How does the 7 Star Energy Efficiency requirement affect smaller developers?

The launch of stricter energy efficiency requirements for buildings in Australia promises to improve the quality of residential properties and reduce their contribution to global climate change.

The 2022 edition of Australia’s National Construction Code (NCC 2022) raises the minimum standard for the thermal comfort of newly built houses from 6 to 7 stars out of 10 as assessed under the NatHERS rating.

The new standards are scheduled to come into effect on 1 October 2023, in order to give the property sector adequate time to adjust to the stricter energy efficiency requirements.

The changes are expected to have a positive impact both on the environment as well as the bottom line of Australian households.

The increased energy efficiency of 7-star rated homes can reduce power consumption and related green-house gas emissions, helping Australia to transition to a low-carbon economy.

This makes them less expensive to heat or cool, potentially saving Australian households hundreds of dollars per annum in utilities costs.

On the flipside, NCC 2022 changes mean all developers, including smaller-scale businesses, will need to adopt measures to ensure new projects satisfy the stricter efficiency requirements.

Daniel He, CrowdProperty property director, says the changes will affect small-scale developers across a range of areas.

Chief amongst them are higher upfront costs for projects, including the need to seek specialised expertise on efficiency.

“Small-scale developers will need to invest more in building materials, technology, and construction techniques to meet the higher energy efficiency requirements, such as solar photovoltaic systems and battery storage,” Daniel said.

“This could lead to increased upfront costs.

“The 7-star energy efficiency standard will also require more specialised skills in areas such as energy-efficient design, materials, and building techniques.

“Small-scale developers will need to engage those who not only comply with these standards, but build these into a competitive advantage, in order to thrive in the market.”

The market may also take time to reflect the positive impacts of the stricter efficiency standards on residential properties, which could affect the bottomline of developers.

“During a period of changeover to the new standard, new properties could simultaneously be competing with those under the old standard, and this means that the additional costs of compliance may not be adequately recouped,” Daniel said.

He also expects small-scale developers to face longer wait times for approvals, as members of the property sector as a whole adjust to the demands of the new requirements.

“As developers, consultants, and certifiers (both council and private) adapt to the new standards, there could be a period of ‘learning’ for everyone, which could increase timelines for approval.”

However, Daniel He does not foresee the changes having an adverse impact on the ability of smaller developers to access financing for their projects.

“Because this will be a new standard and applied across the board as part of the planning and approval process, we expect there to be no changes in financing conditions.

“There should already be energy rating or sustainability requirements in most states and territories, this is simply raising the bar. It does require developers to think about the problem differently — no longer an incremental improvement, but wholesale changes that come into effect. Developers need to adapt accordingly.”

Overall, while the changes could raise development costs and create short-term disruptions, Daniel expects them to have a positive impact on the Australian property sector.

“By proactively adjusting to the new energy efficiency standards, it’s possible for small-scale developers to not just comply with the new regulations, but to also capitalise on the growing demand for sustainable and energy-efficient properties,” Daniel said.

“This will ultimately help them stay competitive in a market that’s increasingly environmentally conscious.”

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