As 2023 came to a close, the Government unveiled its long-awaited Future Homes and Buildings Standards consultation, aiming to ensure all new-builds are ‘net zero ready’ by 2025.
Perhaps the most significant proposal within the consultation is that gas boilers, including hybrid and hydrogen-ready ones, will no longer be permitted, with air-source heat pumps the preferred option.
The proposals stop short of making solar PV panels compulsory but does suggest they could be an option under one of the two proposals put forward.
The first, ‘Option 1’, would include the installation of solar PV panels, as well as other features such as a wastewater heat recovery system. The Government says while this option is the most cost-effective when it comes to reducing carbon overall, it also has additional upfront costs for developers, which it warns could ‘affect overall housing supply’.
It estimates this option could increase build costs by an average of £6,200 (4%), but would result in annual heating and water bill savings of between £910 and £2,120.
While ‘Option 2’ – described as the ‘minimal approach’ to achieving net zero – would not include those elements but would incorporate other energy-saving features, such as a heat pump.
Government estimates put the increased costs of Option 2 for developers at just 1% (£1,000), offset against annual heating and hot water bill savings ranging from £210 to £1,420.
While the costs involved in starting from the ground up, so to speak, will be much cheaper than retrofitting, at first glance, both Options 1 and 2 estimates appear to be on the optimistic side.
We recently hosted our Sustainable Futures conference, where experts in energy efficiency and retrofitting discussed the current challenges and opportunities around upgrading our existing housing stock, with one speaker estimating the average cost of retrofitting a home to be around £39,000.
While both options are arguably a step in the right direction when it comes to helping the UK reach its net-zero target, it would not surprise me if the proposals led to a situation similar to Q2 2023. During this period we saw housing starts in England reach an almost fifty year high, as developers rushed to start projects early in order to avoid having to conform to the previous set of energy efficiency requirements in the Future Homes Standard.
Aside from the cost, there could also be other issues for developers to consider – such as potential problems over the electricity grid.
Prior to Prime Minister, Rishi Sunak’s, energy u-turn, the roll-out of heat pumps and electric cars was expected to lead to a 50% increase in electric demand by 2035 and 100% by 2050.
We have already heard reports of new housing developments in West London potentially being delayed until 2035 due to a lack of capacity on the energy grid.
There are still also questions over what the demand for heat pumps and energy-efficient new builds will be and how this might impact their price.
Recent research around heat pumps from energy company, Good Energy, found 25% of those it surveyed felt heat pumps were less efficient than gas boilers. While 24% felt running a heat pump costs more than a gas boiler and 15% believed heat pumps didn’t work in the cold.
Consistently negative press about heat pumps has done nothing to improve their appeal to homeowners, and if a recent report from the Chartered Institute of Building (CIOB) is to be heeded, new-builds are also suffering from an image problem.
Its recent survey of 2,000 adults found a staggering 55% believed older homes are of better quality than new-builds, compared to 21% who think new-builds are better. Almost a third of survey respondents (32%) chose to describe new-build housing as ‘poor-quality’.
Given all of these factors, while not an intention of the proposals, I suspect we may be in for a repeat of Q2 in 2024/25, with developers keen to push through housing starts to avoid the potential for added costs and setbacks once they have to comply with the new standards.
While this might be good news for housing starts in the short-term, looking ahead there is a risk developers might choose to hold off on new housing starts if they feel they cannot recoup the costs of the new measures and if borrower demand for heat pumps has not warmed.
Simon Jackson is managing director at SDL Surveying
First published with The Intermediary