The Localis Report: why the current Government system towards improving the energy efficiency within the PRS is failing

Mark Savill takes a look at the Lagging Behind report from the think tank Localis.

A recent report has been published which analyses the Government’s policy regarding the ‘Build Back Better’ scheme which aims to improve the energy efficiency of residential properties.

The Government’s ambition is to reduce emissions by 78% by 2035 of 1990 levels.

In the case of the private rented sector, the Government is hoping to overhaul the 90% of properties that currently use fossil fuels and with and to retrofit them with energy-efficient heaters and boilers to lower the properties energy performance certificate (EPC) rating. BEIS estimates the cost to be anything between £1,800 and £3,400 per household, with around 19 million households across the UK in need of retrofitting.

What does the Government intend to do in the short term?

For the private rented sector, the current targets are currently set at an EPC rating of ‘C’ by around 2025 for new tenancies and 2028 for all tenancies. This is the target of the Department for Business, Energy and Industrial Strategy (BEIS).

The Government have set up a variety of grants and funding, both nationally and through local authorities, such as the Green Homes Grant (now closed) to incentivise investment in energy-efficient measures for properties. The Government also plan to make all new homes built zero carbon ready by 2025.

So what are the issues with this?

In terms of retrofitting properties, there are numerous issues with the current Government plan and policy, according to Localis. These are the most significant problems identified by the report

• House Price Variability within different areas of the UK. One significant problem is the varying house prices within the UK and the problems this causes. For example, in some local authorities, particularly in the North and Midlands, the estimated cost of a retrofit is over 15% of the property value as opposed to other districts, mostly in the south, where the cost of a retrofit compared to the property value is as low as 2%. Considering in the private renters market, landlords will likely have to make renovations and improvements from the income they receive from the property, landlords who operate in the lower-income market may see this as an investment that they will not see returned. If the Government implement a ‘one size fits all’ approach to funding local authorities, this could potentially cause inequality within the housing stock depending on region.
• Current incentives are not good enough. Within tenancies, normally tenants are the ones who pay the utility bills such as heating and electricity. Therefore, reductions in utility bills mean that landlords, who are the ones paying for the upgrades, will not directly see a benefit from the energy savings.  Or a sufficient benefit to justify the cost of retrofitting. With that being said, landlords should note that a Green Peace report found that the annual running costs of a Band C rated home are £270 lower than the average Band D and £650 less than the average B and E.
• Lack of clear Government information regarding targets and a lack of awareness from landlords. There appears to be a lack of knowledge by landlords on the targets the Government has set regarding the energy efficiency targets, and regarding the Governments funding and grant options.  For example, in 2020 only six per cent of the annual installation target were installed – the target being 600,000 heat pumps per year by 2028. This is probably because most landlords are unfamiliar with heat pumps and have never heard of the incentives available.

What does the Localis Report recommend to  Government?

The Localis report believes that in view of the house price variability in different areas of the UK,  a centralised system of introducing measures will not bring about any real change, as a uniform approach between high and low-value properties will not work. It has recommendations for local as well as central Government.

Recommendations for Central Government:

• Firstly, Provide details of a localised funding mechanism for retrofitting boilers and heating systems to help authorities in areas with low-viability housing achieve targets.
• Provide clearer incentives and long term clarity on timelines to ensure that retrofitting can be achieved by the PRS. Currently, the retrofitting process will be a significant economic burden for many landlords who will not see the benefit of this.
• Any strategy that is in place must be co-ordinated alongside the planning reforms.

Recommendations for Local Government:

The report addresses low property value regions with underfunded incentives as areas of high risk that may not reach the  Government’s targets. To combat this, the report recommends that neighbouring authorities should work together to create ‘one-stop shops’. These will:

• Engage with landlords to facilitate retrofitting.
• Allow Local Authorities to collect and analyse the housing stock in most need of funding within the areas, allowing areas and properties that may have been unable to receive funding to be retrofitted.
• One-stop shops would allow local authorities to better understand the needs and concerns of landlords and be able to tailor policies based on local needs. They would also be a presence that would raise landlord awareness of funding and the government’s plans.

On top of the one-stop shops, the report also recommends that local authorities should be working collaboratively at a subregional level to develop local retrofit jobs. The Government estimates that the heat pump industry, which is what is being used to replace old inefficient boilers, could create up to 50,000 jobs within the UK, which will kickstart local economic growth.

The full Report can be found here

See also the Landlord and Lawyer podcast episode 14.