Economist picks apart benefits of insulation

The potential benefits of improving the country’s rental property stock have been overstated, new analysis suggests.

Economic consultancy the New Zealand Institute of Economic Research (NZIER) provided the Ministry of Housing and Urban Development with a costbenefit analysis as part of its consultation to develop standards that would underpin the new Healthy Homes legislation.

The rules will set requirements for insulation and heating in rental properties.

NZIER said the Government’s proposals for improved heating, insulation and draught-stopping were likely to leave the country better off, through improved health outcomes and wellbeing, and reduced energy costs.

But now economist Ian Harrison, of Wellington consultancy Tailrisk Economics, says that analysis painted too rosy a picture of what could be achieved.

He said, although it was commonly claimed that New Zealand houses were ‘‘cold and damp’’, there was no clear evidence of a widespread problem.

Only 2.7 per cent of tenants claimed cold and dampness was an issue in their homes in a 2017 Branz report.

‘‘Most houses will be cold and damp if the tenant does not adequately heat and ventilate the property,’’ Harrison said.

He recalculated the costbenefit analysis, and found that if insulation was topped up to the highest standard proposed, there would only be 39 cents in benefit for every $1 spent – or a loss of 61c. The net cost to the country would be $270 million.

The NZIER research had estimated a benefit of $1.51 for every $1 spent.

‘‘Most houses will be cold and damp if the tenant does not adequately heat and ventilate the property.’’

Ian Harrison, Tailrisk Economics

Harrison also assessed that adding a heating requirement for living rooms would have a benefit of just 38c for every $1 spent – or a loss of 62c – and a net cost of $418m.

All up, he said imposing the Healthy Homes Guarantee proposals could leave New Zealanders out of pocket by between $1 billion and $2b.

But Housing and Urban Development Minister Phil Twyford said most people understood the health effects of cold, damp homes, particularly on children and the elderly.

‘‘Around 40,000 children a year are hospitalised with housingrelated respiratory and infectious diseases and about 1600 people die prematurely every winter. I am confident that the Healthy Homes standards, designed to make all rentals warm and dry, will be based on credible evidence from both New Zealand and aboard.’’

Harrison also took issue with the suggestion that the World Health Organisation recommended a minimum indoor temperature of 18 degrees Celsius.

‘‘What they did say is that no conclusions could be reached on the average indoor ambient temperature below which the health of the general population may be considered endangered. There was no evidence at all to support an 18C threshold.’’

He said whether 18C was right would depend on the house and its inhabitants.