Builders and other members of the construction industry are concerned about the trickle down effects of the carbon tax on suppliers and manufacturers. They believe the impact will start with suppliers and manufacturers such as Ibisworld (who own the Building Supplies Group) and Brookfield Multiplex, then move to construction companies such as Stockland and Westfield and continue onto builders, homeowners and retailers.
An increase of up to $8500 to the price of houses — based on the maximum expected increase of 1.7% to an average home and land package of $500,000 — is expected, with builders fearing they might need to buy foreign materials to keep prices down.
Builders are an indirect payer of the carbon tax as they do not generate carbon emissions; the products they buy, however, will likely be more expensive under the tax. Stockland’s Brett Zarb says that for some consumers, saving on their energy bills may be the only way to offset costs.
“A slight increase to home and land building costs of around 0.6% will be factored into [Stockland’s] home prices, however this would be offset by the energy bill savings that come with living in a new home,” Zarb told Crikey. “Our research shows home buyers can save up to $2000 per annum in energy bills living in a new home compared with a home built prior to 1981.”
Zarb says that if a customer bought a $500,000 Stockland home and land package the cost of the carbon tax would mean an extra $3000. Although this is less than expected by the Housing Industry Australia, Stockland suggests that a customer could recoup this after a year of living in the home because of electricity savings.
In terms of the construction industry and how the costs will be passed down to consumers, National Director of the Housing Industry Association Greg Weller says the carbon tax will increase the cost of housing by 1.2-1.7%.
“Australia has a housing affordability challenge, much of which is driven by the myriad of federal, state and local government charges and taxes on housing,” he said. “Up to 44% of the cost of a new house and land package is taxes, levies and charges. The carbon tax will add to this problem and contribute to putting housing out of reach of more Australians.”
A 1.7% increase to a standard home and land package of $500,000 will cost the consumer $8500 more.
Weller says industries declared “emissions intensive, trade exposed” such as steel production or flat glass will be compensated by the government with revenue from the carbon tax and some consumers will also be compensated.
“However,” Weller said,”builders will have higher energy costs and higher material costs related to either those products that receive no compensation or which have gone through a manufacturing process which is not compensated.”
The above diagram shows the carbon emissions produced by building materials. Steel houses now hold 15% of the housing market and have become popular with Australians as their new homes will be less susceptible to termites While major steel manufacturers will be compensated for the carbon tax, smaller firms are worried they will have to pass increased costs onto consumers.
Dr Brent Davis, National Director (Industry) of Master Builders Australia, says that given builders do not emit, or get subsidies like steel or aluminium companies, they will have to look for other ways to reduce the costs.
“All builders are in the same boat, we have no foreign competition, there is no market competition, the thing that will hold it down [construction industry] is importing things … builders will go outside Australia for products that don’t adhere to the carbon tax, therefore the effect on the environment is none,” Davis told Crikey. “The effect on the national economy is a different story.”
The Australian Trade and Industry Alliance supports action on climate change but believes the carbon tax is the wrong climate change policy for Australia.
“We are all concerned that the tax will reduce business competitiveness, slow economic and employment growth and increase prices while failing to materially cut global emissions,” Weller said. “The Alliance [and its members, which include HIA] hold the view that Australia should align its approach with that of other nations and ensure that the carbon pricing scheme does not compromise the competitiveness of Australia’s local, export and import competing industries.”
Many of Australia’s large construction companies are already making plans to curb the increase of costs to consumers. According to the government’s figures, Brookfield Multiplex, Westfield and Stockland come under scope 1 and 2 of greenhouse gas emissions above the threshold of 87.5 kilotonnes.
Brookfield Multiplex, a large corporate construction company, has implemented “Brookfield Multiplex Green” which claims it “transforms existing buildings into low carbon, high performance assets”.
The most recent Stockland Sustainability Report has shown since 2006 it has reduced office emissions by 38% and retail emissions by 18%. Zarb says Stockland will continue to commit to reducing energy use by 20% but expects that cutting emissions will become progressively more difficult.
“The business is also working with the partners to investigate the application of low carbon and renewable energy technologies in retail centres and residential communities,” he said.
The greatest portion of Westfield’s carbon emissions comes from the purchase and consumption of electricity in shopping centres and Westfield-tenanted buildings. The latest Westfield Sustainability Report of 2011 shows a reduction of 11% in electricity consumption in Australian shopping centres. Even with this reduction, prices will still increase for retailers renting their shop floors in shopping centres, which can ultimately effect future project developments.
Milton Cockburn, executive director of the Shopping Centre Council of Australia, says the full effects of the carbon tax on shopping centres cannot be determined until after July 1.
“Modelling done last year by Allen Consulting for the Property Council of Australia estimated that for commercial buildings the carbon tax is likely to increase operating costs by 1.4%,” Cockburn said. “Operating costs of the centre are passed onto the tenants in a form and method prescribed by retail tenancy legislation … at this time we are not able to respond in relation to how increased costs will be passed onto consumers, it will depend on retailers, however it will be a concern to shopping centre owners and retailers.”