Rentals followed broadly the same trend as sales, with five-star homes associated with a 3.5 per cent rental premium compared with three-star rated properties, while the premiums for six, seven and eight-10-star properties are 3.6 per cent, 2.6 per cent and 3.5 per cent, respectively. The research also found that rental prices responded positively to presence of insulation, energy-efficient windows, solar PV systems and central heating.
The ACT, however, has a few caveats in its Energy Efficiency Rating (EER) disclosure program, including that for rentals an EER is only needs to be advertised if a property has one already. Those with potentially underperforming homes may therefore be at a disadvantage by disclosing. This has created what Dr Warren-Myers calls a “quasi-voluntary system” that is undermining the entire program. “While the actual energy-efficiency level of properties for which the EER is not disclosed remains unknown, the results indicate that a non-trivial proportion of landlords respond to the predicted moral hazard situation by choosing not to disclose unfavourable rating information,” the report found.
This information asymmetry creates what Dr Warren-Myers terms a “green lemon” problem. “For tenants, who have limited capacity to make changes to a property, not knowing the energy rating means they can effectively be penalised, from the perspective of household bills,” she said.