Article originally published in The Intermediary Aug 2024 – page 16
Homes are where Britons’ hearts are and have always been. Successive governments have recognised this and launched a positive array of housing schemes designed to get more first-time buyers on the ladder and make access to homeownership more affordable.
While many of those schemes, such as Help to Buy and shared ownership for example, have succeeded in helping more people to become homeowners, the real break in the market has always been supply – and the insufficiency of it. That age-old equation of supply and demand – the UK is simply not building enough new homes to keep up with the growing demand from rising population numbers and growth in the number of single person households.
It was fighting talk then, when in her first speech as Chancellor of the Exchequer, Rachel Reeves confirmed Labour’s manifesto pledge to build 1.5 million new homes by the end of this parliament. Central government will also get final say on planning approvals, with the power to overturn local planning authority decisions to reject applications should they disagree.
Building on green belt land is also under review, as is building safety regulation and leasehold reform. The party has promised to “deliver the biggest increase in social and affordable housebuilding in a generation” and a “new generation of new towns”.
Next year compliance with the Future Homes Standard (FHS) will become mandatory. This means all new homes built from 2025 onwards must produce between 75 and 80 per cent lower carbon emissions than homes built under the current building regulations. “New” is good, it appeals to news desks, it inspires voters.
However, it’s worth reminding ourselves that “existing” is actually a much, much bigger consideration. The latest census data showed there were 26.4 million dwellings in England and Wales – and all of those need to be given attention when it comes to net zero targets. Roughly a third of those homes are owner-occupied and have a mortgage charge against them. Another third sit in the private rented sector, with a large number of those owned by landlords with buy-to-let mortgages.
A House of Commons Library report published this month reasserts how big a task decarbonising British housing stock will be. In 2022, emissions from residential buildings accounted for 20 per cent of greenhouse gas output in the UK. Emissions from residential buildings come mainly from fuel combustion, the burning of oil and gas for heating and hot water, and electricity use.
Homes can be decarbonised by installing low-carbon heating systems such as heat pumps, fitting insulation to improve their energy efficiency and installing renewable energy systems such as solar panels.
The Climate Change Committee (CCC), the government’s advisory body, said the UK will not meet its emissions targets “without near complete decarbonisation of the housing stock”. This puts a huge weight on the shoulders of homeowners and landlords.
In a nod to the scale of the challenge, Labour has said it plans to double its investment to upgrade five million homes, taking funding to £6.6billion. The Warm Homes Plan will offer grants and low interest loans for insulation, solar panels, batteries and low carbon heating to cut bills for “every home that needs it”.
It’s a step in the right direction but in truth, it will take a lot more than this to meet net zero by 2050. Data from the Office for National Statistics shows that in England and Wales last year, four in five dwellings used mains gas as a main fuel source for central heating. Across all regions in both countries, the median estimated CO2 emissions for existing dwellings was more than double the estimated emissions of new dwellings.
In London, the median estimated CO2 emissions for existing dwellings is four times that for new dwellings. Of all dwellings built before 1930 in England and in Wales, more than 80 per cent were rated in bands D to G.
Decarbonising these homes has to be made a bigger priority, despite it being a tougher challenge than cutting emissions from homes purpose-built for this end. Ultimately, it will fall to lenders to deliver on this front by way of meeting their allowable scope 3 emissions exposures.
These are emissions not produced by the company itself and are not the result of activities from assets owned or controlled by them. Instead, the National Grid defines them as emissions produced by those that it’s indirectly responsible for up and down its value chain. An example of this is when we buy, use and dispose of products from suppliers.
There is an opportunity for lenders here – saving borrowers money on their own energy consumption is as much an incentive to retrofit homes for them as cutting their emissions is for those with that debt on their balance sheets. We are helping many lenders make those strategic decisions right now.