PFA Vice President and member of the Sustainability Committee, Adam Murchie, said while there is a significant opportunity for property to play a part in reducing emissions, the Government needs to ensure the scheme does not favour replacement of buildings over upgrades. 

“Commercial and residential buildings contribute over one fifth of emissions in Australia. Given the inputs into property (steel, cement, aluminium, glass, gas, electricity, etc), building owners and occupiers are likely to experience cost increases should a carbon tax be introduced,” he said.

“As a carbon price will place a greater focus on energy usage and the total cost of occupancy, it could inadvertently accelerate building obsolescence where owners are unable to fund upgrades so that their buildings remain competitive.  It is likely that anything other than premium grade real estate will need support to remain competitive.”

Mr Murchie said the PFA firmly believes that a Carbon Incentivisation Scheme for real estate is required to ensure the continued feasibility of existing stock and to avoid having a major gulf between old and new stock across Australia.  

“The carbon scheme, although environmentally sound, is a very real threat to the competitiveness of existing real estate and theiroccupants if the cost of upgrading buildings is left unaddressed.  In particular, it is imperative to address the existing stock as retrofitting existing buildings, given their embodied energy and existing use of resources, is far more sustainable thanbuilding new premises.  If this is not addressed, the negative impact, particularly for secondary grade buildings that make up the majority of the stock, could certainly be a burden on the industry in five years time.  This will affect both property investment as well as business competitiveness and will hurt the smaller investors more than the larger institutional players.”

Mr Murchie added that a transition process needs to be developed now in partnership with the Government.  “The property industry is already a leader in sustainability, but it will need support to react appropriately to the changing economic environment that the Carbon Scheme, as proposed, may bring.  Without support, a potential outcome of the changes could be significantly higher rents for non-residential premises to offset the cost of building upgrades or the rise in outgoings.  With business profitability already at low levels, an added impost could send many businesses to the wall.”

“It’s the occupants of those buildings requiring upgrades who will be forced into higher rents to offset the cost of the carbon price.   This will reduce the competiveness of many businesses.  Alternatively, the outcome could be accelerated obsolescence for existing building stock, which may force values down and in turn, restrict capital investment across the sector.  I’m sure that it’s not the intention of the government to reduce the attractiveness of real estate investment, given its importance to the Australian economy.   A partnership on this issue could in fact achieve quite the opposite, especially as some of the greatest gains, at the lowestcost, are possible from the property sector.”          

Mr Murchie said technology has already been developed that can significantly reduce emissions.  If the government provides support programs that promote the upgrade to low emission technology, this would not only stimulate economic activity, but potentially lead to Australia having the greenest building stock in the world, in addition to a relatively easy and cost-effective way to reduce carbon emissions.” 

“The $10bn Clean Energy fund will support the deployment and commercialisation of renewable energy, low emissions intensity and energy efficient technologies.  Given the potential property has to reduce emissions, the PFA believes that a fair share of these incentives should be directed to property, particularly given the long term life cycle of real estate.”

In addition, the PFA believes the government needs to implement more direct action for property under programs like the Green Building Fund, and deliver on tax incentives under the green tax breaks program. This will help reduce emissions faster and bring other benefits such as increased employment and the development of exportable skills and technologies.

To this end, the PFA has been working for over three years to prepare its members for the inherent changes in the property and investment sector which will be bought about byclimate change.  A dedicated Sustainability Committee has been addressing the risks and rewards of the impact of climate change on property and has been arming its members with tools so they can take meaningful steps to transition. 

“This is about knowledge” says Murchie, “and armed with the right information we hope our members can make the right decisions. Like the Target 155 program or the Green Star ratings tool, whenarmed with relevant information and a benchmark to aspire to, the market typically tends to change its behaviour for the better.”

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