Willingness to Pay

An important theme that came up numerous times was that the growing consumer awareness of sustainability did not necessarily translate to people spending their money accordingly. While one interviewee suggested that clients might be interested in features such as water tanks and solar systems because they “feel good about doing something positive”, this perception did not appear to be widely held. As another interviewee put it, energy efficiency was still a “nice-to-have” rather than a “must-have”, while another referred to sustainability in homes in the eyes of customers as “a plus, this is an add-on”.

As another noted:

“....if people were looking at two houses the same but one was far more

sustainable than the other, I think in some cases it would help sway the decision.

But, it’s a cost issue again and if you are saying the sustainable house was going to cost more than the non-sustainable house then people would spend their money on something else.”

The issue of how customers valued sustainability was also raised as a barrier to more widespread adoption of sustainable housing. The same interviewee noted:

“…it is adding cost, at this point of time it’s not adding perceived value to our customers I don't believe, they're happy to have this stuff but I don't believe they're prepared to pay extra for it at the moment…”.

Another interviewee put it more strongly:

“…when we brought energy in, [customers] really couldn’t give a rats [colloquial expression meaning people don’t care at all]. We had some people wanting to take it out, take out double glazing and…they would rather have money in their pocket.”

This lack of willingness to pay extra was, unsurprisingly, perceived to be even more pronounced when the return on investment would be low. One of the factors contributing to this problem was the low cost of utilities, particularly water, as observed by one:

”The amount of water that you're using [from rainwater] will have an almost negligible impact on your water bill because water is so grossly underpriced anyway, but if you put in an underground tank then you're going to be paying for the electricity to pump the water anyway which will probably cost you more than the water that you're saving. So it’s difficult to justify at any level apart from…an emotional level…”.

The same person also noted:

“...you're not going to spend ten grand to save three hundred bucks worth of electricity.”

Thus, it was generally not felt that there was significant potential to use the payback benefits of sustainable technologies as a marketing strategy at the present time. One interviewee suggested that payback periods were not necessarily a strong driver of actions because house buyers were not necessarily likely to live in a home for long enough to accrue the benefits, such as if their house had been purchased as a “stepping stone” to a better house. Another interviewee expressed the view that there was no point in talking about a payback period if it was longer than the expected life of a particular item of technology.

Housing affordability was a theme that was raised by several interviewees, particularly in the context of the volume housing market, which was understood by most of the

interviewees to be driven by low up-front prices. As one person commented:

“…we get to a point where it’s unsustainable to have house prices where they could be if we built a perfect house. That's also unsustainable. Because people aren't going to afford it. So it’s the fine line.”

There appeared to be a genuine concern amongst some interviewees that any significant cost increases resulting from sustainability initiatives would reduce the customer base. As one described it:

“…the driver of volume house building is cost…it’s important to be able to achieve new sustainable heights if you want to call it that without…reducing your customer base.”

Consequently, Company B in particular had made it a focus to refine their design of 5 star energy-rated houses to get the costs down to a point where they were cost-competitive with their ‘standard’ house by avoiding expensive solutions such as double-glazed windows. A Company B interviewee noted:

“It’s all about cost. Our whole business is about affordable…affordable’s a funny word. Good value for money. Good value. So we…chucked in 5 star houses and we still went out there and sold for less than anyone else in town.”

Interestingly, however, customers spending money on ‘lifestyle’ features, such as upgrading to granite benches (for which it should be noted potentially offer no return on investment, even if it can be recouped through resale value), did not appear to be

considered a problem. An issue that came up numerous times with multiple interviewees is that where a customer could afford to spend more, they would invariably favour these types of finish or appliance upgrades, or making a home larger and adding extras such as alfresco dining rooms, rather than additional sustainability features. In the words of one:

“....unfortunately at the moment it seems to be economics that are getting in the way. That they make a value judgment as to whether they prefer to go with, you know, size or finishes, and you know, they're tossing up, are they going to put a granite bench in or are they going to put this…system in that puts electricity back onto the grid. Now it might be a similar cost and they say, well what's the return on investment with the electricity, well we, at the moment we're not getting a lot back yet it’s expensive to do. Whereas the granite bench versus a laminex bench is going to change your lifestyle. And they end up making some kind of value judgment on that.”

On a similar note, one interviewee who had raised cost and willingness to pay as a barrier was asked in more detail about how much sustainability actually contributed to costs, and suggested it was in the order of $5,000 - $6,000. When asked about the fact that this was only about a 1 per cent difference to a house that typically marketed in the $500,000 -

$600,000 price range, they responded:

“Yep, but average Joe Customer, if I said I'm going to drop your price by $6,000, or if I said to Joe Customer I'm going to drop your price by $5,000 and give you a spa bath, there's no question. And that's…[the] mentality that we're wrestling with at the moment.”

Another put it this way:

“…I could guarantee you, if you asked every person, we can put double glazing [sic] windows in, or we can buy you a plasma tele, and they cost the same, what would you prefer?”

The Cairnlea Ecohome project offered an interesting ‘research laboratory’ of sorts to test which types of sustainability components were most desirable to customers (at least in terms of their willingness to pay for them in their own house). Although the Cairnlea Ecohome’s design had been offered as one of Company A’s standard models, the

sustainability features were typically offered as extra options which could also be added to other home designs. Reportedly the most likely features to be requested in other homes were water tanks (although it was noted that this was being forced on customers by the impending 5 star energy rating legislative requirements) and the hydronic heating systems, of which it was noted that a few had been subsequently sold. A very small number of greywater systems had also been ordered for other homes in the northern region of Melbourne, and photovoltaic cells were sold rarely (“maybe a handful”), apparently because of their high cost.

The low-VOC paints were reportedly not of much interest to customers (despite the fact that it reportedly did not affect the price significantly), nor was the natural sisal carpeting that was used. It was suggested by an interviewee that the paint was not popular because it produced an inferior finish. It was also claimed that the Corian benchtop used in the Cairnlea Ecohome had not been ordered by anyone at that time either. It was also suggested by one interviewee that customers were unlikely to be willing to pay extra for

the HDPE plumbing that had been used in the Cairnlea Ecohome, in part given its lack of visibility, but this was not explored in depth.

Consequently, there had been limited changes to standard practices within Company A, as observed by one interviewee:

“I don't think [the Cairnlea Ecohome has] had much of an impact. As I said, I think we've had a couple of clients that have come in and have wanted to run with some of the items that we used in the Ecohome, so I suppose until we get…regular requests for these things from our clients…we only deal with it on a needs basis, as a one-off sort of basis to each client’s request. So…it hasn't changed

significantly the way we do things.”