Retrofitting Britain's Housing Stock

Britain's housing stock is the worst insulated in Europe and we won't meet our carbon reduction targets unless we do something about that. But we must face the reality that we can't bring our ageing housing stock up to an acceptable standard overnight; not only will it be very costly, but it will take years to accomplish. All the more need then, for policies which promote actively seeking out the opportunities with the highest carbon return on investment. We need to find ways to give the investment return an attractive immediacy and achieve a cultural shift to viewing poorly performing legacy housing stock not a as millstone, but as an exciting opportunity for renewal.

Green incentives to date, such as Feed-inTariff, Renewable Heat Incentive and home insulation grants have not delivered change at the pace that is needed. It is not so surprising. These incentives are only useful to those with cash to spare and who are able to wait many years for payback. And yet on a Net Present Value basis, for example home insulation is a good investment, because it is so durable and because it delivers real financial value over so many years. We need to find structures that direct funding to bodies accustomed to taking the long view or bring forward the payback in ways that create highly dynamic activity among those who won't or can't.

This huge national challenge has no single recipe and a little like a coastline has a fractal nature. There is complexity at the large scale (national and regional) and at the small scale down to the solid brick wall of a bathroom at 29, Acacia Drive. We need to take account of that complexity and get to the low apples first, because anything we can do to reduce emissions in 2020 is intrinsically more valuable than in 2030.

As an example of this complexity at the national scale, there are huge variations in the carbon intensity of grid electricity. In Scotland, the carbon intensity is often zero. In Yorkshire the carbon intensity can be well over 50%. So in UK regional terms, Scotland is a highly effective place to install heat pumps, because there, they will displace 100% of emissions that would otherwise be generated by domestic oil and gas heating. In York though, depending on the thermal efficiency of the local power station and the COP (Coefficient of Performance) of the heat pump, it would be a marginal enterprise. On the other hand, better home insulation in York would be very effective in reducing carbon footprint. As a further example, heat pump based local heat networks would be very cost effective in seaside towns, because the sea can be the source of the heat and many are near to offshore wind energy landfall, making the carbon intensity very low. So at a national level, we should be directing investment to where we get the biggest bang for our buck.

At the local level, if Covid-19 has demonstrated anything, it is the value of local government in understanding and connecting to local need. And as with Covid-19, in terms of housing, local knowledge translates into real value by better targeting of resource. Via Council Housing, MEES (Minimum Energy Efficiency Standards) enforcement, Council Tax collection and investment in rental property, district councils connect in multiple ways to residential property and are a trusted agent.

Taking Council Housing, this sector often has some of the better insulated housing since it is under direct control of councils who have been working away at the problem for some years. Since it is under direct control, council housing is still one of the low apples and there is much more that can be done to improve energy performance. Unfortunately, most local authorities faced challenging financial conditions, even before Covid-19. Whilst further expenditure could be justified on the basis that it is addressing fuel poverty, expenditure would be very poorly targeted if that were the primary objective. On the other hand, there is no legal mechanism to recover the cost of upgrades; local authorities cannot increase rent on the basis of having made improvements. HaaS (Heat as a Service) in which the council contracts to maintain temperature could offer a way for local authorities to further invest in energy efficiency but to benefit from that investment, since it reduces the cost of meeting the contracted obligations.

The private rented sector can be a key ally and we need to move beyond a slightly Rachmanesque view of private landlords and mobilise them in partnership. A key cost which is overlooked, particularly in insulation retrofit is the implicit cost of domestic disruption. There must be a value (£1000 at least) to avoid having your house turned upside turn for a couple of weeks and ideally, insulation upgrade is done between occupancies. Since the private rented sector has a high churn rate in the UK, given the right incentives, it is ideally placed to synchronise upgrade work with that churn. By the same token, more mobile and enterprising owner occupiers could be motivated to participate in a zero carbon property ladder. To incentivise this helpful churn and to bring forward the profits from this crucial activity, I propose that Government makes a Value Added payment rolled into Stamp Duty, based on the number of EPC increments made by a property owner during tenure.

Renovating our housing stock will cost the nation a huge amount of money and we need to look for all ways to reduce that cost. There is another reason why we should synchronise and encourage insulation upgrade with churn in the property market. There has been a UK cottage industry for many years now, based on buying dilapidated property, renovating, sometimes only very superficially and making a profit by better presenting essentially the same property. There is significant monetary value in a paint job it seems. Since painting and aesthetic refreshing is an inevitable spin-off from a retrofit, so it makes absolute sense in cost terms to seek out the most dilapidated property, since the market uplift can fund a large part of the retrofit cost.

Local authorities are enmeshed in the property market in various ways including more recently, via participation in the private rented sector as an investment activity. Local authorities are therefore going to be key players and they have an important role to play both setting standards by example and encouraging the training of the skilled people we will need for this important work. Likewise, property service businesses and building societies all have key roles to play and need to be embraced as partners.

In summary, the aim of national policy should not be overly prescriptive, rather the aim should be to create a fiscal landscape that incentivises a public-private partnership actively seeking out the low apples, and makes that a profitable enterprise. The lowest apple of all is of course insisting that houses are built properly in the first place - but that is another battle!

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