Energy costs hit low-income households hardest

Tuesday, 25 August, 2015

Research released by the CRC for Low Carbon Living has found that over the past two decades (1993–2012), low-income households and those caught in the housing affordability trap felt the brunt of energy costs. Higher income households were meanwhile unaffected, as income rose above inflation and in line with prices.

For low-income families, such as young singles, households with many children and renters, energy costs rose from 5.2% to 5.6% of their household income. A key issue for those struggling to pay bills was not the cost of energy itself but the cost of housing, with 63% of renters and 43% of purchasers having payment difficulties.

“It is clear that for most, energy costs have kept in line with income, although lower income earners have felt the pinch more,” said the co-author of the report, Professor Terry Burke from Swinburne University of Technology. “Also, due to the time period of the research, many households had the opportunity to adapt their behaviour to reduce the impact of price rises on the household budget.

“Overall, we found the strongest indicators for the inability to pay energy bills in the low-income group were those receiving financial assistance from the government or paying more than 20% of their income on housing. This indicates that even the relatively wealthy can struggle to pay their bills if they have a large mortgage.”

The study also found that during the two decades, the proportion of the low-income group paying more than 10% of household income on energy grew from 11.7% to 18.5%, but only 24% of these seemingly worst-affected people reported difficulty paying their bills.

The type and size of dwelling had an independent effect on energy consumption, according to Professor Burke, who stated, “Large houses resulted in higher energy costs, even with a low number of occupants.

“For example, for a couple in a detached house in 2012, the median costs for energy rose from $22 per week for a one-bedroom dwelling to $36 per week for four bedrooms,” he said.

The study additionally investigated the impact of fuel costs and the inability to pay bills.

“We found that the cost of petrol was higher than the cost of energy in all income groups, with lower income earners paying 6.9% of their household income on petrol,” Professor Burke said. “The data also showed that when prices were high there was a reduction in fuel expenditure, indicating that adaptive behaviours took place to manage the price rises.

“The report concludes with observations about why there is not more attention paid to the fact that petrol costs have a higher impact on household expenditure than gas and electricity, with explanations suggesting that motor vehicle users have different choices to utility users. This could be to choose to walk, bicycle or take the train, as opposed to driving.”

The report can be found on the Low Carbon Living CRC website.

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