The vexed question for construction companies: How to govern during the crisis for housing demand without compromising net-zero objectives?
Australia faces a dual challenge: meeting the rising demand for housing while simultaneously delivering on its net-zero emissions (NZE) commitments. Residential housing accounts for about 18% of the nation’s greenhouse gas emissions, and while NZE home technologies exist, widespread adoption has been slow due to cost constraints, low consumer demand and relatively low capacity to deliver net-zero homes. Volume builders, who dominate Australia’s housing market, are essential in achieving sustainable development, but they face significant hurdles.
Why should governance professionals be concerned about this issue?
The transition to NZE homes requires organisations to navigate regulatory changes, supply chain adjustments, and shifts in market expectations. Governance professionals are instrumental in ensuring their companies maintain strategic alignment, govern and manage risks, and support their operations to achieve both business and sustainability goals. This article explores these challenges and opportunities, with a focus on how governance professionals can support their organisations in facilitating this complex transition.
The method: Developing insights for the transition
Insights for this article were developed through a combination of interviews and a collaborative workshop with key stakeholders in the housing sector, including builders, developers, and industry experts. Discussions focused on identifying the barriers to and opportunities for adopting NZE homes. The workshop allowed participants to validate the findings and explore solutions for overcoming these barriers. This method revealed the following insights: While NZE homes are technically feasible, the housing sector faces significant challenges in scaling them. These challenges, and the governance responses they necessitate, are critical to the future of sustainable housing supply.
Types of companies involved in the housing supply chain
The housing supply chain consists of a range of stakeholders, each playing an important role in the shift to NZE homes. Governance professionals in these organisations must align strategy with sustainability, manage risks, and appreciate the complexity of issues across these groups:
- Developers: Plan and acquire land, working closely with builders to meet design and regulatory requirements.
- Volume builders: Large-scale construction companies that influence market trends and play a central role in housing supply (and influencing demand).
- Specialist builders: Focus on custom or sustainable homes, often leading the way with innovative technologies and supporting the early adopters in the market.
- Suppliers: Provide materials and technologies needed for NZE construction, such as energy-efficient systems and materials.
- Tradespeople: Execute NZE construction, requiring skills development and training on advanced technologies.
- Consumers: Drive demand for NZE homes; educating them on the benefits of sustainable housing is essential.
- Real estate agents: Shape consumer preferences by highlighting the economic and environmental value of NZE homes.
- Policy makers and regulators: Set the regulatory framework for energy efficiency and sustainability in construction.
- Financial institutions: Influence the affordability of NZE homes through financing options and incentives.
Governance professionals across these organisations, entities and individuals, must ensure strategies are integrated across the supply chain, particularly in terms of managing compliance, costs, and quality, aligning business models with sustainability, enabling consistent supply, and optimising supply chains for NZE products and materials.
In short – the supply chain is complex.
Challenges in achieving net-zero emissions homes in Australia
Although NZE homes are technically feasible, the housing industry, as a whole, must overcome significant barriers:
- Technological complexity: NZE homes require advanced materials and systems, such as energy-efficient appliances, insulation, and renewable energy sources. Governance professionals must ensure their organisations have the necessary expertise and are investing in the required skills and technology to manage these complexities. Unless you are a leader in innovation, continuing with business-as-usual technology will not pass any good governance test.
- Higher initial costs: The upfront cost of NZE homes can be approximately $20,000 or more higher than traditional homes, making them less appealing to both builders and consumers. Governance professionals should focus on developing financial strategies that balance these costs while maintaining long-term profitability.
- Low consumer awareness and demand: Consumers often prioritise visible upgrades (e.g. fancy kitchen layouts tc) over energy efficiency or renewable energy capability. Governance professionals can help shape internal communication strategies that better highlight the long-term value of NZE homes to shift consumer preferences and drive demand, and prime their boards as to the risks and opportunities.
- Supply chain inertia: Existing supply chains are designed for conventional building methods and materials, making it difficult to introduce sustainable alternatives without disrupting operations. Governance professionals must evaluate the resilience of their supply chains and drive the adoption of NZE technologies and materials.
- Policy uncertainty: Builders face a lack of consistent regulatory pressure to drive the adoption of NZE homes across consumer cohorts. Governance professionals must ensure their organisations remain agile and proactive in anticipating and responding to future regulatory changes while embedding sustainability into long-term strategic planning.
Opportunities and proposed interventions
Despite the challenges, several strategic interventions could help accelerate the supply and adoption (demand) of NZE homes in Australia. Governance professionals have an opportunity to drive or at least catalyse these initiatives in their own organisations. Remember one of the secret weapons of governance professionals is that they are often setting board agendas:
- Training and capacity building: Governance professionals should support the development of internal training programs to upskill tradespeople, supervisors, and sales teams on NZE technologies, ensuring the workforce is prepared to meet future demands.
- Collaborative workshops: Supporting the bringing together of builders, developers, policymakers, and suppliers to collaborate on NZE solutions can foster innovation. Governance professionals can support these collaborations and ensure alignment on NZE goals across the organisation – to both the board and the staff.
- Consumer awareness programs: Governance professionals should influence their organisation’s marketing strategies to communicate the long-term economic and environmental benefits of NZE homes, helping to shift consumer preferences and drive demand.
- Supply chain optimisation: Strengthening relationships with suppliers who provide sustainable materials and optimising supply chains for energy-efficient and zero emissions products is critical. Governance professionals must ensure their organisations are building robust, future-proof supply chains.
- Policy and regulatory advocacy: The NSW Government’s funding of a program that created the national Materials Embodied Carbon Leadership Alliance (MECLA), an initiative established by the author and which is now a 140+ strong national member based organisation, demonstrates how government support can help solve supply chain challenges for NZE materials and homes. Governance professionals should be aware of the importance of advocacy for such initiatives that support both supply and demand risks and opportunities for NZE homes and more broadly in their quest to establish themselves in the nascent net-zero economy.
The role of governance professionals in the housing supply chain
Governance professionals are uniquely positioned to help their organisations navigate the transition to NZE homes. Though not responsible for writing business cases, they are essential in identifying risks, enabling strategic alignment, and ensuring operational readiness across the supply chain. Their key responsibilities include:
- Strategic alignment: Governance professionals must ensure that sustainability goals are embedded in their organisation’s long-term strategy and that business priorities align with NZE objectives. This was once an option – not any longer with mandatory climate reporting facing businesses.
- Risk management: The transition to NZE homes involves financial, regulatory, workforce and other operational risks. Governance professionals should lead in supporting the identification of these risks and developing mitigation strategies that position their organisations for success in the emerging net-zero economy.
- Supply chain optimisation: Governance professionals must ensure the evaluation of supplier relationships and encourage the internal adoption of sustainable materials and technologies, ensuring that supply chains are optimised for NZE construction.
- Training and workforce development: Ensuring that the workforce is equipped to handle the demands of NZE home construction is a key responsibility – from on-site supervision to the sales team. Governance professionals should oversee the development of comprehensive training and capacity-building programs within their organisations.
Key questions for governance professionals across the housing supply chain
The following questions are designed to help governance professionals focus on their organisation’s internal (company) impact in the transition to NZE homes, separate to external advocacy to government or industry:
- What barriers within our organisation’s supply chain prevent the adoption of sustainable materials and technologies, and how can we mitigate them?
- How can we balance the costs of transitioning to NZE homes while ensuring long-term profitability?
- What training and development programs are necessary to prepare our workforce for NZE construction?
By addressing these questions, governance professionals can guide their organisations through the complex landscape of housing supply and sustainability, ensuring they are well-prepared for future challenges and opportunities in the net-zero economy.
Conclusion
Australia’s housing shortage and net-zero emissions commitments create a challenging environment for volume home builders and construction companies. Governance professionals play a central role in guiding their organisations through these challenges by governing and managing risks, aligning their businesses’ strategies with sustainability goals, and optimising supply chains to produce NZE homes. With proactive governance, construction companies can contribute to both housing supply (and demand) and climate targets, ensuring long-term success for their organisations and the wider sector.
Turlough Guerin is an Honorary Fellow at the University of Melbourne and. He is a member of the Future Generation Working Group at Hepburn Energy, Former CEO of Landcare NSW and led NSW Government’s first funded program under the NSW Net Zero Plan called the Low Emissions Building Materials Program. He can be contacted at turlough.guerin@hotmail.com or 0439 011 434. For more detailed findings, refer to the full published study, “Achieving Net Zero Homes in a Growing Housing Market: Barriers and Solutions,” in the September 2024 edition of the Journal of Building Research and Information.