Source: Landmark Information Group
The UK government has set ambitious targets to reduce carbon emissions in the real estate and built environment sector. One of the key challenges is to make residential properties more energy efficient and compliant with the minimum energy performance standards (MEES)2. But how achievable are those targets? And what are the implications for landlords, tenants, homeowners and investors?
In this data insights report by Landmark, you will discover:
– An overview of MEES regulations and proposed changes to raise the minimum EPC rating to band C by 2028
– Data analysis of valid and expired EPCs, the current and potential EPC ratings, and the average cost of remediation for different bands
– The closing remarks by Chris Loaring, Managing Director (Legal) of Landmark Information, who questions the feasibility and practicality of achieving the government’s targets and suggests some ways to ensure a successful transition.
A very interesting outcome from the report is that only 49% of residential properties have a valid EPC, and that 55.5% of those are rated between band D and G1.
The report is based on data from Landmark’s trusted database, which contains over 18.5 million EPC assessments. It provides a data-led perspective on the transitional risk of climate change for residential properties and the opportunities and challenges for the sector.
EPC, easy as 1-2-3?
Flood damage. Coastal erosion. Overheating due to heatwaves… If you were to conduct a poll of UK homeowners on the most significant threats posed to their properties by climate change, the chances are the top responses would all be physical risks. After all, according to the Environment Agency, around 5.2 million homes – or one in six properties – are at risk of flooding in England alone. And recent extreme weather events, such as Storms Ciara, Dennis and George in February 2020, last year’s Storms Dudley, Eunice and Franklin, and the recent Storm Babet have shown the scale and cost of the devastation that can be caused. What perhaps does not spring to mind so readily for residents and property investors is the challenge posed by the low-carbon transition. Yet, the real estate and built environment sector — responsible for approximately 40% of annual global CO2 emissions — has a significant role to play in the journey to Net Zero. In the UK, we have the least energy-efficient buildings in Western Europe, with much of our housing stock pre-dating 1919, and around 15% of our greenhouse gas emissions come from our homes.
Raising EPC ratings requires more than a change in regulations
Chris Loaring, Managing Director (Legal), Landmark Information “If the Government’s energy-efficiency targets are to be realised, there is a lot of work to be done to our housing stock. When you look at the data of potential EPC ratings, it appears that reaching the Government’s targets will be possible, as 91.5% of properties with a known EPC have the potential to upgrade to band C or higher. But the question that jumps out at me is: how? And that’s a massive question.
The implementation challenge
Roughly 40% of residential properties in the UK do not have an EPC; their energy performance is unknown. Whether or not you add to that the properties whose EPCs have expired, the number of homes that will need to be improved from band E, F or G to C is going to be in the millions. Can the current infrastructure in the industry achieve that? I’m not convinced there’s the capacity in the system to deliver to the Government’s timeline — even with the recently announced three-year delay. Is the hope that there will be a massive scale-up in the number of retrofit businesses? Is it anticipated there will be lots of new market-entrant businesses to carry out remediation for a short period before then fading away? Or is the plan for people in adjacent professions to pivot? That’s not to say that opportunities do not exist. Ultimately, there’s a massive market there, but I see a couple of challenges.
1. Confidence
Whether you’re a market entrant or an existing business taking a leap by scaling up, your commercial move is predicated on the Government’s proposals becoming legislation. What happens if that legislation is pushed back by ten years? Suddenly, your business model collapses because of a lack of urgency in the market.
2. A finite commercial opportunity
Secondly, where is the recurrent business model? Once all the properties in the UK have been retrofitted, that market will disappear. It’s a fairly oneoff market, which makes bridging the gap even harder to implement. If there was a longer-term opportunity, you might expect there to be more businesses deciding to scale up or step into the market
Drivers for change
And there’s another potential issue: drivers for change exist (or will exist) for landlords and sellers, but what about those properties that don’t change hands? What is the mechanism for change going to be? If we are relying solely on property sales to drive change, that’s going to take many years to filter through the residential market. Approximately 1.1 million transactions took place in 2022. Assuming sales continue at the same annual rate — assuming also that they concern different properties year on year — it would take over 18 years to retrofit the estimated 20 million properties with an EPC rating below band C. Our data shows that there’s huge potential to make housing stock more energy efficient. But is there enough capacity in the sector to record an accurate baseline for the 51% of homes with an unclear EPC status? As ever, with any large-scale legislative change, the practicalities hold the key to success. We can reach a more energy-efficient future in the residential property sector. But whether that’s by 2035 remains to be seen.”
