Building Standards · Australia · 2026

Why Australia's 7-star energy standard has divided the building industry

Australia's National Construction Code lifted the minimum energy rating for new houses from six stars to seven under NCC 2022, the first increase in more than a decade. States and territories then rolled out the change on their own timelines, from New South Wales in October 2023 through to Western Australia in May 2025, while Tasmania deferred the 7-star provisions and the Northern Territory adopted a lower 5-star minimum instead.

The rule has divided parts of the building industry. The Housing Industry Association says it added real cost to new homes at a difficult time. Federal and state government modelling, along with climate advocacy modelling, says the long-term savings can outweigh the added cost over the life of a home. The disagreement is not just about the figures — it is also about whether affordability is measured upfront, during construction, or over decades of lower energy use.

SECTION 01 · The rule change

What changed under Australia's 7-star energy standard?

New houses must now reach a minimum 7-star rating under the Nationwide House Energy Rating Scheme (NatHERS), up from 6 stars, the first increase to the minimum standard in more than a decade. New apartment buildings must average 7 stars across all units, with no single apartment allowed below 6 stars. Both changes took effect under NCC 2022, then rolled out state by state from late 2023.

Houses now need a Whole of Home score of at least 60 out of 100; apartments need at least 50. This added a new layer of assessment covering:

• Hot water systems
• Heating and cooling
• Lighting
• Onsite energy generation, such as solar panels and battery storage

The standard moved beyond the building shell to assess the home as a broader energy system. New South Wales is the exception: it uses its own BASIX scheme instead of a NatHERS Whole of Home assessment, aiming for similar energy-efficiency outcomes through a different pathway.

NatHERS is the main pathway used to meet residential energy-efficiency requirements, accounting for more than 90% of building approvals over the long term. That scale is why the change affected a large share of new-home construction at once. The previous 6-star minimum had stood since 2010, making this the first update to residential energy efficiency requirements in more than a decade.

Source: NSW uses BASIX instead of a NatHERS Whole of Home assessment. Australian Government NatHERS and NCC guidance; NatHERS FAQs.

SECTION 02 · Builder cost case

What builders have said about 7-star costs

The Housing Industry Association, known as HIA, puts the added cost at about $20,000 for a typical new house in Victoria from 1 May 2024. Its estimate combines the new 7-star energy-efficiency minimum with better accessibility requirements, rather than isolating the cost of the 7-star change alone.

HIA's broader position is that government modelling underestimates the real cost of moving from 6 stars to 7. It also points to broader ABS data showing building costs were already climbing sharply, arguing that a code change landing on top of that inflation added pressure to an industry already under strain.

The builder-side case is not a fixed dollar amount added to every house. It combines redesign effort, compliance risk, timing and a difficult broader cost environment into a single upfront-affordability argument, but it does not provide a clean national estimate for the isolated cost of moving from 6 stars to 7 stars.

SECTION 03 · Efficiency case

What governments and climate groups have said about 7-star savings

For an average house, government modelling puts the capital cost at $2,199 against $2,761 in energy bill savings and $261 in other benefits such as comfort, health and resilience — a net benefit of $822 and a benefit-cost ratio of 1.37. Apartments follow a similar shape: $579 in capital costs against $670 in savings and $74 in other benefits, a net benefit of $166 and a ratio of 1.29. On this modelling, the standard produces a positive net benefit in every jurisdiction except one: apartments in Queensland, where the net outcome is negative.

First-year savings are much smaller: $229 for houses and $208 for apartments in 2022, well below the long-run averages above. Stretched over a 30-year asset life, updated modelling puts the annual saving at $183 for houses and just $40 for apartments. These smaller figures are still official, and they support the same broad conclusion: running costs fall, just gradually.

NSW's higher BASIX standard is estimated to save an average of $1,070 a year in energy bills, leaving households $678 a year better off once mortgage repayments on the extra cost, at 5.94% p.a., are factored in. Queensland's standard is modelled to save $185 a year in electricity for new homes, provide a $506 million net benefit to the state, and provide a $2,696 net benefit per detached dwelling over its lifetime.

An all-electric 7-star home is estimated to save an average of $450 a year on heating and cooling compared with a 6-star home, at an average additional cost of $2,306 and a payback period of 5.9 years. These figures come from Climate Council modelling, which is advocacy modelling rather than government modelling or measured post-build data.

Government modelling, an industry estimate and advocacy modelling are different kinds of evidence, so they should not be treated as directly equivalent.

Source: OIA NCC 2022 Decision RIS; NSW Planning (BASIX); Queensland Government (Housing); HIA submissions, 2021 and 2023; Climate Council, 2022.

SECTION 04 · State cost data

State-by-state build cost data during the rollout

Average build costs rose by as much as 42.6% over two years in the fastest-moving jurisdiction, and by as little as 9.4% in the slowest, across the period spanning the standard's rollout. However, this ABS series does not isolate the cost of the 7-star standard. It shows broader movements in average construction costs for private sector houses, excluding land.

New South Wales and the ACT, the two earliest adopters, recorded the largest first-year jumps. NSW's average build cost rose from $432,039 to $520,907 in 2023-24, a rise of 20.6%. Growth then slowed to 8.6% in 2024-25. The ACT followed a similar shape: a 24.6% jump in 2023-24, the largest of any jurisdiction, easing to 14.4% in 2024-25.

Victoria and Queensland started on the identical date, 1 May 2024, and moved in opposite directions. Queensland's average cost jumped 15.6% in 2023-24, largely before its own standard had applied, then rose just 1.8% in 2024-25. Victoria did the reverse: a modest 5.2% rise in 2023-24, followed by a 12.0% jump in 2024-25.

Tasmania is the clearest comparison case, because it never adopted 7-star at all. Its average build cost still rose 9.9% in 2023-24 and a further 2.2% in 2024-25. Cumulatively across both years, Tasmania's build costs rose 12.3%, more than the Northern Territory's 9.4% over the same period. The two jurisdictions with the smallest two-year cost increases are also the two that did not adopt the 7-star standard, though broader cost pressures make it difficult to attribute this pattern to the standard itself.

Source: Ranked by two-year cumulative change. ABS: Building Activity, Australia, March quarter 2026, released 8 July 2026.

Total dwelling approvals fell 26.4% between the 2020-21 pandemic-era peak and 2023-24, and commencements fell 25.6% over the same period. Those figures show that the 7-star standard landed in a sector that was already contracting. They should not be read as evidence that the standard caused the fall.

SECTION 05 · Affordability tradeoffs

Why the 7-star debate depends on how affordability is measured

A $20,000 upfront estimate and a 1.37 benefit-cost ratio are both figures used in the debate, but they measure different things over different timeframes. The upfront estimate focuses on construction costs, while the benefit-cost ratio includes modelled long-term energy savings and other benefits.

For builders, affordability is often measured at contract signing and during construction. This view focuses on redesign work, compliance risk, assessor fees and higher upfront costs landing in a market that was already under pressure.

For supporters of the standard, affordability is measured over the life of the home. The official, state government and advocacy modelling covered above all make a similar case: a home that costs more to build upfront can cost less to run over time.

Both views draw on documented figures, but they are not measuring the same thing. That is why the disagreement is less about a single number and more about whether affordability is assessed upfront or over the life of the home.

SECTION 06 · What's next

What happens next for Australia's home energy ratings?

A national Trajectory for Low Energy Buildings Implementation Plan for 2026-2027 was approved on 16 December 2025, confirming that government work on building energy performance is continuing beyond the original NCC 2022 changes.

On 1 July 2026, the Australian Government launched the new Home Energy Rating brand and website. This included the rollout of Stage 2 for existing home ratings, extending the rating framework beyond new homes.

At a jurisdiction level, the next code cycle is already underway. In the ACT, projects with a development application lodged before 1 November 2026 may continue to seek building approval under NCC 2022 or NCC 2025. Projects with building approval after 1 May 2027 must comply with NCC 2025 and the ACT 2025 Appendix, subject to exceptions.

Source: DCCEEW, Trajectory for Low Energy Buildings; Australian Government, Home Energy Rating; ACT Planning, National Construction Code guidance.

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