Energy efficiency: The growing gap between old and new investment properties

Written by David Lovato – CPC Lending Solutions

December 2024

The Australian housing market has seen a growing divergence in the value of new builds compared to older homes. This trend has been influenced by factors like energy efficiency, maintenance costs and changing buyer preferences.

Energy efficiency and minimum standards

Under the Nationwide House Energy Rating Scheme (NatHERS), the National Construction Code (NCC) introduced a minimum 6-star rating (out of 10) for new builds from 2010 and adjusted the mandate recently to a minimum of seven stars. 

These standards ensure that newly built homes automatically include superior insulation, efficient heating and cooling systems, and measures to reduce dampness and mould and improve overall comfort.

In its December 2024 report “Amped up: How energy resilient are Australian homes?”, CoreLogic noted that a typical home built in 2010 or later achieves a median star rating of 5.9 out of 10, compared to just 2.8 stars for homes built earlier.

This disparity places older homes at a disadvantage, particularly for environmentally conscious buyers or renters.

Growing buyer and investor demand for energy efficiency

Savvy buyers, both owner-occupiers and investors, are increasingly willing to pay a “green premium” for homes with higher energy efficiency. A Domain report from May 2024 found that energy-efficient houses sold for 14.5% more, while efficient units fetched an 11.7% premium. In some areas, price differences were as high as 28%.

This willingness to pay more reflects a combination of long-term savings on running costs and the improved comfort offered by new builds.

Lender requirements

Lenders are increasingly factoring energy efficiency into their decisions, with many becoming reluctant to approve loans or provide coverage for homes with poor energy ratings.

Real Estate Institute of Australia director Jacob Caine told the Australian Financial Review, “We will see in the not-too-distant future almost mandatory requirements in lending from financial institutions for those properties that don’t meet minimum standards.”

He added that lenders may start adding clauses to contracts on home loans for older homes that agree to provide the finance only if upgrades are undertaken.

We are already seeing this trend, with the introduction of a federal government-led Clean Energy Finance Corporation fund which provides cheaper loans to homeowners wanting to make their homes more energy efficient. This mortgage option is currently available through Westpac and Bank Australia.

Government rebates and incentives

State governments are prioritising programs to upgrade existing housing stock. Financial incentives, such as rebates and grants, aim to help homeowners retrofit properties to meet modern efficiency standards. 

For example, the ACT’s Home Energy Support program provides up to $5,000 in rebates to help with the cost of installing energy-efficient products. New South Wales offers the Energy Savings Scheme providing financial incentives to install energy-efficient equipment and appliances. Victoria’s Energy Upgrades offers discounts on energy-efficient products when replacing old, outdated appliances. 

But, even with these programs, the cost of replacing or upgrading existing appliances or energy systems can add up, putting further upward pressure on existing home prices in comparison to new homes that come already fitted with energy-efficient systems. 

Other incentives

For apartment developers, incentives are already in place through embedded energy networks. Providers like Energy Australia offer “free infrastructure” (such as hot water plants and equipment) to developers in exchange for residents sourcing their electricity through the embedded network. This lowers construction costs while making new apartments more appealing to buyers.

Running costs 

To meet NatHERS requirements, new homes are often equipped with energy-efficient features including solar panels, water tanks and double-glazed windows. These help reduce running costs.

Domain’s May report found that:

• Roof and ceiling insulation can save up to 45% on heating and cooling
• Wall insulation can save around 15% on heating and cooling
• Sealing gaps around windows and doors can save 5-15% on heating and cooling

In contrast, older homes often require costly upgrades to achieve similar savings, such as installing insulation, replacing appliances or retrofitting windows. Without these improvements, owners of older homes may face higher utility costs that can deter buyers or renters.

Cooking and appliances also contribute significantly to a home’s running costs. As the image below shows, an average NSW household uses 40% of its energy on cooking and appliances.

New homes are typically fitted with energy-efficient appliances that meet current performance standards, such as induction cooktops, LED lighting and high-rated refrigerators and washing machines. These energy-efficient appliances consume far less power than their outdated counterparts in older homes, saving the homeowner or tenant on their running costs. 

Future-proofing your investment

For investors, energy efficiency plays an important role in both capital appreciation and rental demand.

First, tenants are increasingly prioritising energy efficiency, with 72% of renters surveyed by PropTrack saying energy ratings help reduce their utility bills.

Second, in some locations like Victoria, landlords must already meet minimum energy standards for rental homes, and more regulations are under consultation. Retrofitting older homes to comply with these standards could be costly, further widening the price gap between new and existing homes.

Lenders’ interest rate discounts for energy-efficient homes and government incentives to upgrade older stock are clear signals that efficiency will play a central role in the market moving forward. For investors, newly built homes that meet NatHERS standards offer an opportunity to attract renters, save on running costs, and avoid costly retrofits.

CPC Lending Solutions is a property development and residential finance specialist. Whether you’re a developer needing funding for land, construction, or residual stock, or a buyer looking for the perfect mortgage, we’re here to help. Contact us at [email protected] or fill in this form.