First published by Financial Reporter
A clear agreement is needed on how to proceed to get to ‘green’
There’s a lot of flak flying around the industry at the moment when it comes to energy efficiency, EPCs, ‘green’ mortgage products, and effectively anything even vaguely related to tackling the carbon emissions coming out of our properties, and how we reduce this.
I will be the first to admit that it’s an incredibly difficult environment to work through and to get a semblance of agreement on what to do. We know that residential properties in this country account for a fifth of all greenhouse gases being emitted – the big question is just how we get that down, given the legacy issues we have with our homes.
A huge gap in energy efficiency between new and old housing stock
In that sense, the ‘legacy’ is huge. While our new-build homes hit the highest EPC levels, we have vast swathes which do not. I recently attended a presentation from Barratt Developments which suggested that the vast majority of properties in the UK are currently at EPC levels D and E. Many however are nowhere near even that level.
As you will know, in the private rental sector, landlord owners are on notice to get their properties up to level C by 2025, otherwise they cannot be let out to new tenants. They have a few years on top of this to achieve level C for existing tenancies, but you’ll sense the gap that needs to be bridged here and you’ll also be aware that where the PRS leads, the owner-occupier space will have to follow at some point.
Can a resolution be employed in accordance with the government’s timeline?
Firstly, the positives. At least, we are talking about this and there is a timetable to work towards. That timetable is based on the Government’s target to get rid of 78% of all carbon emissions by 2035 and to get to net zero by 2050. A long way away, but when it comes to the housing market, perhaps not that far at all.
And, the focus from the Government is turning into the housing and mortgage markets bringing new products and services to market, and I think we can all safely say that we’re being more ‘green’ in our outlook as a result.
There is a sense of trial and error here of course, plus we have a major consumer education piece to embark upon, and it’s unlikely that anyone is going to really get it right straight away, not least because we’re still unsure of what the Government will require of homeowners, lenders, surveyors, and everyone else involved in this sector.
Essentially, apart from in the PRS, we are working off guesswork based on that precedent, but that doesn’t really help us get to the starting line let alone begin the race.
A high cost for EPC improvements
However, let’s go back to what we are dealing with here. UK housing is disparate and non-standard right across the piece. For every new-build we have countless properties built many, many years ago which, let’s face it, were never built with reducing carbon emissions in mind. Why would they be?
Yet that is now what we’re contending with, and for owners of those properties it will probably look like they have no way of improving their EPC, or at least they have no way of improving it without spending so much money that simply isn’t available to do the work.
Added to this is the nature of supply and demand, and an understanding of the value of properties, their mortgage-ability and sale-ability. At the moment, what is the difference between a property with an EPC of say E, and one of A – the answer, very little in terms of value, in terms of the ability to secure a mortgage, and the ability to sell that property.
Which means there is little incentive – no stick or carrot – to improve those properties at lower levels. Buyers are not taking much notice of EPC levels, and it’s certainly not stopping them from buying lower-rated homes.
Are greater incentives for buying and selling energy-efficient properties required?
That clearly frustrates housing developers – a point made to surveying firms like ourselves regularly – but it is the way of the market at the moment. In effect, we need to get to a point where everything moves us towards favouring energy-efficient properties, where the value reflects the higher EPC level.
Effectively, where there is a premium involved in buying/selling an EPC A/B-rated property, and where the value of a D/E property is impacted significantly because it hasn’t reached that level. And, perhaps, where you can’t secure a mortgage because it doesn’t meet that level or where you can’t sell a property that’s not in the required range.
We’re probably a long way from this if we even get there at all. I can imagine the homeowner backlash now. Which makes this an event trickier ask, and for that reason, I suspect it’s going to be something that might be pushed into the long grass because it feels so complicated.
However, this would be a mistake because what is required is a long-term plan and plenty of time for owners to prepare for this eventuality. It will however be a brave Government that goes there.
Simon Jackson is managing director at SDL Surveying