Power Price Hikes: How Rising Electricity Bills Will Impact Aussie Property

Power Price Hikes: How Rising Electricity Bills Will Impact Aussie Property

Australian households and businesses are bracing for increases in electricity bills in the coming months, further straining already tight budgets amid the ongoing cost-of-living pressures. The impending price rises have implications for the property market, affecting affordability, investment decisions, and the attractiveness of certain property types.

AER’s Draft Default Market Offer

The Australian Energy Regulator (AER) recently released its draught decision on the “Default Market Offer” (DMO), which sets price caps for customers on standing retail electricity plans. These caps are set to increase from July 1st, leading to higher electricity costs for many consumers. It’s crucial to understand that the DMO acts as a price safety net for customers who haven’t actively chosen a market offer. While most households are on market offers, the DMO changes can still influence pricing across the board.

Regional Price Variations

The AER’s draught decision indicates price increases across several states:

• New South Wales (NSW): Prices are expected to rise between 2.5 per cent and 8.9 per cent.
• South-East Queensland: Similar increases of 2.5 per cent to 8.9 per cent are anticipated.
• South Australia: Households in South Australia will also face price hikes within the 2.5 per cent to 8.9 per cent range.

These percentage increases translate to significant dollar amounts annually. Inflation-adjusted annual price increases of between $60 to $140 are projected, depending on location and energy consumption. Small business customers could see even steeper rises, potentially between 4.2 per cent and 8.2 per cent.

Victoria’s Unique Situation

Victoria operates under a different regulatory framework, with the state’s Essential Services Commission (ESC) setting its own default offers. This year, the ESC has announced a mixed bag for Victorian consumers. Some zones may see annual price *decreases* of up to $19, while others could experience increases of up to $68. The average increase across the five Victorian zones is projected to be around $12 annually. This highlights the geographical nuances in energy costs across Australia.

Impact on Property Market

Rising electricity prices can impact the property market in several ways:

• Affordability: Increased energy costs reduce disposable income, potentially impacting mortgage affordability and rental affordability. This is particularly concerning for first-home buyers and low-income renters. High power bills will further restrict affordability, potentially decreasing demand for particular properties.
• Investment Decisions: Investors may need to factor higher operating costs into their calculations, potentially affecting rental yields. Properties with poor energy efficiency may become less attractive to renters.
• Property Value: Homes with energy-efficient features like solar panels, insulation, and efficient appliances may become more desirable, potentially increasing their value compared to less efficient properties. Older properties, without energy efficiency updates already in place, may become less appealing to buyers and renters alike.
• Rental Market: Landlords may attempt to pass on increased electricity costs to tenants through higher rents, further exacerbating rental affordability issues.

Industry Perspectives

While the AER frames the DMO adjustments as a reflection of rising input costs for retailers, concerns have been raised by consumer advocacy groups. These groups argue that more needs to be done to protect vulnerable households from energy price shocks, and that retailers should be doing more to offer competitive market deals.

A statement by AER Chairwoman Clare Savage acknowledged the challenges faced by consumers: “We know that cost-of-living pressures are front of mind for many households and small businesses… We’ve seen cost pressures across nearly every component of the Default Market Offer (DMO), and we have given careful scrutiny to every element of the DMO cost stack to ensure prices are a reasonable reflection of the costs of a retailer to supply electricity.”

However, critics argue that the AER’s framework for assessing costs doesn’t adequately incentivise retailers to find cost savings and pass them onto consumers. There are also concerns about the transparency of the cost components included in the DMO calculation.

Moving Forward

For property professionals, it’s crucial to stay informed about these energy price changes and their potential impact on the market. Advising clients on energy-efficient upgrades and understanding the implications for rental yields and property values will be increasingly important. The focus on the property sector is trending towards energy efficiency and sustainable costs to help alleviate growing pressures that are now present in the Australian Economy.

Consumers are encouraged to shop around for better energy deals and explore energy efficiency measures to mitigate the impact of these price increases.

Source: Industry research and analysis.

This article is based on a report from www.9news.com.au titled “Aussie households hit with higher electricity bills within months”. You can find the original article here: https://www.9news.com.au/national/australian-households-hit-with-higher-electricity-bills-within-months/20c21ed6-7f3a-4d52-8b90-4b11c9eb9532