In mid-July, the new Secretary of State for Energy Security and Net Zero, Ed Miliband, announced that landlords will need to raise the standard of their accommodation to an EPC standard C by 2030. Understanding the cost implications would be significant, our team got to work, calculating that it would take just over £24 billion to retrofit all PRS properties across England, Scotland and Wales to an EPC C.
Whichever way you look at it, £24 billion is a big bill for landlords to pick up.
In all my years in estate agency, I don't recall landlords having that level of cash reserves. In fact, a recent survey by Skipton Building Society revealed that 39% of landlords would consider selling their properties rather than paying for the home improvements in their BTL properties.
But as there’s no debating the target, the question is, how can our industry prevent a large sell-off, ensuring tenants have properties to rent, and how can we go about helping landlords to retrofit more than 50% of PRS properties over the next six years?
All about the money?
Let's break down those landlord costs. Our estimate puts the cost at just over £10,000 per landlord – perhaps a manageable investment for properties in the South East or London, but it could represent as much as 20% of the value of a small flat in Newcastle upon Tyne. It’s not surprising then that a recent survey commissioned by Energy UK revealed that 35% of respondents could not afford the upfront costs to make any energy efficiency improvements in 2023. It’s unlikely to change in 2024, even with Pegasus Insights reporting buy-to-let yields at a 10-year high.
Added to this, research from Hamptons shows that at the current retrofitting rate it could take until 2042 to get every property in the PRS to an EPC C or above. That's just eight years away from when the country should be hitting net zero!
As an industry, we need to work with our landlords to figure out what mix of grants, tax incentives and interest-free loans are needed, both to speed up this process and to balance out the costs so it’s attractive to all landlords. We then need to ensure the government hears us, loud and clear.
Lenders can help too. Banks could allow landlords to borrow against the value of the property for energy efficiency measures. They could even do this without increasing the monthly mortgage repayment, as the value of the property relative to the loan should increase after the retrofit.
Controlling costs
But upfront funding is unlikely to be the entire solution. We also need inflation to be kept under control, as all those properties competing for labour and building materials from now until 2030 could drive up costs.
To do this, the government must address the looming skills shortage. According to PwC's Green Jobs Barometer, the UK will need between 10,000 and 66,000 new tradespeople annually to meet the rising demand for retrofitting. This includes heating engineers, glaziers, and insulation specialists, all of whom are critical to delivering the energy efficiency improvements required in the country.
Investment in training programmes and apprenticeships must further be a priority to ensure there is a workforce that can meet the demand for retrofitting. This is especially important when the government has committed to building 1.5 million new homes over the next five years, as housebuilders will also be competing for the same kind of tradespeople.
The estimated price of retrofitting also assumes tariffs on the necessary materials and goods do not skyrocket as per the example set by the US. On that score, VAT exemptions on these resources would provide much-needed relief to landlords facing significant renovation bills.
Securing housing supply
What about properties that can’t be upgraded? Britain has some of the oldest housing stock in Europe, which presents a big cost and viability challenge. We can’t afford to lose properties from the PRS because they cannot feasibly be retrofitted to an EPC C. Doing so would reduce the housing stock in the PRS by over 17%. Reapit has estimated this would add around 3% to rental prices on top of the usual rent increase we are seeing and worsen the housing crisis. The only way to keep those valuable properties in the sector is to sit down with the government and come up with a workable exemption scheme.
While the overall energy performance of the PRS would look better if landlords simply sold inefficient properties, it obviously won’t reduce emissions from UK housing, as intended by the government. Instead, properties with a poor energy rating will simply become the problem of the next owner-occupier and heat up rents on the remaining stock.
Working together can overcome issues
If all this sounds challenging, to say the least, I believe solutions can be found to these complex problems by working together as an industry and with the government.
Hitting the new EPC C target by 2030 will require working with the Department for Energy Security and Net Zero; The Ministry of Housing, Communities and Local Government; The Department for Work and Pensions; The Treasury; the devolved administrations of Wales, Scotland and Northern Ireland; regional mayors; local authorities and trading standards.
All told, this is my ask to the government: In addition to setting goals for landlords, please accept this invitation to collaborate with the industry to make these goals attractive, affordable, and achievable. If we lose even a fraction of the more than 50% of PRS properties that need retrofitting, it will hit tenants the hardest.
