Assessing housing affordability involves comparing the cost of housing to a household’s income.
One measure suggests housing is unaffordable if a household spends more than 30% of its gross income on housing costs.1
The affordability of housing is a hot topic in Auckland right now and much of the debate – and the response by industry – focuses on lowering purchase prices. This is a key part of the picture, but a fuller understanding of affordability requires consideration of:
The cost of finance. The majority of homeowners in Auckland purchase their homes with mortgages and pay them off in fortnightly or monthly intervals. These payments include the costs of finance, a large portion of which is interest paid on the mortgage.
Non-purchase costs. These costs include rates, insurance, maintenance, and money spent on energy and water. Non-purchase costs can represent a significant portion of housing costs for a household – expenditure on energy and water alone for the average Auckland household has been estimated at $2,660 per year.2
Energy costs are particularly important in terms of the long-term affordability of a home because an inability to pay for heating can lead to households failing to keep their homes warm and dry through winter. Such households are described as being in ‘fuel poverty’, a condition that results when more than 10% of the household’s gross income is spent on energy.3
Lifecycle costing considers the wider costs of housing and incorporates the savings that result from using products or systems that enable a home to perform more efficiently. It can involve detailed analysis and many variables, but a simple formula that includes the key factors related to sustainability products and systems used in housing is:
Lifecycle cost=(Cost to build+Operating costs+ Maintenance costs)/(Expected lifespan)
Many of the products or methods used to achieve sustainability outcomes result in an increased cost to build but are designed to deliver savings in operating and/or maintenance costs over the lifespan of your home. For example, installing photovoltaic (PV) solar panels will increase costs but they will provide savings in terms of reduced energy bills and require little maintenance over their lifetime to ensure optimal performance. The approach outlined in the formula above ensures all the relevant costs and savings are considered.
Taking a lifecycle costing approach to assessing the cost of a new home will lead you and your design team to view products and systems from a wider perspective, prompting such questions as:
- What will be the impact on operating costs if I reduce or minimise investment in key areas of the home? For example, installing insulation at the minimum level required by the Building Code will reduce the cost to build but will likely increase energy costs for heating.
- What are the maintenance costs of products and systems over the life of the home? These costs can vary significantly across the methods used to achieve the same outcome. For example, a home can be kept warm via a heating system or by investing in a high-performing building design and envelope that maintains warmth without systems. While the former may be cheaper to achieve during construction, lifecycle costing would include consideration of the maintenance of such systems – and their replacement when they reach the end of useful life.
- How does maintenance improve the expected lifespan of the home? One of the best ways to ensure the durability of your home is to protect the building envelope from the elements. This can involve regular maintenance such as repainting window frames or replacing cladding at the end of its useful life.
The lifecycle cost formula above focuses on the costs and savings associated with products or systems used in your home. However, a more holistic approach would also include the following:
- Costs incurred before use. Any product used in your home will have been through a process that includes collecting the resources required to make it, manufacturing, and transport to your home. Many of these costs will be included in the price you pay for the product but some may not. For example, pollution caused by poorly managed mining or deforestation operations involved in the production of a product can result in clean-up time and costs borne by local communities or governments. It will be difficult to quantify such costs related to individual products, but understanding the production process behind the products you use is a good starting point for understanding potential impacts. There are many organisations that award certification to products that have been ethically sourced. The Forest Stewardship Council (FSC) certification is one of the most recognised and ensures timber used in your house comes from responsibly managed forests.
- Costs incurred after use. All products and systems will eventually reach the end of their natural life and need to be replaced. As well as the cost to replace them, there will be costs associated with disposal. Some of these will be directly incurred by the people living in the home (e.g. paying to have material collected or taking it to a refuse station); others will be incurred by the public (e.g. the cost associated with landfills). Again, those public costs will be difficult to tie back to your individual project, but taking time to understand what happens to different products at the end of their lives can guide the decision-making process. Some insulation products for example are fully recyclable at end of life, meaning there is no associated landfill cost when they are replaced.
The impacts of sustainability outcomes are broader than the costs and savings associated directly with the products used in your home. Being mindful of non-financial impacts while considering lifecycle costs will allow you to make decisions more holistically throughout your project, as many decisions will require balances or trade-offs between different impacts. Two key non-financial impacts to keep in mind are:
- Improved comfort and health. The benefits of good health and comfort resulting from a warm and dry home might not be easily quantified but there are likely to be real outcomes such as less days off work sick (either for yourself or looking after a child) and reduced healthcare costs.
- Environmental impact. It will also be difficult to quantify the specific environmental benefits from the measures taken to achieve sustainability outcomes in your home. However, efforts taken to reduce the use of energy and water, limit the creation of waste, and eliminate as much as possible the use of toxic materials will reduce your home’s environmental impact.
Impacts such as those above, while harder to quantify, should nevertheless be taken into account when considering sustainable design options. For example, it may be that a particular type of insulation costs more but is better for the health of the people who construct and live in your home. That additional cost can be viewed as an investment to achieve a better health outcome.
Impact on sales price
Many homes are built with the expectation they will eventually be sold, and this influences sustainability considerations during construction as people decide whether their investment can be recouped when the house changes hands. The impact of sustainable products and systems on the value of your house can be difficult to assess, but an American study based on analysis of sales data suggests that for every US$1 reduction in annual energy costs, home value increases by US$20.4
As noted above, in Auckland the average annual cost of energy per household is $2,000. If the findings of the American study were applied here, a household could spend $10,000 to reduce their energy bill by 25% and expect to get that money back when they sold their home.
Another guide to this question comes from a 2013 survey of almost 6,000 New Zealand homebuyers undertaken by Homestar and Realestate.co.nz. The findings indicated 90% of people thought high levels of insulation and efficient heating and cooling systems justified a higher price for the home. Half of those surveyed also believed features such as PV solar panels and water conservation systems added value to a home.5
This amount is based on annual use of 7,970 kWh at 25.5c per kWh (2010 rate) and average annual water consumption of 150,000 litres at 2015 Watercare rates. According to these rates, the average Auckland home pays $2,000 a year in electricity bills and $660 in water bills. Sources: BRANZ, Energy Use in New Zealand Households
, p. 18; Ministry of Economic Development, New Zealand Energy Data File: 2010 Calendar Year Edition
, pp. 130–131; and Watercare, 'Domestic Water, Waste Water and Other Charges