Delivering sustainable housing for low-income renters

Australia’s rental housing does not meet basic energy performance standards required for health and wellbeing, which disproportionally affects lower-income households.

Almost one in five renters in Australia are not able to keep their home warm in winter or cool in summer [1]. There are a range of reasons for this, including poor housing condition and design, old or inefficient heating and cooling appliances, and high energy prices [2].

Households who cannot afford the energy required to meet basic living needs such as adequate warmth or cooling are considered to be in energy hardship. Energy hardship affects health directly (for example cold damp housing may cause respiratory illness) as well as indirectly (for example where people are forced to choose between warmth, and food or medication).

Our recently published research report set out to explore this problem and identify possible ways to improve the situation for low-income renters in Australia. This national report synthesises existing research on energy disadvantage in the rental sector and explores innovative policy options to tackle the problem.

The problem

Low-income tenants are amongst the most vulnerable households in Australia. These households often have a triple disadvantage: they have little spending money, they live in poor quality housing and they are often not allowed to change their home in ways that may make them more comfortable.

For many people, living on a low income means careful budgeting to make ends meet. Rental homes are less likely to have insulation, an efficient heater or solar panels compared to owner occupied homes.

This means that rental housing in Australia, and in particular low-income rental housing, fails to meet the minimum requirements identified as needed to improve performance of the dwelling and resultant health and wellbeing outcomes. This makes heating and cooling very expensive and often unaffordable.

Current laws also prevent renters from making significant changes to their homes that could help reduce their energy use and bills and improve health outcomes — even if they had the funds to pay for these improvements themselves.

Renters face several challenges: Firstly, they need their landlords’ approval to make any material changes to the dwelling. This may be difficult to obtain because renters may not know their landlord and, hence, rely on the initiative and persuasiveness of their property agents. Renters on a low income may also not want to jeopardise their relationship with their landlords by asking for something that they fear may be interpreted as unnecessary and unwarranted and therefore result in a rent hike.

Secondly, landlords may not be willing to invest in energy efficiency improvements when the benefit in comfort and reduced costs is reaped by the tenants.

And thirdly, renters may have less access to governmental schemes that aim to promote energy efficiency improvements—e.g. draught proofing, upgrades of appliances like hot water systems, and the installation of solar PV panels—as they are often ineligible for these discounts or cannot afford the necessary co-payments.

While the varied policy tools have helped to improve owner-occupied housing stock, households who rent their homes are largely missing out.

The situation is, however, not that easy for the landlord either. Even with government subsidies, improving the thermal performance of housing requires capital investments. This may not just be a challenge for the ‘mum and dad’ landlords who own one or a small number or rental properties but also for large housing providers who need to balance the need to provide more housing with the desire to improve the quality of their existing properties.

As the academic research shows, and the stakeholders we consulted agreed, there were different challenges for different parts of the rental sector (e.g. new or existing housing, private or social rental), and that a one-size-fits-all approach would be unlikely to satisfy the situation.

Our research found that a portfolio of measures is needed to address both energy poverty, and the energy performance of housing in the rental housing sector.

Policy options

Our research suggested several policy options. As an immediate starting point, we should:

• Apply and enforce minimum standards for rental housing: Standards across both energy performance and dwelling quality will lift the quality and performance of the rental stock over time. Setting a minimum energy performance standard for rental properties is a critical first step. Some jurisdictions, like the UK, now have minimum performance requirements for rental housing stock [3]. In the UK this is expected to lift the minimum performance of over 700,000 rental properties over the coming years leading to improved energy performance, lower living costs and improved health and wellbeing outcomes for occupants. More broadly, minimum rental dwelling quality standards, such as those recently adopted in New Zealand, directly address improvements to the living conditions of renters. This might include draught stopping, insulation, and the provision of energy efficient heating.
  
• Broaden the policy objectives of building standards: We must move from a narrow focus on energy efficiency to include tenant households’ health and wellbeing. There is a need to include health and wellbeing outcomes of occupants as part of key objectives of policy intervention sustainable housing. Doing so opens up a wider range of strategies that can assist households to improving their living environments. It would also lead to a range of presently under-valued co-benefits, for example reducing interaction with the healthcare system.

In the medium-term, we should also:

• Upscale cost-effective improvement programs: There are already a range of existing materials and technologies available in Australia that can cost-effectively improve housing energy efficiency through retrofit. Proven retrofit activities such as draught proofing, installing (or adding to) insulation levels and replacing appliances at end of life with more energy efficient options, are just some of the activities which could make a significant difference. Such retrofit activities would result in housing that costs less to run, is more comfortable to live in, supports occupant’s health and wellbeing, and reduces environmental impact. There are benefits here for landlords as well. For example, tenants who are happier, healthier and have lower living costs are more likely to stay in that rental property longer, reducing costs associated with churn of tenants.
  
• Improve consumer information: Linked to minimum standards is the idea of providing information to consumers through mandatory disclosure of the thermal performance of rental properties. This would provide potential tenants with information on their likely energy costs and/or impacts on thermal comfort. The ACT in Australia has had a mandatory disclosure program in place for over 20 years with some evidence that it does influence value in the residential sector towards improved sustainability [4]. In a competitive market, providing information about performance may prompt some landlords to seek out market advantage by having a better-performing property.
  
• Support innovative financial assistance: There is a need for more innovative use of the tax system or grant programs. For example, within the tax system, landlords could be allowed to write-off the cost of upgrades that improve thermal performance (e.g. heat pumps replacing conventional hot water systems, or the installation of solar panels). Currently landlords can write off the cost of replacement features in a home on a ‘like for like’ basis, but not upgrades. Critically, innovation to the tax scheme or other grant programs could provide an important stimulus to the Australian economy as the nation recovers from the economic impact of COVID-19, while providing long term benefits to the health of the nation.

As a broader initiative, mandating a higher standard of thermal performance for all new houses should be pursued—today’s new houses will trickle through the housing market and become tomorrow’s rental homes.

Where to next?

More than a third of Australians rent their homes, and the dominance of this tenure continues to grows. We must make sure that policies and support programs to improve the quality and performance of new and existing housing are not just targeting owner-occupiers but provide support for households living in the rental sector. Because the sector is structured around leases (usually 12 months) and a level of existing regulation, it is the ideal test-bed for new policy interventions to improve housing quality and energy performance across the whole housing system.