Net-zero: nobody wins

By Richard North - March 29, 2023

A major part of the government’s plans to meet its self-imposed 2050 net-zero commitments is the improvement of energy efficiency standards in private dwellings. But, while home owners have to be treated with kid gloves, that is not the case – or, at least, not to the same extent – with rented accommodation, where rules are being progressively applied, to which landlord must conform.

The first big hit came in October 2017 when the government launched the “Minimum Level of Energy Efficiency” (MEES) Regulations, taking effect in 2018.

These new regulations required, with certain exemptions, landlords to ensure that their rented properties had an Energy Performance Certificate (EPC) and moved towards achieving a rating of at least E (on a scale A-G, where G is barn with open doors standard).

Despite complaints that the EPC ratings are staggeringly inaccurate, the way the system worked was by setting a deadline of 1 April 2020, after which landlords could no longer let or continue to let properties covered by the MEES Regulations if they had an EPC rating below E – unless they had a valid exemption in place.

Of course, this was never going to last as there was even then pressure to improve on this basic standard. Thus, on 30 September 2020, the government announced a consultation entitled “Improving the energy performance of privately rented homes”, in which it set up its options for improving standards.

Deep inside the consultation document a certain nervousness seemed apparent as the government stopped short of publishing hard and fast proposals. Instead, it wrote of a “phased introduction”, talking in terms of a “preferred policy scenario”.

This diffident approach outlined what the government called a “phased trajectory”, where a minimum C rating would apply to new tenancies from 1 April 2025 and all tenancies by 1 April 2028.

In the nature of things, this was widely treated, even by the specialist media, as a firm proposal and discussed in these terms, even though no date was given for the introduction of new regulations – despite an action plan with multiple updates.

Needless to say, without the regulatory push, private landlords have been reluctant to commit the often-substantial expenditure needed to upgrade standards, giving the “progressive” media plenty of opportunities to bitch about heartless landlords leaving their tenants (and the chillun – never forget the chillun) to freeze.

Two years on from the closure of the government’s consultation on its “preferred policy scenario” for upgrading energy efficiency standards, it is generally recognised that the initial 2025 target is “dead in the water”.

The indications are now that the government will abandon its “phased trajectory” for the imposition of the new minimum standard and go for a “big bang” off 2028 for new and existing tenancies alike.

This makes for an interesting response from the media across the political spectrum. On the one hand, we have the Guardian which unequivocally takes up cudgels on behalf of renters, proclaiming: “Delays to landlord energy efficiency standards will cost England’s renters £1bn”.

On the other hand, we have the Telegraph pitching in for the hard-hearted capitalist pig-dog landlords, with the headline: “Landlords to get five years to hit net-zero targets”, bemoaning the plight of buy-to-let investors, who “face spending thousands of pounds on retro-fitting properties”.

Despite the attempts to exploit the political divide, though, both landlords and tenants have been caught out by the UK’s housing legacy, where energy efficiency until recently has not been a priority. Thus, as the ONS points out, age of the property is the biggest single factor in energy efficiency of homes.

As regards the age structure of the housing stock, homes in England and Wales were most commonly built between 1930 and 1982 (46 percent in England and 39 percent in Wales). In England, 7 percent were built in 2012 or later, and in Wales, a mere 5 percent.

It is homes built in 2012 or later that are much more likely to have one of the top three energy efficiency ratings than older homes, effectively meaning that 93 percent or more of the housing stock is potentially in need of improvement.

By any measure, the figures for the private rented sector are daunting, with an estimated 3.4 million houses requiring improvement in England alone.

At an average cost of well over £7,000 per property, new regulation would commit private landlords to spending an eye-watering £25 billion. And this is regarded as a conservative figure, as it is based on merely an upgrade from D to C, leaving out the E to G properties. To get all rented property in London up to standard (including social housing) an estimated £15.4 billion is needed.

In the short-term here, nobody wins. You would have to be living on another planet not to be aware that the rental sector is going through an affordability crisis, especially but not exclusively in London.

On the other hand, thanks to the meltdown in the mortgage market and rising interest rates, even the Guardian has realised that many landlords face “a financial cliff edge”.

With what is often referred to as the “war on landlords”, as the constraints on letting property increase, many investors are walking away from the sector, but where increasing expenditure is needed to meet energy efficiency standards, the law of unintended consequences is kicking in.

Essentially, landlords – where they can – are dumping older properties and increasingly buying up new-build homes. One in eight new-builds were purchased by investors in 2022 – the highest level since 2017- representing a sixfold increase from 2021, when 2 percent of new homes were bought by landlords.

As the lower-priced rental sector disproportionately comprises older properties, the net effect of the push for higher energy efficiency may be an accelerated contraction in the number of affordable lets, in a market that is already shrinking.

By last November, we were told, official figures showed that the number of households in the private rented sector had fallen by over a quarter of a million over the past five years.

However, demand from prospective tenants had continued to soar, with students among those scrambling to access a dwindling number of properties. Currently, we see reported that the number of homes available to rent in the UK has fallen by a third over the past 18 months. Predictably, the sharp drop in the number of listings has helped drive up rents for new tenants by 11 percent.

When housing rental increasingly ceases to be a going proposition, the additional impact of tighter energy efficiency standards may present some tenants with the unwelcome choice between a cold home or no home at all, with the whole of rented sector worse off financially.

Basically, this really is a game that nobody can win. As the government continues to pursue its mythical reductions in plant food, the very fabric of our nation begins to fall apart. And still, the wuzzies want more.