Net-zero for lettings: a zero-sum game for landlords?

Landlords are now quite accustomed to the challenges of operating in a market where they are often perceived as the antagonist in a political tale as old as time in which the voting potential of the mass consumer – the tenant – matters more to the government than the added costs and regulatory oversight applied to the providers of around 4.6 million rental properties across the UK, representing nearly 20% of all households. 

This forms the basis of an imminent challenge for landlords and tenants as research from the data science firm Outra has found that an estimated 4.5 million rental properties across the UK currently have an EPC rating of D or below – the UK has the oldest housing stock in Europe, with almost 38% of homes being built prior to 1946.

The added burden of complying with EPC regulations to meet new minimum energy efficiency standards has become an understandable source of consternation for many landlords; it’s costly, for some unaffordable, and is one of the main reasons why so many landlords are considering selling up and exiting the sector. Indeed, according to a new survey from the Mortgage Advice Bureau, almost two-thirds (59%) of landlords believe they may have to sell up if forced to make EPC upgrades, three in 10 (28%) are very concerned about the costs of upgrading their property, and a fifth (21%) hope more help will become available to support them to tackle the cost of energy performance upgrades.

The government previously issued a deadline of 2025 for newly rented properties and 2028 for all other properties to meet a minimum C rating under the EPC scheme. However, under the new proposals, landlords would now have until 2028 to upgrade their properties. Under the current scheme, privately rented homes only have to meet EPC band E, which is less energy efficient and more expensive for renters to heat. The delay in the introduction of new standards also means that tenants face potentially paying an additional £1 billion in gas and electricity bills.

It’s net-zero, not zero-sum

Aspiring towards a net-zero UK does not have to be a zero-sum game for the property industry, and in the long run carbon-friendly homes will benefit both tenants and landlords. But the big caveat is that it takes two to tango and if the government wants landlords to meet the costly requirements of preparing their properties for the new standard, then they’ll need to offer more financial support.

The government has made some efforts to assist with initiatives like the recently expired Green Home Grants scheme and the recently announced Great British Insulation Scheme. But otherwise there has been little support for landlords in the way of policies or announcements that would help provide clarity about what upgrades will help.

Another potential challenge for landlords is that consumers are increasingly becoming more environmentally conscious and concerned for their carbon footprint. Research from Leaders Romans Group found that almost three quarters (70%) of respondents would like their property to be more eco-friendly, with two-thirds (66%) revealing that they would choose a property with eco-friendly features over one without. Landlords should certainly take heed of these findings given tenant demand for eco-friendly features. Sustainability expectations are already factored into material information on property listings where it’s already a legal requirement that the EPC rating for a property should be disclosed on the listing, unless exempt.

While it could be argued that many tenants are less concerned with a property’s EPC rating when held up against the rent they’re paying, if tenants are forced to pay increasingly high – and for many ‘eyewatering’ – bills for gas and electricity, that cost balance will start to shift. It undeniably leaves a difficult choice for landlords as higher interest rates and cost of living pressures only add to the challenge of meeting the costs of upgrading their properties. And while the government will reportedly cap the maximum spend per property at £10,000 (irrespective of whether or not the C rating is achieved, landlords still face a collective bill of £45 billion to meet the minimum requirements.

Preparing for the future

Achieving net-zero emissions isn’t just an important environment goal, it’s also inevitable, with scientific data suggesting that climate-related change, or at least the prospect of it, will eventually force policymakers and businesses to act, with either new regulations or consumer outcry the driving force behind change.

What is now needed more than ever is a closer consultation and support between the government, landlords and housebuilders, because yes, the problem isn’t just limited to properties in the private rented sector. According to new research from the Open Property Group, just 41% of homes in England meet the recommended EPC rating of ‘C’ or above – this is a mere 1% increase over the previous year.

The homes being built are one day homes that could be rented out, some are purpose-built BTL investments while others will migrate in and out of the private rented sector. We’re already seeing initiatives like the government’s Future Homes Standard, which aims to ensure that new homes built from 2025 will produce 75-80% less carbon emissions than homes built under the current building regulations.

Landlords might find little solace in this however as it won’t help them meet their own EPC requirements by 2028, but it does demonstrate the pressing need for more government support in the private rented sector, and especially for landlords who are providing a roof over the heads of millions of tenants.

Whether it’s more clarity on what’s required of landlords to upgrade or financial relief to help landlords make changes that are otherwise deemed essential for the government to meet its commitment for the UK to become net-zero by 2050 – and realistically the government should be delivering both – the result would satisfy both landlords and renters increasingly conscious about the environment.