Is it time to incentivise energy efficiency in New Zealand's rental market?

We've partnered with Generate Zero to measure and reduce emissions from our 8,000+ residential rental properties across the motu.

One of the biggest challenges we see is incentivising landlords to invest in their properties to make them more energy efficient. There is little incentive to do so, although some banks offer low-interest loans for energy-efficient projects. With growing emphasis on reducing carbon emissions and enhancing energy efficiency in residential housing, our industry must contribute and play its part.

An idea could be linking tax incentives for landlords to an Energy Performance Certification (EPC) regime. New Zealand could create a robust framework that encourages landlords to improve the energy efficiency of their properties, reducing the nation's carbon footprint and providing financial benefits to landlords and tenants. EPCs are currently not used in New Zealand but are widely used in Europe. I have previously argued that they should be introduced to New Zealand and replace the ill-thought-out and flawed Healthy Homes legislation. 

The EPC is a grading system valid for ten years with an energy efficiency rating from A (most efficient) to G (least efficient). This system would involve a tiered tax incentive approach. Properties with an EPC rating of B or better would allow landlords to offset 100% of their interest payments against their rental income. This would strongly incentivise landlords to invest in significant upgrades like insulation, double glazing, and energy-efficient heating systems.

Properties with a C to D rating would allow landlords to offset 50% of their interest payments, encouraging them to make moderate improvements. Finally, properties with an E rating or lower would receive no tax relief, thus pushing landlords to improve the least energy-efficient homes. 

The importance of reducing emissions from residential rental housing cannot be overstated. Research on our rent roll estimates that the average rental property emits approximately 7.8 tons of tCO2e annually. To offset these emissions entirely through tree planting, approximately 18 native trees would need to be planted each month for every rental property. While planting trees offers a long-term solution, more is required. Combining tree planting with energy efficiency improvements can provide a holistic approach to reducing emissions. This approach would also align with global trends. Countries like Germany and the United Kingdom have successfully implemented similar policies, using tax incentives to encourage energy efficiency in housing. Germany, for example, offers tax relief for energy-efficient renovations, while the UK provides VAT relief for installing energy-saving materials. These policies have been instrumental in driving down carbon emissions and creating more sustainable housing markets. 

Beyond reducing emissions, improving energy efficiency offers numerous benefits. Tenants benefit from lower energy bills and healthier living conditions, while landlords enjoy higher property values and increased demand for their rentals. Moreover, as sustainability becomes a key consideration for tenants, energy-efficient properties will become more desirable in the rental market. 

This tax policy would also support New Zealand's broader climate goals. The government has committed to achieving net-zero carbon emissions by 2050, and housing plays a crucial role in meeting this target. This policy could significantly contribute to the nation's efforts to combat climate change by incentivising landlords to improve energy efficiency.  

An EPC-linked tax incentive scheme for landlords could revolutionise New Zealand's rental market. By promoting energy efficiency, reducing emissions, and providing financial benefits, this policy would not only benefit landlords and tenants but also contribute to New Zealand's climate goals. Whether through energy upgrades or tree planting, landlords have a unique opportunity to positively impact the environment while enhancing the value and appeal of their properties. 

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