Budget 2023

Budget 2023: Sustainable construction choices should be rewarded

Dan Lowe
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In the lead up to last year’s Budget, we wrote about a build-to-rent asset class to incentivise the construction of long-term rentals – and it actually happened. So while we’re on a roll, for Budget 2023 we’re going to be even more ambitious.

We want to see greater financial incentives for sustainable choices, to help reduce waste, transform industry practices and improve the quality of life for Kiwi households.

Carrots and sticks for construction waste  

The building sector is a massive contributor to landfill; Branz estimates that construction and demolition generates up to 50% of all New Zealand’s waste. We need to find a way to make a meaningful dent in this huge pile of detritus. That’s probably going to require both carrots and sticks, because wasteful products are thoroughly embedded in the industry, both literally and figuratively. 

Polystyrene, for instance. It’s extremely cheap, easy to use and works perfectly beneath the foundations of any new build. It locks in heat, keeps out water and adds strength – and it doesn’t degrade over time. That last benefit is where the real problem lies. When the building is demolished, the polystyrene is integrated into the concrete, making it impossible to recycle either material. Straight to landfill. 

But there’s a dramatic price jump if you want to switch to an alternative eco-friendly material. Why not put a tariff, or some other type of punitive tax, on underlying products that carry major environmental costs? The Government collects tax on cigarettes because they damage our population’s collective health and the costs to deal with that damage are high. Environmentally-damaging products hurt our natural environment, and the consequences are nasty – so let’s tax them, too. 

The carrot side of the equation could be financial incentives for businesses that make responsible choices; for example, an environmental tax credit in the same way we have an R&D tax incentive scheme. Money spent planning for waste minimising and sourcing alternative products could see a tax break to help the big players lead the way for the entire industry. Or perhaps an accreditation system to identify the most responsible businesses in the sector, and give those companies an additional tax break. Rewarding good choices would create a step change, and narrow the financial gap between the cheap-and-nasty options and the costly-and-sustainable ones. 

Low-cost lending for sustainable residential improvements 

At the opposite end of the production cycle, residential consumers also have a part to play in boosting sustainability in New Zealand. Providing low-cost loans and funding to help people improve their living standards is a win-win-win equation. They get a warmer and healthier home; the economy gets a boost from the jobs created; and we reduce energy use across the country. 

We know this works. Warm Up New Zealand is a Government-subsidised programme that has insulated more than 300,000 homes and created an estimated 2,000 jobs. One analysis puts the 30-year value of the programme at over $800 million, compared to its costs of less than $300 million. 

With that kind of success already evident, let’s make low-cost lending easier and more accessible for homeowners who want to make energy-efficiency changes. This could go well beyond insulation and heat pumps. We would reduce emissions more rapidly if you could borrow cheaply to install double glazing, a power wall battery, solar panels, or an EV charger. The lending doesn’t need to be limited to low-income households, as middle-income households also need support to make these changes. Not only would this help us reach our lower carbon emissions targets, it would improve the health of our population and the quality of our housing stock. 

Closing the financial gap between where we are and where we want to be 

Almost everyone wants to make positive changes for sustainability, lower emissions and better social outcomes. 

One of the major hurdles is it’s usually more expensive to make the green choice. For builders facing a challenging economic climate and a boom-and-bust cycle, environmental factors quickly take a back seat to survival. But – as the EV rebates have shown us – when you close the financial gap, Kiwis are happy to stretch the budget a little further to make the right choices. 

When the Government votes with its dollars, it can shift the entire economy. By using the Budget to reward sustainable choices, the long-term benefits will vastly outweigh the short-term costs. These benefits would be felt for generations, boosting the economy, reducing emissions, and supporting positive social and environmental outcomes.