The bad effect of a carbon tax on housing prices

by Chris Lang on May 2, 2011

Housing prices Everyone is discussing now how a carbon tax will make our energy bills higher. Yet there’s another negative effect to a carbon tax that doesn’t get much coverage in the media – and it really should. At a first glance housing prices and carbon tax may seem unrelated, but a closer look reveals that there is a connection.

Even though the house construction itself is not polluting the environment and therefore shouldn’t be subject to a carbon tax, the manufacturing of building materials is. When building materials suppliers face raising costs because they have to pay $30 a ton of CO2 emissions, they are likely to pass this on – let this reflect in their prices.

When a construction company pays more for building materials, fixtures and fittings, it is likely to pass that on to the home buyers, to keep its profits on the same level. HIA (Housing Industry Association) estimates the effect of a carbon tax on the cost of an average new house to be $6000, which may result in a new home buyer paying an extra $12,800 over a 25-year loan.

Another possible outcome is that construction companies will source the building materials overseas, to get a better deal, as not all countries in the world have introduced (or will ever introduce!) a carbon tax. Therefore imported building products may have a competitive advantage over Australian made ones. However, the hidden danger of this situation could be that imported products won’t be made to Australian Standards, and may not have the same quality / credibility. So even if we were to buy a new house and not pay more, it could be of lesser quality.

Not only will this affect new houses, but also any major reno projects will become more expensive for the same reason of the building supplies, fixtures and fittings, costing more. So in turn, this will add to price of any renovated established homes, and worsen the housing affordability.

The government is promising to compensate us for the obvious effects of a carbon tax – the easy to see ones – on the utility bills. Not sure whether or not this will happen or how it will work. But even if it does … what about the housing prices?

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