Housing tenure, energy consumption and the split-incentive issue in Australia

Abstract

In recent years, there has been growing global recognition of the need to reducecarbon emissions in response to climate change concerns. It is generally acknowledged thatthe energy efficiency of existing homes can be improved, but there are significant barriers toits uptake. In particular, improving the energy efficiency of private rental housing presentsunique policy challenges due to a split-incentive problem. This has prompted some governmentsto introduce programmes that encourage landlords to improve the energy efficiency oftheir properties. While landlords are responsible for the purchase of many energy-consuminghousehold appliances, tenants are responsible for energy bills. Since the landlord does notreap the immediate benefits of investment in energy-efficient equipment, the incentives motivatingsuch investment are weaker than for homeowners. This paper aims to quantify themagnitude of the split-incentive problem in the Australian private rental housing market byinvoking a modelling approach where energy expenditure is estimated as a function of housingtenure, dwelling type, location, climate and other socio-demographic variables. We find noevidence in support of the split-incentive hypothesis in Australia. The paper concludes thatdifferences in housing policy arrangements could be critical to the presence and importanceof split incentives.