Building Upgrade Finance

The Hon. T.T. NGO (14:34): My question is to the Minister for Climate Change. Will the minister provide an update on Building Upgrade Finance?

The Hon. I.K. HUNTER (Minister for Sustainability, Environment and Conservation, Minister for Water and the River Murray, Minister for Climate Change) (14:35): I thank the honourable member for his very important question. Building Upgrade Finance is a key commitment of this government. Its aim is to help drive investment in our property sector, improve our building stock, help tenants cut costs and create jobs. For owners, building upgrades can reduce operating costs, increase yields, help attract and retain tenants and improve the value of assets.

For tenants it can help to reduce net operating costs and improve indoor amenity and staff productivity. There is also an opportunity for local manufacturers to supply materials needed for these upgrades, and there is also an opportunity, we hope, for local companies to set up and to offer a complete upgrade package to building owners.

The mechanism has been implemented to overcome the current barriers that exist that create a split incentive, as it is called, regarding such upgrades. That is a split incentive in that the building owner has to invest in the upgrades, but the people who benefit directly are usually the tenants. According to previous modelling undertaken regarding Building Upgrade Finance, there is the potential to create hundreds, if not thousands, of jobs into the future; to free up to half a billion dollars in potential CBD capital investments; and to save greenhouse gas emissions by up to 32 per cent.

In an Australian first, Building Upgrade Finance in South Australia will allow heritage work to be eligible under this mechanism. This includes modifications to heritage listed buildings to comply with the current building code and disability access requirements. I am very pleased to announce that the mechanism came into operation last Tuesday 1 August. The regulations have been proclaimed, and the no-worse-off methodology has been approved. On 8 August, the City of Adelaide became the first council to approve the use of BUF within their area, I am advised.

In the coming weeks and months, I look forward to other councils approving the use of BUF in their area, because it is applicable across council regions, not just confined to the CBD. I am advised there is a great deal of interest across the state already. While the department developed the regulations and the no-worse-off methodology, the government instituted an early adopter program. This program worked with the sector to identify buildings that might be financed under the program.

I am advised that nearly 30 projects have been registered through this work and that of these, nine have had business cases developed. These projects span metropolitan Adelaide and regional South Australia. I am advised that Eureka Finance, just one financier interested in BUF, has indicated they are committed to providing $100 million for building upgrades across the state.

It is important to remember that our mechanism incorporates a central administrator. This administrator will help councils to offer and facilitate BUF agreements. It is intended to avoid administrative duplication between councils, to centralise expertise and to reduce barriers to council participation as well as to provide a one-stop shop for building owners and financiers. The mechanism is most easily explained, I suppose, in the words of some industry participants. Quentin Shaw from Eureka told The Advertiser on 15 March:

BUF addresses this split incentive issue by allowing building owners to utilising the tenant energy savings to fund the upgrade programs. It makes economic sense and it also delivers true benefits to tenants, by way of lifting building performance and reducing energy use by as much as 60 per cent.

Mr Alistair Laycock, the managing director at CBRE, has also said to The Advertiser:

For tenants, it also provides the opportunity to occupy more environmentally sustainable premises, something that is becoming a significant focus for major corporates in particular as they look at ways to attract and retain key talent.

And in the words of Mr Daniel Gannon, the executive director of our state's Property Council:

As a scheme, it will reduce operating costs, increase yields, help attract and retain tenants, and increase asset values. In simple terms, it's a policy no-brainer at a time when vacancy rates are high and tenant demand is soft.

This mechanism has come about because of the hard work of many, many people over the years. I would like to thank Mr Daniel Gannon. The South Australian Property Council, the local government sector and the City of Adelaide have all worked with us cooperatively.

I also want to take a moment to acknowledge many of the staff in my agency, led by Ms Sandy Pitcher and Julia Grant, and Mr Richard Day, Acting Director of the Low Carbon Economy Unit, Department of the Premier and Cabinet, who have all seen the value of this program that has been incorporated into New South Wales and Victoria, I think. They have taken the best parts of their legislation and put it into a piece of legislation unique for our state.

Our staff, in particular Olessya Vitkovskaya, have worked tirelessly over a number of years to get this scheme operational and I am very pleased that now the regulations are in place, I can look forward to the early adopter program signing up some early adopters, and hopefully being able to report in this place on some of the various first steps taken by those wanting to take up the BUF in South Australia.