms of building performance”.

“Build-to-rent is a more institutional, less fragmented opportunity than apartment developments sold into the general market, because you’ve got one owner, whereas an apartment complex with 200 apartments may have 200 owners as well as a body corporate – all of whom may have an opinion about the operation of the building,” Rod says.

Owners of build-to-rent assets will naturally place more value on ongoing lifecycle performance, he adds, such as minimising energy and water consumption and maximising indoor environment quality features such as acoustic performance.

In the future, institutional investors may look for certification before parting with their cash for apartments in much the same way they do today in the commercial sector.

Other residential sectors, such as student housing and retirement living, with similar characteristics of ownership, are also a potentially fertile ground.

“We need to look at sectors with an interest in the ongoing lifecycle performance of buildings, rather than as one-off transactions,” he says.

The GBCA is currently looking for partners to support initial work, which includes building a business case and early engagement with volume builders. It will also look at the best mechanisms for the sector to measure and benchmark performance in a transparent, credible and affordable way.

But for now, Rod says there is “enormous amount of goodwill towards the Green Building Council of Australia, and a surprisingly strong desire within industry for its membership to be leveraged to enhance the performance of the built environment”.

“I think the engagement that the GBCA has been able to achieve at all levels of government, particularly at the federal level, creates an opportunity to do something really important. But the space we are in is enormous, which means we must be strategic.”

We also need to be able to act quickly to benefit from the market conditions that are driving the focus on build-to-rent, Rod adds.

“High housing costs, low risk-free rates of return and ample capital looking for secure yields form real property assets are conducive, and as the industry responds to the need for secure affordable housing solutions the tools that can benchmark medium and long term performance of the sector need to be ready and in place.”

If you are interested in discussing homes and residential projects, please contact GBCA Head of Market Transformation, Jorge Chapa.

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