Housing Tenure, Energy Consumption and the Split-Incentive Issue in Australia

In recent years, there has been growing global recognition of the need to reduce carbon emissions in response to climate change concerns. It is generally acknowledged that the energy efficiency of existing homes can be improved, but there are significant barriers to its uptake. In particular, improving the energy efficiency of private rental housing presents unique policy challenges due to a split-incentive problem. This has prompted some governments to introduce programmes that encourage landlords to improve the energy efficiency of their properties. While landlords are responsible for the purchase of many energy-consuming household appliances, tenants are responsible for energy bills. Since the landlord does not reap the immediate benefits of investment in energy-efficient equipment, the incentives motivating such investment are weaker than for homeowners. This paper aims to quantify the magnitude of the split-incentive problem in the Australian private rental housing market by invoking a modelling approach where energy expenditure is estimated as a function of housing tenure, dwelling type, location, climate and other socio-demographic variables. We find no evidence in support of the split-incentive hypothesis in Australia. The paper concludes that differences in housing policy arrangements could be critical to the presence and importance of split incentives.