Response to BEIS Consultation –
Domestic Private Rented Sector Minimum Level
of Energy Efficiency
March 2018
Introduction
The UK Green Building Council (UKGBC) is an industry network with a mission to radically improve the sustainability of the built environment, by transforming the way it is planned, designed, constructed, maintained and operated. As a charity with over 400 member organisations spanning the entire sector, we represent the voice of the industry’s current and future leaders who are striving for transformational change.
We have long been concerned about the poor standards of energy efficiency (and high concentrations of fuel poor and vulnerable households) in the private rented sector (PRS). We were therefore pleased that in the 2011 Energy Act the Government placed a duty on the Secretary of State to introduce a minimum standard for private rented housing from April 2018 at the latest. We were, however, always opposed to the minimum standard being based on the principle of ‘no net or upfront costs’ to landlords. Our concerns were redoubled after the Government announced in 2015 that it was withdrawing all future funding to the Green Deal Finance Company. From that point on it became clear to us that introducing an absolute requirement on landlords to improve their properties was the only way to ensure the effective functioning of the MEES regulations.
We therefore welcome this consultation, but, for the many reasons set out below, we believe that the proposed cost cap of £2,500 per property is woefully inadequate, as it will mean that the vast majority of F & G rated properties will not even need to meet the minimum standard of EPC Band E.
Responses to individual Consultation Questions:
Question 1: Do you agree with the policy proposal under consideration here to introduce a landlord contribution element where funding is unavailable to ensure improvements to Band F and G properties can be delivered (unless a valid exemption applies)? This would be subject to a cost cap.
If you do not agree, what are your objections, and how do you recommend the energy efficiency minimum standard should be achieved, given the current funding climate? Please provide reasons and evidence where available to support your views.
We welcome the proposal to require landlords to fund the energy efficiency improvements needed to bring properties up to Band E, up to a reasonable cost cap.
We argued strongly in the run-up to the original regulations being laid that it was inappropriate for landlords to be exempted from the minimum standard if they could not make the necessary improvements without incurring ‘upfront cost’. We believed then – and continue to believe – that it was quite wrong, as a matter of both law and practice, that a regulatory framework should be dependent upon a set of financing mechanisms that might not even exist in 2018 (or which, at the very least, would be likely to suffer from fluctuating levels of available funding). We are glad that BEIS has recognised that, as currently drafted, the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 will be an administrative nightmare for local authorities and will lead to an unjustifiably inflated number of exemptions.
Question 2a: Do you agree that a cost cap for improving sub-standard domestic private rented property should be set at £2,500?
No. We consider that a cost cap of £2,500 is wholly inadequate.
The current regulations specifically designate as ‘sub-standard’ all domestic privately rented properties below Band E. The consultation document itself describes Government’s wish to see ‘a meaningful proportion’ of these properties improved across England and Wales. There is also an explicit acknowledgment in the Consultation Stage Impact Assessment that F & G-rated PRS properties account for a ‘disproportionate number of households in fuel poverty’ and ‘represent some of the coldest homes in the housing stock’. Compared with other housing sectors, the PRS has the highest proportion (6.3%) of F and G-rated properties. By comparison, only 0.7% of social housing is F & G-rated. In turn, as the consultation recognises, households living in the PRS have the highest prevalence of fuel poverty – 21.3% compared to 7.4% in the owner occupier sector, but rising to a staggering 45.7% if we just look at PRS F and G stock.
The most recent English Housing Survey found that, ‘In 2015, 5% of private rented homes had a risk of excess cold, a higher proportion than both owner-occupied (3%) and social rented homes (1%).’ There is also compelling evidence from Oxford City Council of the correlation between homes that are F and G-rated and those containing a Category 1 hazard for excess cold (as assessed by the Housing Health & Safety Rating System). Since July 2015, the Council has conducted a full HHSRS inspection on 31 F and G-rated properties, all of which were found to contain a Category 1 hazard for excess cold. Of these 31 properties, half were also found to contain Category 1 hazards for damp and mould.
In light of all of this, it seems to us extraordinary that the consultation proposes a cost cap which will lift only 30% of properties out of their ‘sub-standard’ condition – and will leave a substantial number of fuel poor households still choosing between heating and eating. By definition, the properties that cannot reach Band E under the £2,500 cost cap will be the worst-performing ones, i.e. the coldest, dampest, most unhealthy ones. It will be the properties already nearer to the Band E threshold which will be most likely to be able to cross it under the proposed cost cap.
In the recent Clean Growth Strategy, the Government set out its aim to upgrade as many privately rented homes as possible to EPC Band C by 2030. It is, frankly, hard to believe that this is a serious aim if they propose to leave 70% of properties languishing in Bands F and G after the backstop date of 1 April 2020 for all PRS properties to reach Band E has passed. This lamentable start also calls into question the Government’s commitment in its 2015 Fuel Poverty Strategy to ‘ensure that as many fuel poor homes as is reasonably practicable achieve a minimum energy efficiency rating of Band C, by 2030’.
The Impact Assessment provides a host of further arguments against a £2,500 cost cap. Table 6 clearly demonstrates that a £5,000 cost cap (the maximum modelled by Government) would deliver 2½ times the amount of health benefits for tenants than those delivered by a £2,500 cost cap. Table 9 shows that a £5,000 cost cap will result in nearly twice the level of energy bill savings compared with a £2,500 cap. Table 4 shows that a £5,000 cap will deliver nearly double the insulation measures – meaning that all but 19,600 of the 280,000 PRS F and G properties would receive insulation measures by 2020 (including those not reaching E). Insulation is the no-regrets option for decarbonisation, whereas boilers and heating controls will be obsolete within 10 years. It would seem that, by opting for a £2,500 cap, the Government is flying in the face of its own analysis.
A £5,000 cost cap, moreover, is not unreasonable, particularly as landlords will have over a year’s notice of their upcoming obligation (the Government intends for the amended regulations to take effect from April 2019). All responsible landlords already have contingency plans for repairs – the average cost of a new boiler for instance is around £2,500, compared with which the consultation tells us that, for landlords able to achieve Band E for under £5,000, the average cost of doing so would be only £1,700.
We believe that, combined with a higher cap of £5,000, if landlords get their properties further along the trajectory to Band C by 2030 than just getting to Band E, they should be rewarded. This should take the form of a reintroduced Landlords Energy Saving Allowance of around £3,000. This would be strategically aligned with the longer-term trajectory for the private rented sector by preparing the ground for more stringent minimum standards in 2025 and 2030, and help build the marketplace for goods and services to assist landlords in improving their properties to a high standard.
Question 2b: Do you agree that a cost cap for improving sub-standard domestic private rented property should be inclusive of VAT?
Yes, this would seem equitable as domestic landlords cannot reclaim VAT incurred when purchasing and installing energy-saving materials.
Question 3: Do you agree that a cost cap should not take account of spending on energy efficiency improvements incurred prior to 1 October 2017?
If you do not agree, what would be the most appropriate way of taking account of previous spending on measures which have failed to raise a property above EPC F or G? Please provide reasons and evidence where available to support your views.
Yes, we agree.
Question 4: Do you agree with the proposal that where a landlord contributes to the improvement, the cost cap threshold should be inclusive of any funding which can be obtained through a ‘no cost’ finance plan (including a Green Deal finance plan), Supplier Obligation funding (for example, ECO: Help to Heat or a successor scheme), or energy efficiency grant funding from a Local Authority or other third parties?
If you do not agree, please provide reasons and evidence where available to support your views.
No, we do not agree that, where a landlord is fortunate enough to be able to obtain funding from external sources, he should be relieved of his duty to spend up to £2,500 of his own money if that is what it takes to bring his property up to Band E.
Supplier obligation funding is provided directly by fuel bill payers – and in the context of the private rented sector, this is typically tenants. So if landlords were absolved from their obligation to spend up to £2,500 where ECO funding was available, it would effectively be a case of tenants providing a subsidy to their landlords. Furthermore, with the increased focus of the ECO on delivering measures to low income households, it will be landlords whose tenants are on low incomes (and more likely to be in fuel poverty) who will be most likely to get ECO funding and who will therefore end up spending the least. This is perverse and inequitable.
Question 5: Do you agree that it is not necessary to place a regulatory duty on energy suppliers, or their agents, to provide landlords with cost information relating to the value of energy efficiency improvements made to the landlord’s property through a supplier obligation?
As explained in our response to Question 4, we do not believe that the proposal to reduce the contributions required from landlords fortunate enough to be able to obtain external funding is justified. However, if the Government goes ahead with this proposal nevertheless, we agree that it would not be necessary to place a regulatory duty on energy suppliers.
Question 6: Where a landlord is intending to register a ‘high cost’ exemption, should the landlord be required to provide three quotes for the cost of purchasing and installing the measures, in line with the non-domestic minimum standards?
If you do not agree, please provide reasons and evidence where available to support your views.
Yes, the landlord should be required to provide three quotes. In addition, in order to avoid the risk of fraud these quotes should be obtained from installers who are certified by a relevant certification body, e.g. PAS 2030, a competent person scheme or the Microgeneration Certification Scheme (MCS).
Question 7: Do you agree with the proposal to limit the validity of any ‘no cost to the landlord’ exemptions (under Regulation 25(1)(b)) registered between October 2017 and the point at which a capped landlord contribution amendment comes into force?
If you do not agree, what are your objections, and how do you recommend that the minimum standard regulations be amended to ensure the energy efficiency improvements are delivered to such properties which might otherwise be left unimproved once the amended regulations came into force? Please provide reasons and evidence where available to support your views.
Yes, we agree.
Question 8: Do you have views on whether the consent exemption under Regulation 31(1)(a)(ii) should be removed from the minimum standard regulations or retained?
Please provide reasons and evidence where available to support your views.
We believe that this exemption should be removed. It would be quite wrong for a landlord to be able to claim an automatic exemption in circumstances where he chooses to go down the Green Deal financing route and his tenant withholds consent to a Green Deal charge. In such circumstances, the landlord should be required to explore other finance options for making improvements or fund the measures himself.
Question 9: Do you have any comments on the policy proposals not raised under any of the above questions?
No.
Question 10a: Do you have any evidence or comments regarding the consultation impact assessment (including views on any of the assumptions we have made to support our analysis), which could inform the final stage impact assessment?
We have a number of observations to make about different aspects of the Impact Assessment:
- In Table 2 the costs to landlords of familiarising themselves with the regulations and complying with them are assessed to be between £31m and £37m across the four different policy options. We struggle to understand these elevated amounts. In reality, landlords will likely read a leaflet or go to the Gov.uk website and will then have to obtain 3 installer quotes. By contrast, in the same table the costs of enforcement to local authorities are assessed as being £35m across the four policy options – i.e. less, in the case of a £1,000 cost cap, than the estimated costs to landlords of complying. This is counter-intuitive, to say the least
The Impact Assessment states that: ‘The costs to local authorities are expected to be small, as they will already monitor and enforce the requirement to have an EPC. There will therefore only be small additional costs associated with monitoring that these landlords have also complied with the Regulations.’ The experience of local authorities on the ground is very different. It is rare for a local authority Trading Standards Department to treat the requirement for an EPC as an enforcement priority, given their often diminished resources. Also, austerity measures have meant that there is often insufficient capacity in local authority housing enforcement teams – meaning that most authorities will need significant additional resources to enable them to adequately administer and enforce the Regulations.
- As is clear from Table 3a of the Impact Assessment, a cost cap of £2,500 perversely incentivises the installation of low energy lighting at the expense of insulation measures. While low energy lighting is clearly a carbon-saving measure, it does not improve the thermal comfort of a dwelling. As already noted in our response to Question 2a, a cost cap of £5,000 nearly doubles the installation of insulation measures compared with a £2,500 cost cap; it also substantially reduces reliance on low energy lighting.
- Table 1 lists the categories of costs and benefits analysed in the Impact Assessment. It seems perverse to us that, while no fewer than six categories of costs to landlords are identified, they are deemed not to derive any benefits at all from the improvement of their properties. It is surely the case that landlords will benefit from a more efficient property, which will be more attractive to let and also, should they wish to, to sell?
By contrast, we are told that the improved health outcomes to tenants as a result of warmer homes have been quantified, but that they have not been included in the cost-benefit analysis. We believe that this unfairly skews the results of the cost-benefit analysis.
Question 10b: Do you have any evidence or information on the potential for these proposals to impact on the PRS market, including any potential for landlords who are required to act by the minimum standard regulations to pass through costs to tenants after making improvements to their properties?
We believe it unlikely that landlords will pass the costs of improvements through to tenants. Rental rates are fixed by the prevailing market, rather than by particular costs that landlords happen to have incurred.
Question 10c: Can you provide any evidence on the likely costs associated with the compilation of evidence in advance of registering an exemption on the PRS Exemptions Register?
As outlined in our response to Question 10a, we find it extremely difficult to believe that the costs associated with the compilation of evidence will be anywhere near as high as they are assessed to be in Table 2.
UKGBC
March 2018
For further information, please contact:
Jenny Holland, Public Affairs & Policy Specialist
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