Replace Before it Fails - Planning for Victoria’s 2027 Rental Appliance Rules

From 1 March 2027, Victoria’s new rental energy efficiency standards begin to phase in. The ones with the biggest cost impact for investors are the appliance rules. When a fixed heater or hot water system fails beyond repair, the replacement must be efficient electric.

Nothing has to be ripped out on 1 March. The trigger is failure, not the calendar. But failures rarely happen at a convenient time, and the date a unit fails will decide what you are required to buy.

What changes for hot water and heating

Hot water. From 1 March 2027, when an existing hot water system permanently fails and cannot be repaired, it must be replaced with an energy-efficient electric system, either a heat pump water heater or an electric-boosted solar water heater. A like-for-like gas replacement is no longer an option.

Heating. When an existing fixed heating system fails and cannot be repaired, it must be replaced with an energy-efficient fixed electric system with an outlet in the main living area. In practice that means a reverse-cycle air conditioner or heat pump (2-star or above on the GEMS heating rating for your climate zone), or an electric ducted system with a heating seasonal performance factor of 3.2 or higher.

What stays the same. A working hot water system or heater does not need to be replaced, provided a heater meets the existing minimum standard. Repairs are still allowed.

One point is easy to miss. The existing heating standard applies today, not from March. If a property has no fixed heater, or the heater does not meet the current minimum standard, one must be installed immediately, and portable heaters do not count.

Cooling: the one to plan around

Cooling follows a different trigger. From 1 March 2027, a fixed, energy-efficient cooling system in the main living area is required at the start of a new rental agreement or a conversion to month-to-month, or when an existing fixed system fails. From 1 July 2030, every rental property must have it.

A reverse-cycle air conditioner heats and cools. The same appliance may satisfy both the heating and cooling standards. If a gas heater fails in a property with no cooling, one installation may meet both requirements, rather than two separate purchases.

Other changes starting in March

 These apply at the start of a new rental agreement or a conversion to month-to-month, not on appliance failure:  

• Showerheads: a minimum 4-star WELS rating in all showers. 

• Ceiling insulation: R5.0, installed by a qualified installer, in ceiling spaces with no insulation.
• Draughtproofing: from 1 July 2027, with a gas safety check required first if the property has gas appliances. 

Exemptions

Not every property can comply. Exemptions may apply where heating, cooling or hot water comes from a centralised building system (common in apartments), where there is not enough space for a compressor, heat pump or rooftop solar, or where heritage laws or owners corporation rules prevent installation. Keep proof that an exemption applies. Even when one does, the property still needs a compliant fixed heater under the existing standards.

For apartment owners, check the owners corporation rules early. An external compressor unit may need approval before a quote means anything.

Cost and discounts

One Melbourne plumbing guide puts a heat pump hot water system at about $2,500 to $4,000 installed before rebates. Treat that as indicative, as quotes vary with the property and the installation. Costs for reverse-cycle systems depend on the size of the living area and the unit.

Every upgrade under the new standards is eligible for a Victorian Energy Upgrades discount, so check current offers before you commit.

On the tenant side, the Victorian Government estimates savings of up to $220 a year with efficient electric hot water and up to $215 a year with efficient electric heating and cooling. Lower running costs are one more reason a good tenant may choose to stay.

How a replacement is treated for tax depends on your circumstances, so speak to your accountant. This is not tax advice.

What to do before March

• List the appliances. Record the age, type and location of each heater, hot water system and cooling unit in every property. 
• Flag the older ones. A failed hot water system is treated as an urgent repair in Victoria. A breakdown leaves no time to compare quotes or check what the property can accommodate.
• Check practicalities. Switchboard capacity and a suitable spot for an outdoor unit can add cost and time to a heat pump installation. 
• Get indicative quotes now, and keep the installer’s details on file so a replacement can move quickly. 
• Keep records. Keep proof of installation and appliance information for any work done. 
• Think about timing. A failure before 1 March falls under current rules. Even where a gas replacement is still permitted, weigh it against the cost of an electric system that will be required at the next replacement. 

Talk to your property manager

Every property is different, so the sensible starting point is a conversation about what you have and when it is likely to fail. If you are a LongView client, ask your property manager to help you work out which standards apply to your property and plan ahead of an appliance failure, not after it.