29th Jul, 2014 Real Estate Lessons

Green Star or White Dwarf?

The Green Star building rating system began in 2003, and is recognised amongst Australian developers and real estate professionals as one of the highest seals of approval for a building’s sustainability.

The award has, however, struggled to penetrate the residential market – since the Green Building Council of Australia (GBCA) extended the qualification to the residential category in 2009. According to the GBCA website, there have been a total of 723 certified projects since the launch of the scheme in 2003 across the whole of Australia. Awards have been accelerating, with 117 certifications in the last 12 months. However, 75% of this total are office projects and, at the time of writing, only 25 projects across the whole of Australia are listed as having achieved a Green Star residential certification of some standard. Of these, only two have achieved sustainability certification for a completed building: the Green Star – ‘As Built’ rating.

These statistics make for extraordinary reading when we compare Australia against international standards. Over 150,000 residential properties have achieved some level of the equivalent independently administered sustainability certification by the US metric – LEED. To compare directly to project numbers, BREEAM – the global sustainable building benchmark (but with a particular concentration in Europe) has certified over 370 residential projects in the same time frame.

Why then have so few residential properties been certified with the highest award for sustainability Australia has to offer? There is, undoubtedly, significant interest in sustainable living. Pre-sales marketing for new developments are often keen to stress their green credentials. A Stockland development in Queensland caught our eye, boasting of Australia’s first 10 Star energy rated and net zero energy home. Why then has the GBCA not been able to translate an appetite for green, energy efficient products into a demand for wider sustainability measures and Green Star certification? The simple answer is that for developer and consumer, the costs of Green Star far too often exceed the benefit. To an unsympathetic ear, this could sound as if developers are being crass, putting higher ideals of sustainability down to short-term financials – which may not always square. However, this is not our argument.

The first reason for the lack of Green Star residential projects relates to the level of documentation and compliance involved in achieving certification. A whole industry has emerged in helping developers understand GBCA certification requirements, and to help them score points on the system identifying ‘low-hanging fruit’ items (such as a drafting a building user’s guide and using a Green Star accredited professional to manage the accreditation process). Developers’ money could be better spent on introducing genuinely progressive sustainable measures such as promoting natural ventilation, daylight and fresh indoor air quality, rather than working out how best to score points on the Green Star calculator.

Furthermore, incentives for certification simply aren’t there for residential developers. Unlike office tenancies where sustainable certification often forms part of potential tenants’ requirements, especially those keen to boost their ESG credentials – no widespread demand yet exists for sustainable residential homes in the same way. Consumers are still primarily concerned with price – which tends to increase with sustainable modifications. Efficiency measures are demanded, but generally only in so far as they save the consumer money in the long-run. Worse, the Green Star endorsement with its wider sustainability remit is not well known amongst consumers. In part, this is because even those few developments that are registered for Green Star Certification are not able to use the Green Star logo until fully certified (see Union Balmain’s market brochure – a five Star Green Star project). Certification is a lengthy process, which means that buyers will generally not see a Green Star logo when developers are selling properties off the plan: with official endorsement coming after this point. Short-term benefits to developers of achieving certification are therefore minimal, and many simply choose to build in equivalent green measures into their projects.

Welcome modifications outlined to the Green Star approval process set to come into force in October 2014 will bring improvement. The GBCA will move their assessment window forward in the building design process, and remove the complicated two-stage approval. Under the current system, residential certification is initially given for ‘Design’, which expires 2 years after a building’s practical completion, after which a developer may wish to lodge an application for the permanent ‘As Built’ Green Star certification. This currently involves two sets of fees, forms and delay: and therefore very few have chosen to follow through to achieve the permanent award. Under the current system, the ‘As Built’ certification comes at a significant additional cost and is time-consuming requiring duplication of the Green Star points calculation process. Applications are still not standardised, with the need for much unique supporting documentation for each project, and specialists are required to redraft documentation in full for each submission.

Trident Real Estate Capital experienced the process first hand when considering registering its new development on Dunning Ave for residential certification. The Green Star consultant’s fee alone for drafting and submitting a standard application was calculated to be over $80,000 for an ‘As Built’ Certification, without any complications. The GBCA’s fees to review the submission are additional as are the costs of modifying the building to achieve each Green Star rating point. Costs of adapting the project to Green Star specification were also to some degree unknown, with communication of expected standards for certification not being clear. Consultants, typically, advise developers to aim at least 5 points above the threshold for approval given disputes that may arise in the points awarded by the GBCA. This uncertainty means it is not clear what level of adaptations need to be put in place to ensure certification: and at what cost.

What then can be done about this?

First, the road to certification should be made shorter and less complex. Australia could take the lead and be one of the first to rid the need for consultants in the certification process. This would focus a greater expenditure on innovation and development, and improve real sustainability. This would involve increasing capacity in the GBCA office, although both points could be achieved by better standardisation of all documentation required for each application: making processing easier for all parties. Communication of expected standards for each star category should be clear, reducing the need for specialist consultation and give developers confidence in their feasibility costing of certification. Further, standards need to be more realistic for projects of all sizes, with proportional demands on the developer corresponding to the size of the project. Small developers need to be able to contribute to the Green Star vision.

However, it should be recognised that some sustainability measures will require sacrifices, which do impact on their widespread consumer desirability. The lack of parking at some 5 & 6 star projects could make sustainable living unsuitable for some (including the disabled). Sustainable living is too often sold as one size fits all. It can be high handed to talk about sustainability when many first time homebuyers have the first order concern of not being able to afford any home at all. Sustainable measures do increase house prices. The GBCA would do well to better educate the public on sustainable living, and its corresponding benefits and sacrifices.

For Green Star to become mainstream, therefore, it requires substantial changes beyond its current format. It needs to become a desirable part of residential property and to be understood by the residential market. To do this, it needs to be better targeted to consumers and developers alike. Green Star is an important concept, and it is important that it works. The 2014 reforms are a start, but we still have a long way to go before Green Star becomes the standard it aspires to be.