Can Property Management ever be Carbon Neutral?

Before I get into this, I must make some honest declarations. I do not lie in bed at night suffering from climate anxiety, and I still enjoy a good steak! I also dislike being preached about all types of issues, one of them being climate change.

However, I do consider myself to be a realist, and I do believe that climate change is happening. I also care deeply about the communities we will live in, the environment, and our planet’s future. I understand that we are all responsible for playing our part in reducing carbon emissions. I also have no faith in politicians that they will come up with solutions to save us all from extension, not that I believe that this will happen anytime soon!

What I have faith in is business, entrepreneurship, and innovation. This will ultimately be the driver of change, and consumer demands will force us to find solutions that will help drive down emissions. Politicians have a role to play; they have already had a major influence in many countries. Take New Zealand, for example. Both of our major political parties have committed to making New Zealand’s net carbon zero by 2050. This feels like a long way away, but the scale of the project means that action must be taken now if we have any chance of coming close to this target.

At Property Brokers, we manage 7,000 residential properties across New Zealand, from the far North to the deep South. We manage properties in some of our small townships and in communities that some of our most vulnerable citizens call home. Incomes are low, and there is little development to speak of. Here lies the challenge. How are we going to make an aging housing stock more energy efficient?

With approximately 600,000 residential rental properties across New Zealand, most of these will be second-hand stock. Many would have been built in the mid-20th Century when nobody considered climate change. Are we just going to flatten all these homes and start rebuilding them? Our capital city, Wellington, is famous for its character-style properties built in the early 20th Century. These wooden relics from a bygone era add so much to the character of this beautiful city if they are well-maintained. However, many are not energy efficient, with single-glazed windows, lack of insulation, and tall ceilings, and were poorly maintained. This has wider implications than just the environment, as the health and well-being of the occupants are compromised, especially during winter. The weather in Wellington can be best described as inclement.

The cost of replacing and rebuilding our homes in New Zealand to reduce emissions is a staggering exercise in terms of cost, supply chains, labor, and disruption to people’s lives. Realistically, this is not going to happen.

So how do we get landlords and investors to retrofit their investment properties?

New Zealand is part way through enforcing Healthy Homes standards that came into effect in 2019, with a deadline to make every rental property compliant with the standards by the middle of 2025. The Government has pushed out this target on the realization that they would fail to meet their own standards around state housing.

This has been a controversial and challenging exercise. Calculations around heating requirements have been flawed, and there is very little policing of the standards. The Government has a database of which properties comply; no training or qualification is required for individuals to carry out assessments. We have seen occasions where properties have been passed by one assessor yet failed by another. The standards are very much open to interpretation. The issue with the Healthy Homes criteria is it focuses on a criterion rather than an outcome. There is no measurement as to how a property performs.

With that in mind, I firmly believe that the current status quo needs to change. The focus needs to be on outcomes rather than enforcement of a standard.

In Property Brokers, we have taken the ambitious step to start measuring the estimated CO2 emissions of our property management portfolio through data measurement with a long[1]term aim to set targets to reduce this. We have partnered with a prop-tech valuation company, Valocity Global, as well as their sister company, Data Insights, who help us achieve this goal. Using data obtained through multiple sources such as Property Management Trust Accounting Software MRI Palace and data from local and central Government, our partners have been able to build a dashboard that provides an automated rental valuation as well as an estimate of emissions from the property.

"We have taken the ambitious step to start measuring the estimated CO2 emissions of our property management portfolio through data measurement with a long-term aim to set targets to reduce this"

The next, and probably biggest, challenge will be to get Mum and Dad investors, who provide about 80 to 90 percent of all rental accommodation, to invest in their properties to make them more energy efficient. How are we going to do that? Remember that getting some landlords to comply with Healthy Homes standards has been as difficult as extracting teeth from a Great White Shark!

We believe the answer is to show them how they increase their investment value as well as obtain finance at low-interest rates to get the work done. Our theory is that better-performing properties with low emissions will command a higher rent and will obtain a stronger capital value. We must be able to demonstrate to landlords that investing in retrofitting will be beneficial to them in achieving their investment goals. To do this, they need to obtain access to affordable finance, and this is not easy with the Official Cash Rate (OCR) currently running at 5.25 percent and inflation close to 7 percent. This is where Green Loans come into play. Many of our major banks offer Green Loans for energy[1]efficient home improvements across New Zealand. We aim to have a Dashboard that our investors can access that will give them updates on the automated rental valuation of their property portfolio versus actual rental income with a range showing the upper and lower quartile. The investor will also be able to see an estimated emission consumption of their property, and it will provide estimates for retrofitting such as double glazing, solar panels, or energy-efficient heating. The investor will then be able to click on any of the major lenders who are offering green loans and apply for finance.

This is a big ambitious project which will eventually lead to energy-efficient ratings for every one of our property portfolios. Everyone will benefit. New Zealand will have healthier tenants, which benefits the economy and provides less of a strain on our already overstretched health system. Investors will have better[1]quality properties with more income and higher capital value. Most importantly, the world benefits from less emissions. We all have a role to play in protecting our planet, and property management must play its part. This is one way we can contribute to making New Zealand a better country and the world a safer place.