Sunday, 3 August 2014

Mimimum EPC for rented homes - what will this achieve?

The government is consulting on regulations that will require landlords to do energy saving improvements on homes they rent out. The proposal is that from 2018 homes must be upgraded to at least a level E if this can be done without upfront cost through Green Deal financing and associated grants [1]. I have used data from the English Housing Survey [2] to see how much difference this is likely to make.

How many homes will be affected?
The mean energy rating for all homes is D and only 6% (1,380,000) are F or G. However, in the private rented sector the proportion of F and G rated homes is higher at 9% (391,000). The chart below shows that there has been considerable improvement since 1996 in owner occupied housing, with the number in the bottom ratings reduced by three quarters. The private rented sector has also seen improvement but not nearly as much. The 391,000 homes in the private rented sector are potential targets for the new regulations. They represent 1.7% of all housing stock.

Number of homes with F or G rating, by tenure. from [2]

However, not all of them can be upgraded easily. The EHS survey reports that across the whole house stock there are 1.38 million homes that are currently F or G rating of which 35% can’t easily be improved to at least level E (annex table 2.5). The improvements considered for this include cavity wall and loft insulation, condensing boilers and improved heating controls but not solid wall insulation – 66% of F and G rated homes have solid walls (annex table 2.3).

4,119,000homes in the private rented sector
391,000of these are F and G rated
250,000of these can be upgrade to E

Need to do cavity wall insulation on 24,000 homes per year
Considering just the cavity wall cases, the current supply chain is quite capable of dealing with them in the time available. Across all tenures around a quarter of all F and G homes have unfilled cavity walls. Assuming this is also true for the private rented sector, there would be 98,000 homes to upgrade by 2018, about 24,000/year. That sounds a lot but between April 2011 and April 2012 there were 660,000 homes installed with cavity wall insulation [3]. That was of course under a different financing regime than we have now – since the Green Deal and the ECO grant scheme came in (January 2013) there have been only 310,000 cases of cavity wall insulation (up to end of May 2014) [4], but still, 24,000/year should be easy.

Only one in seven cases solid wall insulation cases are straightforward
However, not all cavity walls are easy to fill and in some cases, such as in areas of driving rain, filling them is ill advised. In those cases, or if you are have one of the 66% of F and G properties with solid walls, then you have to consider solid wall insulation. This is much more expensive: landlords wishing to avoid up front costs will need a grant, because the payback for this is too long for a Green Deal loan. However, solid wall insulation is often technically difficult: across the whole housing stock there are 8 million homes in this category, of which only 15% could have external insulation without technical problems: the others have too many external features, or have render that would need to be removed or other issues (EHS table 2.9). There are probably more cases where external insulation would not be allowed by the planners but this factor is not explored in the EHS.

Suppose one in seven of the private rented sector homes with solid walls were easy to insulate and grants were available, this could mean 37,000 homes to be done by 2018 or 9,000 per year. This isn’t much of a challenge for the supply chain since there have been nearly 60,000 homes fitted with solid wall insulation under the ECO since Jan 2013 [4].

250,000 rented homes upgraded to E is a step forward – but not much of a challenge
Suppose that the EHS estimate that 35% F and G homes can’t be upgraded to E applied – in practice some of the cavity wall filling cases won’t be cost effective but perhaps some solid wall insulation cases would be so if these balance out the 35% would still apply. That would mean 250,000 rented homes improved: definitely a step forward.

However, this is only 1% of the total housing stock and only 18% of F and G rated homes. It hasn’t made much of an impact on the total housing stock and it hasn’t done much to stimulate the home efficiency supply chain.

What to do with the rest?
Also, it still leaves 140,000 or so F and G rated homes in the private rented sector. What should we do with them? They are expensive to heat but expensive to fix (or in some cases there will be planning constraints). It can’t be fair to allow them to be rented out to people who can’t afford to heat them. The law requires that rented accommodation must be safe and secure and healthy to live in. Is it healthy to live in a home that you can’t afford to heat? Tenants are much more likely to struggle with heating bills than owner occupiers. 18% of private tenants say they can’t afford to heat their living room comfortably in winter compared to 6% of owner occupiers (EHS table 1.17).

We could deem these F and G homes unfit to live in and take them out of the rental market altogether but we are short of rented housing as it is - in fact we are short of housing full stop. Across all tenures there are around half a million F and G homes (2%) that are difficult to upgrade. If we can’t fix them, perhaps we need to replace them but how can we finance that?

[1] Private Rented Sector Energy Efficiency Regulations (Domestic)

[2] English housing survey 2012: energy efficiency of English housing report (July 2014)


[4] Green Deal and Energy Company Obligation (ECO): monthly statistics (July 2014)

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