Key takeaways
- A heat pump moves heat from the air into the water using a refrigeration cycle, so it uses far less electricity than an electric element heating the water directly.
- Heat pumps help new homes meet energy targets, including the energy section of BASIX in NSW, and they suit all-electric homes with rooftop solar.
- Sizing depends on household size and use, not the size of the house. An undersized unit runs out of hot water; an oversized one wastes money.
- Siting decides whether the job is a success: noise near bedrooms and neighbours, airflow, clearances, condensate drainage and access for service all matter.
- The trades involved can include a plumber, an electrician and, for split systems with refrigerant lines, a technician licensed to handle refrigerant.
A few years ago, heat pump hot water was an upgrade for enthusiasts. Now it is standard on a large share of new homes, driven by energy targets, rising gas prices, rooftop solar and incentives. For builders, that means heat pumps are no longer a specialist item. They are a routine inclusion that needs to be sized, sited and installed properly, because when they go wrong, the complaints are loud, sometimes literally.
This guide covers how heat pumps work, why they help new homes meet energy requirements, how to size and site them, the trades involved, and the problems that turn up after handover.
How a heat pump works
A heat pump water heater works like a refrigerator in reverse. Instead of pumping heat out of a box to keep it cold, it pumps heat from the outside air into the water tank.
How a heat pump heats water
- 1AbsorbA fan draws outside air over an evaporator. A refrigerant absorbs heat from the air, even on cool days.
- 2CompressA compressor raises the refrigerant’s pressure and temperature.
- 3TransferThe hot refrigerant passes through a heat exchanger and heats the water in the tank.
- 4RepeatThe refrigerant expands, cools and returns to the evaporator to pick up more heat.
Because a heat pump moves heat rather than generating it from electricity directly, it uses a fraction of the electricity an electric element would need to heat the same amount of water. The ratio of heat delivered to electricity used is called the coefficient of performance. It varies with the air temperature and the unit, and it drops as the outside air gets colder.
Why heat pumps suit new homes
Energy targets
Hot water is one of the biggest energy uses in a home. Replacing a conventional electric storage system with a heat pump reduces the home’s energy use and emissions significantly. That makes heat pumps one of the most effective ways to meet energy requirements. In NSW, the BASIX energy section credits efficient hot water systems, and heat pumps are one of the reasons many new homes meet the energy target without difficulty. In other states, heat pumps help with the whole-of-home energy requirements introduced with NCC 2022.
All-electric homes and solar
Heat pumps are central to all-electric homes, which avoid a gas connection altogether. In Victoria, new homes requiring a planning permit applied for from 1 January 2024 cannot connect to gas, and the ACT has also moved away from new gas connections. Elsewhere, many clients are choosing all-electric by preference. A heat pump running during the day on rooftop solar, using a timer or a smart controller, can heat water at very low running cost.
Incentives
Heat pump water heaters can be eligible for small-scale technology certificates under the federal renewable energy scheme, which reduce the upfront price, and some states run additional programs. Incentives change, and eligibility depends on the product and circumstances, so check the current schemes before quoting a client a net price.
Sizing
Heat pumps are sized by hot water demand, not by the size of the house. The main factors are the number of people, their usage patterns, and the number and type of outlets, such as rain showers and large baths. Manufacturers publish sizing guides that relate tank size to household size.
Undersizing is the most common error. A unit that is too small for the household runs out of hot water at peak times, particularly in winter when the heat pump recovers more slowly. Oversizing costs more upfront and wastes some energy keeping a larger volume hot. When in doubt, ask the client about their household, now and in the near future: a young couple planning a family has different needs from a retired couple.
Siting: where most problems start
Heat pumps have a compressor and a fan, and they make noise. Modern units are much quieter than early models, but a unit placed under a bedroom window, or next to a neighbour’s bedroom, can still cause complaints, especially if it runs at night on an off-peak tariff. Many councils and state environmental regulations set limits on noise from residential equipment, and neighbour complaints can lead to orders to move or restrict the unit.
Siting a heat pump: the checklist
- Away from bedroom windows, both yours and the neighbours’. Check local noise rules and the unit’s noise rating.
- Clear airflow around the unit, with the manufacturer’s clearances met. Not in a cupboard or tight enclosed space unless designed for it.
- A condensate drain to a suitable point; the unit produces water as it cools the air.
- Relief valve drain piped as the plumbing rules require.
- Short hot water runs to the main outlets where possible, to reduce wait times and heat loss.
- Access for service and eventual replacement, including a clear path to get the unit out.
- In cold climates, a unit rated for low temperatures and positioned to reduce frost and wind exposure.
Run it during the day. Programming a heat pump to run during daylight hours, ideally on solar, avoids night-time noise complaints and usually lowers running costs. It is one of the simplest ways to prevent a problem that is expensive to fix after handover.
Airflow is the other siting issue. A heat pump needs to draw a large volume of air across its evaporator. Squeezed into a narrow side passage with a fence a short distance away, it can recirculate its own cold exhaust air and lose efficiency. Follow the manufacturer’s clearances, and think about where the cold air discharge goes.
Cold climates
Heat pumps work in cold weather, but their efficiency falls as the air gets colder, and in frosty conditions the evaporator can ice up and need defrosting. In cold climate zones, such as parts of the NSW tablelands and alpine areas, choose a unit rated for low ambient temperatures, consider its recovery rate in winter, and position it to limit exposure to cold wind and frost. Some systems use natural refrigerants such as carbon dioxide that perform well in colder conditions. The manufacturer’s performance data at low temperatures is the thing to check.
Integrated and split systems
Integrated heat pumps have the heat pump mounted on top of the tank as one unit. They are simpler to install and are the most common type on houses. Split systems have the heat pump unit separate from the tank, connected by refrigerant or water lines. Split systems give more flexibility in siting, for example putting the tank inside and the noisy unit elsewhere, but installation is more complex, and if refrigerant lines are involved, the person handling the refrigerant must hold the appropriate refrigerant handling licence.
Plumbing and electrical details
- Temperature control. Stored hot water must be kept hot enough to control Legionella bacteria, and in new installations hot water delivered to bathroom fixtures used for personal hygiene must be limited, usually by a tempering valve, to reduce scalding risk. The plumbing rules set the temperatures; the plumber sets the system up to meet them.
- Relief valve and condensate. The relief valve drain and the condensate drain must be piped to suitable points. A condensate line left to drip onto a path or against a wall causes staining, slip hazards and moisture problems.
- Electrical supply. A heat pump needs an appropriate circuit. If it is to run on a timer or controlled load, the circuit and metering need to be set up accordingly. The electrician provides the required certificate of compliance for the electrical work.
- Isolation and access. Isolation valves and a clear service area make maintenance and replacement straightforward.
Refrigerants and safety
Many newer heat pumps use natural refrigerants with low global warming potential, such as propane (R290) or carbon dioxide (R744). Propane is flammable, and units that use it come with manufacturer requirements about installation location and clearances. Follow the installation instructions exactly; they are part of the unit’s safety design.
Hot water options for a new home
| System | Running cost | Things to watch |
|---|---|---|
| Heat pump | Low; lowest when run on solar | Noise, siting, upfront cost, cold-climate performance |
| Electric storage | High unless on an off-peak tariff | Poor energy score; unlikely to suit energy targets |
| Gas instantaneous | Moderate; depends on gas prices | Gas connection bans in some places; future electrification |
| Solar thermal | Low in good sun; boost needed in winter | Roof space, orientation, frost protection |
Replacing gas or electric systems in existing homes
Renovation builders are increasingly asked to replace old gas or electric storage hot water systems with heat pumps. The same principles apply, with a few extra considerations. The existing location may suit a gas unit but not a heat pump, because of noise, airflow or space. The electrical supply may need upgrading, particularly if the house is also adding induction cooking, air conditioning or an electric vehicle charger. Existing pipework may be long and uninsulated, reducing the benefit. And the gas connection, if the home is going all-electric, needs to be capped and dealt with properly by a licensed gasfitter.
For renovation clients, a heat pump is often part of a broader electrification plan. It is worth thinking about the order of works: switchboard and supply capacity first, then the appliances, so the house does not end up with a switchboard upgrade done twice.
Pricing heat pumps into a quote
When pricing a heat pump, include more than the unit. Allow for the plumbing and electrical connections, the tempering valve, the relief and condensate drains, any concrete pad or mounting, the timer or controller, the electrical circuit and any metering changes, removal of an old system on renovations, and the time to program and demonstrate the system at handover. Where incentives reduce the price, show them clearly and note that they depend on eligibility at the time of installation.
For new homes, the heat pump is often listed on the BASIX certificate. Pricing a cheaper system than the one listed, without checking the certificate, is how builders end up paying for an upgrade at the occupation certificate stage.
Maintenance
Heat pumps need little maintenance, but not none. Air filters or the evaporator fins may need cleaning, especially in dusty or coastal locations. The relief valve should be checked periodically, and some tanks have a sacrificial anode that needs inspection over the life of the system. A short maintenance note in the handover pack, with the manufacturer’s recommendations, helps the system last and reduces warranty disputes.
Common post-handover complaints
- “It’s too noisy.” Usually a siting problem, sometimes a timer set to run at night. Prevent it at design.
- “We run out of hot water.” Undersized unit, a heat pump in boost mode that is not set up, or high demand in winter.
- “There’s water on the path.” Condensate drain not connected or discharging in the wrong place.
- “It takes ages to get hot water in the ensuite.” Long pipe runs from a unit placed far from the main bathrooms.
- “Our power bill went up.” A unit running at night on standard tariffs, or electric boost switched on permanently.
Heat pumps in apartments and townhouses
Medium-density projects add constraints. Balconies and small courtyards limit where units can go, and noise travels between closely spaced dwellings. Some apartment designs use split systems, with tanks inside and heat pump units grouped on the roof or in a plant area, or centralised heat pump systems serving the whole building. These need early coordination with the services engineer, the architect and the acoustic consultant. Leaving the hot water decision until the services rough-in is how medium-density projects end up with units in the wrong place.
Timers, tariffs and smart controls
How a heat pump is programmed affects both running cost and noise. On a home with rooftop solar, a timer that runs the unit in the middle of the day uses cheap, self-generated electricity. On a home without solar, an off-peak tariff may be cheaper, but running overnight raises the noise question. Some units and home energy systems can respond automatically to solar output or tariff signals. Whatever the arrangement, set it up before handover, show the client how it works, and write the settings in the handover pack.
Talking to clients
Clients choosing a heat pump should understand three things: it costs more upfront than a basic electric system but much less to run; it makes some noise, so where it goes matters; and it works best when programmed to run during the day, especially with solar. A short handover note on timer settings, boost use and maintenance helps clients get the savings they were promised.
The bottom line
Heat pumps have become a mainstream inclusion on new homes because they make energy targets easier, suit all-electric homes and cut running costs. Most problems come down to sizing and siting. Size for the household, put the unit where noise and airflow will not be a problem, get the drains and temperature controls right, and set the timer for daylight hours. Do that, and heat pumps are one of the easiest wins in a new home.
Questions builders ask
How does a heat pump hot water system work?
It uses a refrigeration cycle to move heat from the outside air into the water in the tank. Because it moves heat rather than generating it directly from electricity, it uses much less electricity than an electric element.
Do heat pumps help with BASIX?
Yes. The BASIX energy section credits efficient hot water systems, and a heat pump is one of the most effective ways for a new NSW home to meet the energy target.
Where should a heat pump be installed?
Away from bedroom windows (including neighbours’), with clear airflow and the manufacturer’s clearances, a proper condensate and relief valve drain, reasonably short pipe runs to the main outlets, and access for service.
Do heat pumps work in cold climates?
Yes, but efficiency falls as temperatures drop and frost can require defrost cycles. In cold climates, choose a unit rated for low ambient temperatures and check its winter recovery rate.
Who can install a heat pump hot water system?
A licensed plumber for the water connections and an electrician for the electrical work. For split systems with refrigerant lines, the person handling refrigerant must hold the appropriate refrigerant handling licence.
Sources
- BASIX · NSW Planning Portal
- Heat pump water heaters · energy.gov.au
- Small-scale technology certificates · Clean Energy Regulator
Published 11 August 2026. General information for builders, not legal, financial or engineering advice for a specific job. Check current requirements with the relevant regulator or standard before relying on them.
