Building carbon confusion

Over-estimates of the carbon price impact on housing by industry associations could see some builders at risk of prosecution by the ACCC for misleading consumers.

Ross Maher, Director of Build21c (build21c.com.au) and Rob Rouwette, Director of start2see (start2see.com.au), discuss the guide they have developed to keep builders on the right side of the new carbon laws. 

The limited information and scaremongering about the cost impacts of the carbon tax will apparently put more than 50 per cent of builders at risk of prosecution by the Australian Competition and Consumer Commission for misleading consumers about the carbon tax.

In the lead up to the climate legislation being passed, many estimates were made about the potential cost impact of the carbon tax on housing. These estimates were in the range of $5,000-$6,000 per house, however many of these groups have since revised their figures. The Housing Industry Association (HIA) estimates a 0.8-1.7 per cent increase, the Property Council of Australia is saying $2,771 - $3,667 increase for a 200 square metre case study (or 1.3-1.7 per cent) and Master Builders Australia believes the initial impact will be 0.8 per cent, after factoring in industry assistance.

Based on these revised figures, it would appear the results of the recent Citi Australian Residential Housing Survey are pointing to a problem that the industry associations didn’t even know they were creating for their members when attempting to protect them during the development of the carbon legislation.

The survey showed 51 per cent of builders intend to increase prices by up to 5 per cent because of the carbon tax and a further 27 per cent said they would increase their prices by up to 10 per cent. These numbers roughly translate to a $5,000 - $10,000 increase in the build price of a typical house. These align with the first set of estimates, but are significantly higher than the revised figures all these groups have since released.

While the actions of industry associations are to be expected, and realistically are not a problem in Australia’s political and democratic system, now that the carbon tax commences, the real problem is protecting the builders from unwittingly breaking the law.

Unfortunately the introduction of new legislation that impacts the building industry is only explained as cost increases; this obviously causes pain and grief for builders already struggling to deliver an affordable product at fair margins. Expanding the conversation beyond cost, using their language, is realistically the only way things will improve for the industry.

This is why we have produced The Carbon Tax for House Builders and Suppliers: Opportunities and Guidance. After a combined 25 years of experience watching this happen, in particular around environmental and energy efficiency issues, we wanted to clearly explain what the carbon tax is and how it will affect the builder.

The guide is authoritative, but written in simple language. We provide real carbon price rise estimates for common building materials, but go much further to outline many of the factors that are likely to impact how the carbon price is passed onto builders, and what they can do about it.

We believe there is a silver lining in this new tax for the industry to better connect with customers – individuals and families living in their homes – about creating a better quality of life. We acknowledge however, that this requires changes, takes time and that builders will have to do things differently. It will be difficult, but those builders that start now, will see the benefit with happier customers, and ultimately, reduced costs.

The case study used shows that the likely carbon price increase for building materials will actually be less than $1000 for a house of 200 square metres. This assumes that all materials are produced and sourced in Australia and that 100 per cent of all liable emissions are passed on through the supply chain. This is significantly lower than other estimates because our detailed methodology allowed us to very accurately consider the impact of industry assistance (free permits) available to many emissions intensive building materials manufacturers (see Figure 1). This and other differences are explained on the new website www.carbonpriceandhouses.com.au.

Figure 1. Taxed emissions do not equal total emissions

Understanding the issue of industry assistance and what can and can’t be said about price increases caused by the carbon tax is of critical importance to builders. Already we have heard from the ACCC saying they won’t accept builders or suppliers blaming the carbon tax for price rises they can’t justify. Speaking to The Age recently, Rod Sims, chairman of the ACCC, highlighted that price increases will not be as high as the early estimates because many materials such as steel, cement-clinker and aluminium receive free permits for 94.5 per cent of their industry average emissions.

We believe builders are at risk because the political debate has created a false sense of security for the construction industry: many builders believe they don’t need to learn about this new tax because it will be removed after the next election. The reality is that the tax will be paid from July 1, 2012 and it will be here for the foreseeable future.

While builders will not report or pay for emissions directly, the risk is that they don’t understand where exactly carbon occurs in the homes they build (see Figure 2) and therefore they can’t say the price rise they experience is the result of the carbon tax. Builders need to examine how their business is impacted, because the price rise incurred from July 1 will be for more than just carbon. This research provides a valuable first step for many builders in understanding how carbon pricing affects them, their suppliers and their customers.

 

Figure 2. Greenhouse gas emissions are emitted at every life cycle stage

The guide also highlights the other risk/opportunity for builders: product substitution to reduce upfront carbon costs could be the preferred strategy of builders, but if they are not careful, the substituted materials may result in a lower star rating and increase house operating costs. Doing this, they hurt their customers because they have to pay more money in the long run.

While building a house attracts a one-off carbon cost, homebuyers will continue to pay – potentially more than necessary – every quarter based on the decisions builders and architects make. By providing businesses with realistic facts, we aim to show the potential for win-win situations that can assist them in discussions with clients.

The report is available from www.carbonpriceandhouses.com.au.