AHRC08 Lifetime Affordable Housing in Australia – Assessing Life-Cycle Costs Horne, R, Morrissey, J., O’Leary, T. - Centre for Design, RMIT University Berry, M - AHURI-RMIT/NATSEM Research Centre, RMIT Hamnett, S., Kellett, J., Irvine, S - UniSA Abstract Presently, rising housing costs are a potential brake on the Australian economy and have particular social impacts relating to lower income households. In addition, improved environmental performance of housing is required to avoid undesirable future impacts on the environment and economy of Australia. There is a lack of consensus amongst policy makers on the best means to address these pressing issues collectively in housing policy, underpinned by a lack of systematic research on the theory, practice and metrics of combining the policy objectives of environmental sustainability and housing affordability. The debate concerning costs and benefits of environmentally improved housing and impacts on housing affordability has largely been framed as a choice between affordability and performance, two priorities in opposition to one another. However for the long term economic, social and environmental sustainability of Australia, affordability and environmental performance are both required. This paper details methods which will be applied to provide a clear, thorough and systematic exploration of the commonalities, incompatibilities and tradeoffs between affordability and sustainability. Existing approaches to life cycle costing will be synthesised and applied to case studies of 4 standard Class 1 and 2 house designs. For each design concept, three scenarios will be developed; baseline (5-star to current building codes); enhanced (7-star to enhanced performance parameters) and world class (approximately 9 star, approaching carbon neutral). Costs data will be collected and Life Cycle Analysis applied to each scenario to calculate capital, payback and lifetime costs of each, with emphasis on three key parameters; cost in dollars, Kgs of green house gases (KgGHG) and litres of water used. This wide ranging empirical analysis will develop a sufficient ‘case-book’ of evidence to make the affordability and sustainability aspects of the housing debate explicit. As a result, policy makers will be able to draw on systematic research which quantifies and analyses the costs and environmental savings for different stages and types of housing provision throughout the housing life cycle. This will subsequently enable evidence-based policy approaches that necessarily achieve both lifetime affordability and improved environmental outcomes. SISRQ/EL 28/08 1 AHRC08 1. Introduction It is an explicit assumption of this paper that we can no longer afford to delay major efforts to improve the energy and water performance of housing, while also providing quality, affordable housing for Australian families and individuals. Climate change is the major environmental driver, and the Stern Review is particularly relevant in its focus on economic costs and benefits of (in)action. It draws 6 major conclusions, the 3 most pertinent to this study being: “There is still time to avoid the worst impacts, if we take strong action now. The costs of stabilising the climate are significant but manageable; delay would be dangerous and much more costly. A range of options exists to cut emissions; strong, deliberate policy action is required to motivate their take-up.” (Stern, 2006) In the context of housing provision in Australia, the debate concerning public and private costs/benefits of environmentally improved housing and impacts on housing affordability has generated controversy amongst industry stakeholders and policy makers (Horne et al, 2006). The literature takes a variety of approaches, recommending policy perspectives, conceptual assessment frameworks and undertaking quantitative studies in attempts to address climate change and reduce energy consumption. However, there is a general tendency for housing affordability and environment sustainability to be opposed choices, with notable and growing exceptions especially in US and EU literature (e.g. Kellett 2006, Boardman et al 2005, Smith and Jones 2003, ) and there is a lack of systematic research on the theory, practice, metrics and policy implications of combining these objectives. Housing studies have much to add to the global sustainability debate but to date, housing researchers have not engaged environmentalists in critical debate on sustainability issues (Bhatti 2001). The affordability/sustainability opposition is a shortterm perspective in the view of the authors, and a longer term analysis is required, along with evidence-based policy approaches that necessarily achieve both lifetime affordability and improved environmental outcomes. 2. Framing the debate: Housing affordability Despite a lack of consensus across academic disciplines regarding a specific single definition of affordability, there is broad agreement that it is a growing issue (Berry, 2003, 2006a,2006b; Yates and Gabriel, 2005). A variety of reasons contribute to this, including increasing economic inequality, demographic change, fiscal constraint by government, land prices (including the impact of infrastructure charges) and building costs (Berry and Dalton, 2004). Household sizes are shrinking, while house sizes are growing, and the population is ageing, providing a mismatch between existing stock and future needs. Fiscal Policies such as First Home Owners Grants have contributed to rising house prices, while reduced land supply, the speculative behaviour of private landowners and perceptions of land supply shortages contribute to land price increases, with direct effects on property prices (Property Council of Australia, 2006). Furthermore, low supply SISRQ/EL 28/08 2 AHRC08 during high demand periods can have a lasting impact on housing prices (Berry and Dalton, 2004). Land price is also a significant component of housing price. Implicated in land price rises are pressures to address urban sprawl by regulating land supply at the urban fringe through planning initiatives such as urban growth boundaries. One outcome is intended to be increased urban densities, and Rickaby (1987) forecasts 21% reduction in travel distances, while ECOTEC (1993) estimated 16% reduction in transport emissions through such measures. Current metropolitan planning strategies for Australian cities, such as the Planning Strategy for Metropolitan Adelaide (2006) and Melbourne 2030 accept this as conventional wisdom. However, although well-founded, such policies have potential land inflation effects, unless sufficient, significant urban land such as brownfield and greyfield sites can be located and utilised to meet needs (Horne et al 2006). Brownfields are defined as ex-industrial sites which are unused and may or may not contaminated, while greyfields are urban lands which are currently underutilised given their location and potential. Major policy efforts are underway, for example in the UK, to utilise browfield and greyfield land for housing for effectively (e.g. Urban Task Force, 2005). Building costs have also risen. The relatively few extant studies examining the costs of measures to improve the energy and water consumption of housing generally indicate that any construction cost increases due to energy efficiency are marginal at around 1% of build or 0.5% of house cost, and that resulting operating costs are lowered, quickly paying back the additional build costs. This unpublished work relates to the ‘5 star’ mandatory energy performance requirement, introduced in national building codes from 2006. However, evidence of current average performance in other western countries of around 7 stars shows that significant further improvements in house environmental performance are possible (Horne et al, 2005). The net result is that, when home prices rise more rapidly than incomes – as has been the case in all of Australia’s hot housing markets over the past five to ten years – it becomes more and more expensive to help working families purchase homes (Jacobus & Lubell, 2007; Figure 1). SISRQ/EL 28/08 3 AHRC08 Figure 1: When home prices rise faster than incomes, the result is a growing affordability gap (Jacobus & Lubell, 2007) AHURI have conducted extensive research into this problem. The publication Housing affordability: A 21st century problem provides a comprehensive examination and overview of the drivers and dynamics involved in the current affordability problems being experienced in Australia. In 2002-03, for example, of the 7.6 million households in Australia, just under 1.2 million (16 per cent of all households) paid 30 per cent or more of gross household income in meeting their housing costs. Of these, 862,000 were lowerincome households, defined as being in housing stress. A further 164,000 were moderateincome households. (Yates & Milligan, 2007; Figure 2). Figure 2: Housing stress and housing affordability problems (Yates & Milligan 2007) Overwhelmingly, previous studies of housing affordability decline in Australia have concentrated on the threshold costs of accessing housing – e.g. buying a house on mortgage or meeting up-front rental costs like the bond – and on the ongoing mortgage repayment and rent payment. A range of other ongoing costs tend to be ignored in the affordability debate – notably, rates, infrastructure charges, energy, water and other and utility costs, house maintenance costs, insurance premiums, end of occupancy transaction costs (e.g. stamp duty on mortgage discharge, real estate agent commissions, etc.). In other words, the affordability debate is currently ‘front-end fixated’, while many of the costs and benefits (internal and external) associated with the environmental performance of houses are spread over the useful life of the dwelling. 3. Framing sustainability and housing The central starting proposition of the wider research project (see below) is that affordability and performance are not necessarily in opposition to one another. The aim is to develop a clear, thorough and systematic exploration of the commonalities, incompatibilities and tradeoffs between affordability and sustainability. The aim of this paper is to outline a research approach to enable this wider aim to be achieved. SISRQ/EL 28/08 4 AHRC08 First, the research area can be framed within the sustainability concept, for example, using Spangenberg’s (2002) prism of sustainability (see Figure 3). Practical sustainable development is ultimately concerned with combining, balancing or trading-off aspects of these economic, social, environmental (and institutional) dimensions (Mazza & Rydin, 1997, p3). The political and economic challenge for sustainable development is how to politically implement (social, institutional and environmental) targets for sustainability benchmarks for production and consumption patterns while maintaining or improving the standard of living and quality of life for the average citizen (Spangenberg, 2002, p298). ENVIRONMENT DIMENSION INSTITUTIONAL DIMENSION SOCIAL DIMENSION ECONOMIC DIMENSION Figure 3. Prism of sustainability (Spangenberg, 2002) The importance of the built environment for sustainable development is well highlighted in the literature (Jones et al. 2007, UNEP, 2007; Ortiz et al., 2008) Studies suggest that residential and commercial building sectors are responsible for about 30% of primary energy consumed in OECD countries, for example and this is expected to rise in the coming years (UNEP 2007). According to the Australian Government, buildings are responsible for many of the most significant environmental impacts, including, 42% of the energy, 25% of water used and 30% of the raw materials used (Internet Reference 1). There is a global potential to reduce approximately 30% of the projected baseline emissions by 2020 cost-effectively in the residential and commercial sectors, albeit by a SISRQ/EL 28/08 5 AHRC08 concerted and concentrated effort (Levine et al. 2007). Energy-use reduction in buildings needs to consider how buildings are designed, built and operated (Haapio, 2007). The IPPC highlight this opportunity for reduced emissions and higher energy efficiencies of our built environment, describing options such as smart design and flexible energy solutions as appropriate measures to help reach this ambitious figure of 30% (IPPC 2007). Many of the homes we build today may be with us for as long as 100 years, so the need to design and build homes that will be considered well-designed in twenty and thirty years time is very apparent, and indeed, pressing. The design of residential housing therefore plays a particularly important role to a more sustainable future. Science is increasingly being called upon to provide information for complex environmental decision-making (Liu, 2008). In terms of housing sustainability, building designers and occupants have long been concerned about building performance (Ding, 2008). Both Clarke (1999) and Soebarto (2001) discuss how explicit performance appraisal by simulation has become accepted as a best practice approach to building design. Assessment methods play a valuable role by providing a clear declaration of the key environmental considerations and their relative priority (Internet Reference 2). At the early design stages, key decisions can greatly influence the subsequent opportunities to reduce building energy use (Levine et al., 2007). Ding (2008) further argue that in order for environmental building assessment methods to be useful as a design tool, they must be introduced as early as possible to allow for early collaboration between the design and assessment teams. With regard to the use of simulation tools Haapio (2007) attests that the use and specific application of these tools can vary to a great extent. The detailed definition of the use and purpose of any given tool is crucial to its success. Questions such as where and when a tool should be used, who should use the tool, and how the results from the assessment should be utilised are crucial to answer for a successful tool (Haapio, 2007). 4. Key research questions Despite research literatures on housing affordability and on sustainability, there is a lack of systematic research on the theory, practice and metrics of combining the policy objectives of environmental sustainability and housing affordability. Given current trends, a range of research and policy challenges arise: 1. Systematic, transparent methods and studies of integrated lifetime environmental and cost assessment of housing options in Australia are needed; 2. Energy and water savings options require specific study in the Australian context; 3. Relationships between housing environmental performance and socio-economic factors require clear resolution to avoid adverse impacts (e.g. The Commonwealth DHA (2003) predicts summer deaths to increase by up to 50% in Australia by the year 2050); 4. Land supply and locational efficiency factors in housing affordability are growing problems and the potential use of urban brownfield and greyfield sites require systematic evaluation; 5. Current policies and fiscal measures tend to target initial costs of housing which can have unintended effects, while long term policy perspectives are required to ensure SISRQ/EL 28/08 6 AHRC08 long term housing affordability (incorporating investment and paybacks, split incentives, future housing needs, and climate change adaptation). From these challenges, a set of four linked research questions have been developed, as follows: Research Question 1: What are the through-life costs and benefits of predominant housing forms in Australia's major cities? Research Question 2: What are the real through-life costs and benefits of utilising urban brownfield and greyfield sites to supply more affordable housing around employment centres to enhance locational efficiency? Research Question 3: How do the costs and benefits identified in 1 and 2 impact on housing affordability over the short and long terms? Research Question 4: How can the perceived trade-off between affordability and housing performance be overcome by market and regulatory mechanisms including: (a) financial incentives and disincentives (private/public) to encourage environmental performance in housing: (b) regulatory and planning reform, including policies to encourage denser residential redevelopment on existing brownfield and grey field urban sites: and (c) refining affordability policy mechanisms to ensure long-term as well as short term positive outcomes? 5. The Lifetime Affordable Housing ARC Linkage Project Funding was obtained from the ARC Linkage scheme, along with industry partners (VicUrban, Building Commission Victoria, Land Management Corporation), RMIT University and UniSA, to undertake the project, split into 4 phases, presented here as Themes with a 5th Theme of information dissemination and communication being addressed throughout the project. Theme 1: Housing life cycle costs and benefits Life cycle costing of environmental performance is in its infancy. Existing approaches to Life Cycle Analysis will be synthesised and cases of 4 standard Class 1 and 2 house designs will be developed for use in the study. For each design concept, three scenarios will be developed; baseline (5-star to current building codes); enhanced (7-star to enhanced performance parameters) and world class (approximately 9 star, approaching carbon neutral). While there will be an emphasis on the climate zones in the case study areas, performance across all other Australian climate zones will also be modelled. Capital, payback and lifetime costs of scenarios will be calculated, with emphasis on three key parameters; $, kgGHG and litres of water used. Results will be expressed in terms of $ per kg GHG saved and $ per l water saved. Other environmental impacts (biodiversity, indoor environment quality, toxicity, stormwater) will also be evaluated. Theme 2: Locational efficiency costs and benefits Research conducted under this theme will seek to quantify the economic and environmental benefits of increased provision of affordable housing on sites within urban areas, rather than on greenfield sites at the urban periphery. Current data on brownfield and greyfield land availability will be supplemented with new research identifying SISRQ/EL 28/08 7 AHRC08 appropriate locations for affordable housing based on demand factors such as land prices, sustainable travel options and the location of employment. The costs of interventions required in order to release land within the case study locations will be assessed against the economic, social and environmental benefits identified. Existing methodological approaches, which will be adapted and applied to the case study areas, include those developed by CI Hamnett and colleagues to compare the energy use and greenhouse gas emissions of alternative housing forms in outer, inner and city centre locations. Theme 3: Affordability implications In addressing research question 3, the assessments from Themes 2 and 3 will be integrated and directions for fiscal and policy approaches developed. The analysis will identify, categorise and quantify the main financial and time costs that impact on the household over the short, medium and long term for the key case study scenarios. As such it will focus on the internal costs and benefits and those externalities that affect households, rather than the broader community. Relevant data will also be collected from ABS, industry and government sources and tested against the specialist knowledge of the Partner Organisations. Theme 4: Policy and transition mechanisms In the light of the integrated analyses presented in answer to the first three research questions, the use of particular policy instruments to minimise the long term net cost to households and the broader community of housing developments will be investigated. For each particular development scenario, derived from the case studies, the analysis will identify the cost consequences for households over the long term, the real (as opposed to perceived) trade-offs between environmentally performing housing and cost to the household, and the government policy interventions that would be required to enable households to minimise their long term housing costs. The second stage will focus on the external costs imposed on third parties in each scenario, and analyse the implications for government policy interventions aimed at minimising those costs while not compromising housing affordability. 6. Progress to Date Literature reviews of planning, affordability, financing/shared equity, and building environmental rating tools have been undertaken. Existing approaches to life cycle costing have been synthesised and are currently being applied to case studies of 4 standard Class 1 and 2 house designs. For each design concept, three scenarios are being developed; baseline (5-star to current building codes); enhanced (7-star to enhanced performance parameters) and world class (approximately 9 star, approaching carbon neutral). Costs data is being collected and Life Cycle Analysis applied to each scenario to calculate capital, payback and lifetime costs of each, with emphasis on three key parameters; cost in dollars, Kgs of green house gases (KgGHG) and litres of water used. This wide ranging empirical analysis will develop a sufficient ‘case-book’ of evidence to make the affordability and sustainability aspects of the housing debate explicit. SISRQ/EL 28/08 8 AHRC08 Authors such as Citherlet & Defaux, (2007) categorise the environmental impacts of households into direct impacts, incurred during use and operation and indirect impacts, incurred during the building life span, material fabrication, transport, maintenance and elimination. Costs to households may also be assessed in theses terms. Citherlet & Defaux, (2007) argue for the presentation of costs and impacts in a series of stages, as follows: Construction Operation Elimination / disposal Heating Ventilation Electricity DHW For the purposes of our initial review, costs incurred by households may be divided into initial or capital costs and ongoing or operational costs. Initial costs Initial cost factors relating to sustainability include the investment in ‘green building’ infrastructure such as insulation and renewable energy resources. Costs may be affected by a number of factors, as shown in Table 1. • • • • Increase of initial costs Insulation, double glazing, solar HWS, water tanks, green materials, advanced technologies, etc Premiums charged by builders and tradespeople unfamiliar with sustainable features Higher interest rates, insurance, if borrow more Carbon price will increase costs of energy-intensive materials • • • • • • Decrease of initial costs Reduced infrastructure costs (energy supply, roads etc) ‘Green’ discount loans (improved ability to repay loan) Smaller, simpler heating and cooling equipment and HWS Fewer light fittings Smaller, smarter floorplan Economies of scale Table 1: Factors affecting initial costs factors Ongoing costs In regard to ongoing costs, the mean (average) weekly housing costs for all households was $185 in 2005-06, according to the ABS. There is, however, considerable variation in housing costs with 43% of all households paying $75 or less per week. For owners without a mortgage, the average weekly housing costs were $29, which represented 3% of average gross weekly income for those households. Owners with a mortgage paid an average of $338 per week on housing costs, which represented 20% of their average gross weekly income; although about 36% of this amount was repaying the principal outstanding on the loan. Households renting from private landlords paid an average of $223 per week, representing 19% of their average gross income. Households renting from SISRQ/EL 28/08 9 AHRC08 state and territory housing authorities paid an average of $100 per week, representing 17% of their average gross income (Internet Reference 3). Table 2 presents some of the factors relating to ongoing cost factors for households relating to sustainability • Increase of ongoing costs Higher maintenance for solar HWS, rainwater tanks etc • • • • • • • • Decrease of ongoing costs Need to own fewer cars and drive less Lower energy and fuel bills Reduce carbon prices and total carbon permit costs Less wear and tear on appliances Lower replacement costs (eg carpet), painting, etc Lower health costs, less absenteeism from work Improved comfort means enjoy staying home in heat Able to stay if disabled or ageing Table 2: Factors effecting ongoing costs in relation to sustainability Energy use is an area of particular concern. In terms of residential energy use, overall energy use is predicted to grow by 53% by 2029-30. This is driven by the trend of increased appliance use and appliances which use 'standby' power. While appliances only account for 17% of energy consumed in Victorian homes, they generate 40% of household greenhouse pollution as most appliances use electricity rather than gas. Energy in the residential sector is mainly used for space heating and cooling, and water heating. Figure 4 presents a breakdown of residential energy use for 2004-2005 (Data taken from Victorian Energy Efficiency Action Statement, Department of Sustainability and Environment, 2006, Internet Reference 4) SISRQ/EL 28/08 10 AHRC08 Figure 4: Residential sector energy services 2004-05 (Internet Reference 5) Application of costs data A number of studies have been carried out which provide signposts to the direction costing investigations could take. Mithraratne & Vale (2004) describe a life-cycle analysis model based on embodied and operating energy requirements and life cycle costs over the useful life of a residential building. The model applied is based on generic construction types and uses current prices for building related activities and energy. The model also includes an indicator of environmental impact. The study applied this developed model and looked at 3 variations of a Building Industry Advisory Council (BIAC) standard house. For example, regarding the addition of extra insulation, the following findings are given: “The initial cost of construction increases with the additional insulation and remains higher throughout the useful life….Although the marginal increase in cost does not provide benefit to the individual house owner, it could buffer the owner against any sudden increases in energy prices, while providing improved comfort and additional health benefits” (Mithraratne & Vale, 2004) Risk and future cost scenarios Bound with the financial implications of higher environmental performance are a series of assumptions about future energy costs. In particular, environmental impacts must be considered together with the costs to households, considered in the context of energy price rises, carbon taxes and global warming implications. Papers such as Martinsen et al. (2007) apply scenario analysis to examine the implications of energy price dynamics and future energy systems. Figures 5 and 6 describe 3 various energy price scenarios: Figure 5 presents future projected prices of 6 fuels under these scenarios, while Figure 6 presents the predicted impact of a CO2 penalty on CO2 emissions, for each of the scenarios. SISRQ/EL 28/08 11 AHRC08 Figure 5: Prices of imported energy carriers in $2000/GJ (Martinsen et al., 2007) Figure 6:CO2 emissions in the price scenarios with and without a CO2 penalty (Martinsen et al., 2007) Scenarios such as these will be developed during the course of the Lifetime Affordable Housing project. Sources of data such as the Australian Energy, National and State projections to 2029-30 publication (ABARE, 2005) will be explored for this end (Figure 7). SISRQ/EL 28/08 12 AHRC08 Figure 7. Australian energy projections to 2029-30 (ABARE, 2005) Alan Pears (pers.comm. 2008) carried out some calculations demonstrating how such scenario analysis could be applied to assess the impact of CO2 costing on two households, an energy efficient household and a business as usual household. Figure 8 presents these findings and gives some idea of how costing data may be applied to develop useful scenarios for planners and decision makers. Shown are the annual costs to the two case-study households, under the two costing scenarios, CO2 at $30 per tonne and CO2 at $50 per tonne. SISRQ/EL 28/08 13 AHRC08 Figure 8: Household energy savings for an efficient ‘average’ household per annum (Alan Pears, pers.comm. 2008) 7. 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