Anna Clare Harper – one of Britain’s leading residential property experts – says landlords will struggle to hit new eco-targets
Landlords will be barred from letting properties from 2028 unless they achieve an Energy Performance Certificate (EPC) rating of C under new eco-rules. Those who fail face a £30,000 fine as part of the Government’s push to achieve Net Zero by 2050 but there are fears the deadline is unattainable.
“Upgrading private rental homes to EPC C by 2028 becomes less realistic with every passing day,” says retrofit expert Anna Clare Harper. “Landlords will not increase their effort substantially unless there is greater certainty around what needs to be done and by when.”
There are 5 million private rental properties across England and Wales. Around two thirds have an EPC rating below C which means 3.4 million properties across the country have yet to hit the target.
The situation is slightly better in London where 41% of rental properties (around 424,260 homes) have an EPC rating of C or above. However, the size of London’s rental market means it would cost a whopping £4.7 billion to upgrade the remaining 59%.
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The scale of the problem
Retrofitting rentals to a rating of C or above typically involves significant works such as secondary glazing, wall insulation, draught-proofing, heat pumps and solar panels. Many landlords remain reluctant to commit to these steps due to the significant costs, the displacement of tenants during works and fears that insulating, draught-proofing and secondary glazing could cause condensation, mould and poor air quality.
Two in three landlords could be forced to sell up in the next five years because they are unable or unwilling to hit the target, according to a survey by the Mortgage Advice Bureau. There are also concerns that landlords who do manage to upgrade properties will pass the costs on to tenants already paying sky-high rents caused by a shortage in rental properties and increased cost pressures on landlords.
Another issue deterring landlords from embarking on retrofit projects is uncertainty about whether the bill that contains the new regulations will actually become law. Currently the Minimum Energy Performance of Buildings Bill is only at second reading stage in the House of Commons with the next debate scheduled for 24 November 2023. It originally stated that all new tenancies must achieve EPC C by 2025 but the Government extended the deadline to 2028 over fears it would force landlords to sell worsening the rental crisis.
Source: UK Parliament
“This is a bill not a law and this uncertainty is part of the problem,” adds Harper, who is co-founder of Remees, which helps residential investors and managers navigate the current and planned regulations and upgrade the energy efficiency of their properties. “The process of retrofitting existing homes is complicated, expensive and time-consuming. We need cross-party agreement on targets and best practice so that decisions can be made in a clear and certain regulatory environment.”
Landlords need clarity about how upgrades will be funded, says Harper, as well as advice about how to improve energy efficiency without causing problems such as condensation. “Investment into training and skills is also needed,” she adds. “We simply don’t have enough of the right kind of tradespeople to retrofit this many homes in this short period of time.”
Technology, data and collaboration are key to solving many of these problems, suggests Harper, who studied Land Economy at Cambridge University and has written two Amazon best-selling books on property investing, as well as one on sustainable residential investment, alongside her own investments. “We need to share best practice so landlords know what to do and when and can begin to budget and scope the right works. We need to connect landlords with a blend of funding from grants to loans and de-risk that funding through monitoring and measurement. We also need to train tradespeople to deliver these changes efficiently and effectively.”
There are fears a nationwide deadline could result in a rush of landlords trying to upgrade at the same time with prices skyrocketing due to labour shortages.
Residential and retrofit specialist Anna Clare Harper
What is an EPC?
An EPC is the main measure used in Britain to assess how much a home costs to heat and light. Properties are rated from A to G with A being most energy efficient. At the moment, it is a legal requirement for let properties to have a minimum EPC rating of E certified within the last ten years.
The EPC certificate is a short document with coloured bars representing the seven energy efficiency levels (A to G) and two green arrows: one showing the property’s current rating and the other showing its potential rating. Below the chart is a breakdown of the features of the property that led to its score. For instance, whether it has secondary glazing or wall insulation.
The certificate then provides suggestions about how to improve the property’s performance, such as low energy lighting, draught-proofing, internal or external wall insulation, heat pumps and solar panels. The document estimates the yearly energy costs for the property and the potential saving if the suggested changes are made.
An “imperfect” indicator
There is considerable scepticism about whether EPCs are fit for purpose with reports of identical properties achieving different ratings or scores worsening rather than improving after the installation of secondary glazing or wall insulation.
Experts warn that one problem is that scores are often based on guesswork. An energy assessor visits a property and feeds its features into software which estimates energy usage. The trouble is an assessor cannot always tell whether a wall is insulated so reports will often say: “No insulation (assumed).” If the assumption is wrong, the property will achieve a lower rating than it should.
“EPCs are a simple, widely used but imperfect indicator of energy efficiency,” adds Harper. “In practice, they are a blunt tool. I discovered exactly how blunt when I did my Domestic Energy Assessor training recently as part of an attempt to understand the system.
“Both the data input by the assessor and the computer model have faults. Anybody with a few spare days and between £1,000 and £5,000 can qualify as a Domestic Energy Assessor Meanwhile, the software simplifies complex property features to generate a standardised rating.
“Currently, Minimum Energy Efficiency Standards are based on EPCs. The big problem with this in relation to Net Zero is that EPCs are indicators but not accurate assessments of the carbon emissions the Government is seeking to reduce and they mask subtleties inherent in UK homes.”
An energy efficient future
If the immediate problems can be solved, improving the energy efficiency of rentals will be good for tenants and landlords, Harper says. “For landlords EPC C+ corresponds will higher property values (3-5% higher on average, according to Bricks and Logic) and rent uplifts (up to 15%). Landlords will benefit from long-term growth in income and capital values, and more attractive properties meaning less time vacant. For tenants, EPC C+ indicates it will cost less to heat a home, greater thermal comfort and a higher quality home. For the planet, lower emissions are essential for slowing the pace of global warming, which we urgently need to do.”
Anna Clare Harper is Co-Founder of Remees, which helps landlords future-proof their properties by reducing their carbon emissions and complying with Minimum Energy Efficiency Standards. She was previously Head of Sustainability and Insights for leading European proptech firm IMMO,which was responsible for €2.5bn residential investment commitments. She also developed the strategy and built the seed portfolio for a HNWI-backed fund targeting a £100m+ housing portfolio. She has published two Amazon best-selling residential investment books and recently published ‘Sustainable Residential Investing’ (Routledge) and ‘A Vision for the UK Housing Market’ (Cambridge University Land Society) in response to the legislative and environmental need for commercially viable retrofit to achieve Net Zero.