The tax-free return most homes are still missing

A better-performing home is an investment that pays you back with tax free returns. Australians are starting to make it, but slowly, and from a low base. Why it is still the exception is not the question the debate keeps asking.

Insulate a home, seal the draughts, put in efficient electric heating and cooling, add solar and a battery, and you change its economics. The bills fall. The comfort rises. Over time, the upgrade pays for itself.

On paper it is one of the better investments a household can make. The workhorse upgrades, insulation, draught sealing, rooftop solar, and efficient hot water, typically pay for themselves within three to seven years. As a return on the money spent, that is roughly 15 to 30 per cent a year, tax free, in bills you no longer pay. Few things you can buy off the shelf do better. Climateworks puts the saving on an older home upgraded with insulation and electric appliances up to $2,200 a year, and it recurs for as long as you own it.

Rooftop solar shows how fast Australians move when the offer is right. The deeper upgrades are spreading slowly, and from a low base: around seven in ten of our eleven million homes still perform poorly. The mystery is why something that is self-sustaining remains the exception instead of the norm.

Start by clearing away the easy answers. It is not that the technology is unproven. On the electrification staircase that Michael Liebreich set out at this year's Energy Efficiency Council conference, heating and upgrading buildings sit in the lowest band, the "commercial now" zone, alongside passenger cars. They are nowhere near the genuinely hard problems still being invented, like low-carbon cement or long-haul aviation.

Nor is the world short of money. The capital exists in vast quantity; the problem is where it flows. The latest Global Status Report for Buildings and Construction, the United Nations' annual stocktake of the sector, puts global investment in building energy efficiency at about 275 billion US dollars in 2024. It is rising, but the report's verdict is that it is falling short: investment needs to climb by a further 3.6 trillion by 2030 just to stay on a net-zero path. That gap is not a shortage of capital. It is a shortage of capital reaching homes.

So what does everyone say is missing? Finance. Climateworks recently set out that nearly three million Australian homes need upgrading this decade, and named accessible finance among the things a successful renovation wave needs. The International Energy Agency and governments here and abroad say much the same: the missing piece is better, more innovative finance. And the lever that recommendation has reached for, almost always, is the soft loan: cheaper, subsidised, low-interest credit to bring the cost within reach.

It is the obvious move, and the evidence says it does not work. A study of about 6,600 homeowners in eight European countries found that people who dislike debt are less likely to upgrade, whether or not they can comfortably afford to borrow, and that soft loans do little to shift them.

People avoid the upgrade because they dislike the debt itself, even when they can afford it and even when it pays off. Germany has offered upgrade loans at well under one per cent. Scotland has offered them at zero. The debt-averse still say no. Australia has run the experiment too with the CEFC's Household Energy Upgrades Fund: a billion-dollar fund of discounted green loans for home upgrades which has moved slowly, while a the Cheaper Home Batteries Scheme has been abundantly popular. The pattern is consistent. Cheaper debt is still debt, and for a great many people debt is precisely the thing they are avoiding.

It is tempting to read that as a case for more rebates, and the battery program has done its job as evidence. But a rebate works because it spares people the borrowing, and it does so with public money, reaching the households who can fund the rest themselves. Public budgets are not magic puddings, however often policy tries to slice them. The useful lesson is narrower: people act when the personal debt disappears. The question is how to make it disappear without the taxpayer picking up the bill.

So the consensus is right that finance is the missing piece. But the innovation it calls for has, in practice, meant little more than cheaper credit, and cheaper credit is the lever the evidence keeps rejecting. We keep prescribing a larger dose of the medicine that is not working. The question nobody quite asks is the one that matters: why is the finance we already have not doing the job?

The honest answer is that it is the wrong shape. A personal loan asks you to take on debt in your own name, on your own credit, that you carry even if you sell and move on in a few years, to pay for a benefit that lands largely after you have gone. Declining that is not irrational. It is a sensible response to an instrument built for something else.

So change the shape. Attach the financing to the property rather than to the person. It would not reduce how much you can borrow for the home itself. The charge is collected through the council rates on the property, the way other property charges already are, and if you sell, it stays with the home and passes to the next owner, along with the lower bills. It changes the offer from "take out a loan" to "improve the property and let the property carry the obligation". That is the idea behind Property Linked Finance. It already operates in Australia for commercial property as Environmental Upgrade Agreements. Whether it can work for homes is precisely the question now being tested.

Over the coming months, new Australian consumer research will look at how people respond to financing built this way. The interesting question it asks is not whether households want a cheaper loan. It is whether changing the structure changes the answer.

The renovation wave will not be built by asking households to become miniature project financiers. It will be built by changing the financial architecture around the home.

For now, the shift is a small one, in where we point. When something pays for itself and people still hang back, the problem is not the price of the money. It is the shape of it.