A proposal to introduce resilience star ratings for Australian homes could significantly influence property sales and insurance premiums, according to the Productivity Commission’s latest interim report.
The Commission recommends developing a national database of climate hazards and a rating system that would reflect a dwelling’s exposure to natural disasters such as bushfires, floods and storms. The goal is to provide potential buyers with clearer information and encourage homeowners to undertake protective upgrades.
“They’re sort of pricing-in the negative and now we can help them price-in the positive,” said Kate Cotter, chief executive of the Resilient Building Council, which has been developing voluntary disaster ratings.
The report notes that buyers typically have less information than sellers when it comes to a property’s climate risks, which may lead to overpaying or getting stuck with an uninsurable home. Sellers, meanwhile, have limited incentive to invest in mitigation if risks are not transparently disclosed.
“The most important thing will be that people have a pathway out of a bad rating,” Cotter said.
A climate resilience rating could also be used to adjust insurance premiums. The Productivity Commission suggested that owners who invest in adaptation measures - like installing fire-resistant roofs - might be eligible for discounted cover.
According to Cotter, “insurers and banks already factored climate risk in pricing their premiums, but doing the same for upgrades was not so easy.” The proposal, she said, would create “a more positive mechanism” that recognises proactive resilience measures.
The Commission has stopped short of mandating the system, but Cotter said she believes there is appetite to make it compulsory to disclose vulnerabilities to climate change.
“Any kind of mandatory disclosure evoked concerns around property prices and insurability,” she noted.
The resilience rating framework is part of a wider effort by the Productivity Commission to reduce the economic costs of climate change while supporting emissions reduction. “Australia’s net-zero transformation is well under way,” said Commissioner Barry Sterland. “Getting the rest of the way at the lowest possible cost is central to our productivity challenge.”
Other interim recommendations include rolling back the Fringe Benefits Tax exemption for electric vehicles. The Commission argues that incentives are overlapping and no longer necessary given the impact of fuel efficiency standards.
This has drawn criticism from electric vehicle advocates. Julie Delvecchio, chief executive officer of the Electric Vehicle Council, warned: “Scrapping the discount on EVs now would pull the handbrake on electric vehicle adoption across Australia meaning more toxic pollution, poorer health outcomes and a deeper addiction to foreign-owned fossil fuels.”
The Commission also recommends reforms to fast-track clean energy infrastructure and expand the safeguard mechanism to lower emissions from heavy industry.
For insurers, the introduction of resilience ratings would offer more reliable risk indicators at the household level, potentially streamlining underwriting and claims projections. The use of positive incentives could encourage risk mitigation, reducing future claims costs in disaster-prone areas.
However, concerns remain that mandatory disclosure may affect insurability and property values - issues which would need to be navigated carefully in any future regulation.
Treasurer Jim Chalmers is expected to convene a roundtable in coming weeks to discuss the Commission’s findings.
