The real picture for PRS

Article originally published in The Intermediary June 2023 – page  43

We hear a lot about the downside of changes in the housing market, and there are plenty of good reasons for that. But there are also positive things happening in our sector and I believe we shouldn’t forget to think about those too.

When it comes to net zero and improving the energy efficiency of the UK’s homes, possible regulation to make it mandatory for all new and existing tenancies to be let on properties that meet Energy Performance Certificate (EPC) band C or above has caused a lot of disruption in the buy-to-let (BTL) market.

Arguably it is a steppingstone to the next goal of net zero in 2050. For now, though the EPC goal and its pressing deadline understandably commands the attention of most in the private rented sector (PRS) market.

It is not surprising all told. Office for National Statistics (ONS) figures for 2022 confirmed there is some way to go to get housing stock up to that level. England and Wales both have a median energy efficiency rating in band D, and four in five dwellings used mains gas as a main fuel source for central heating.

Calling for more clarity

As energy bills have been so expensive over the past year good landlords want to offer their tenants better insulation and energy saving features that will bring down their bills.

While some landlords are holding fire, many are cracking on with the upgrades they will need to do to properties in their lettings portfolios. All that is holding them back is the lack of clarity on what upgrades they should be doing, which has put many landlords in a tricky position.

There are many challenges, and some are incredibly difficult to overcome – at least while there remains so little tailored guidance. Nevertheless, landlords are an entrepreneurial bunch.

It is useful to point out where government and regulators need to concentrate more time to support the private sector in reaching new minimum standards, but landlords aren’t waiting around doing nothing.

Recent research from the BVA BDRC Landlord Panel found that in Q1 of this year, 80% of landlords had already carried out some remedial works to properties in response to the new energy efficiency requirements, and in anticipation of future Government measures and action in this area.

Of those, 52% said they had carried out works at the minimum cost required to comply, while nearly 38% said they had carried out works to maximise the long-term value of their property.

Putting in the work

The research also revealed there has been a drop in the number of landlords saying they would not carry out any works and would instead seek to sell or not re-let – down to 13% from 20% in the last quarter.

Though this fall may in part be due in part to the number of landlords who felt this way having now exited the sector – it shows the commitment that those landlords who remain have towards improving energy efficiency of rental stock.

Landlord owners were also asked how many currently owned a property below an EPC level of Band E, with 19% saying they had one or more in this bracket. The majority (78%) said all their properties were above Brand E.

As always, there are two sides to this. Upgrading UK housing stock is not straightforward, largely because so much of it is old and, in many cases, unsuited to the upgrades necessary to improve their EPC ratings. Where properties are listed, the Government has already provided an exemption from the incoming rules.

“Upgrading UK housing stock is not straightforward, largely because so much of it is old.”

Meeting the target

There are also more banal challenges. Victorian terrace flat conversions are not good candidates for heat pump installation, for example, while high rise flats are also nearly always a no too because in order for an air source heat pump to function there must be space to house an outdoor unit that contains the fan component. Installation also requires space for a hot water tank holding between 100 and 200 litres, which can put an additional 200kg load on the floor. Then there’s the noise that the external fan makes, which must be taken into account when neighbours live in close quarters.

It’s’ encouraging that landlords are already doing what they can to improve their rental properties’ energy efficiency. This commitment must continue to deliver on net zero targets.

The data and feedback we are gathering is more positive than many would otherwise think.

Knowing the scale of the opportunity and understanding the subsequent size of the prize means using the data available to drive the decisions to act.