Written evidence submitted by The National Housing Federation (RFH0037)
Introduction
The National Housing Federation (NHF) is the voice of housing associations in England. Housing associations are not-for-profit organisations providing around 2.8 million homes for six million people in every local authority area of England.
Housing associations are committed to the net zero target and decarbonising their homes by 2050. Housing association homes are already more energy efficient than all other tenures: 72% are certified EPC C or above, compared with 45% of privately rented homes and 43% of owner-occupied homes. However, for all our homes to reach EPC C by 2030, a doubling of the current pace of home retrofits will be required.
The UK is lagging behind significantly on the necessary rollout of clean heating systems to meet climate targets. Social landlords manage the majority of heat networks and are making important headway with the trialling of heat pumps, making them a critical stakeholder in scaling clean heat deployment. With policy and funding support, housing associations can continue to play a critical role in the Warm Homes Plan and net zero transition.
This submission covers three of the five questions set out in the email from the Energy Security and Net Zero Select Committee on 19th November 2024. We have chosen to prioritise these three questions, although much of our answers would also be applicable to the two which we have omitted. Our response is informed by discussions with our housing association members, as well as industry experts.
Questions
What factors are contributing to the under-delivery of government retrofit schemes?
1. The two primary government retrofit schemes that social landlords deal with are the Warm Homes: Social Housing Fund (WH:SHF, formerly Social Housing Decarbonisation Fund) now delivering Wave 3, and the Energy Company Obligation (ECO), currently in its fourth major scheme iteration.
2. Regarding the WH:SHF, at the outset, we would like to say that the design of the WH:SHF scheme has been and continues to be highly open and collaborative with the sector – which we commend to the work of DESNZ.
3. In prior waves of the WH:SHF, challenges surrounding the success of the fund included competitive bidding processes, burdensome application and reporting structures, complex pathways for smaller housing associations and tight delivery windows. In the view of the NHF at this time, the design of WH:SHF Wave 3 has significantly addressed many of these pitfalls from earlier waves, having taken on feedback from the sector, which is welcome and we hope will improve delivery.
4. The NHF is currently working with our members and the West Midlands and Greater Manchester Combined Authorities to shape the trajectory of the devolved WH:SHF funding pilots. As they are pilots, and still at an early stage of development, it is hard to analyse the impact they will have on fund delivery at this time. Our membership has a range of views on devolution, and we can see benefits to this approach. However, an overarching concern we have is that housing associations do not always operate in neat geographical areas. Where housing association homes are situated across Combined Authority regions and geographies covered by the national WH:SHF scheme, devolution may contribute to increased bureaucracy for some of our members who will need to engage with multiple funding streams. Were devolution of the WH:SHF to continue to be rolled out to new geographies, this patchwork of funding could increase. This could impact on the successful and efficient procurement of works and supply chain engagement. Were the design of these various devolved scheme design or targets to diverge from central DESNZ scheme design and/or between Combined Authorities; this could exacerbate these issues further. Resourcing is also not uniform across Combined Authority management teams which may lead to discrepancies in delivery success. We hope to continue to work with government and Combined Authorities on the design of these devolved schemes.
5. Beyond scheme design, other issues hampering WH:SHF delivery have been higher than anticipated costs and supply chain bottlenecks, complexities with multi-tenure projects and resident refusals of works. Housing associations are keen to play their part in national policy endeavours to address skills and supply chain issues. The Energy Savings Trust recently released a useful report looking at the issue of multi-tenure retrofits and policy reform. On resident refusals, our sector would welcome a government commitment to rolling out a public information campaign on home decarbonisation alongside a dedicated national consumer advice centre. These can then effectively inter-lock with housing association resident engagement strategies to boost housing retrofit and clean heating confidence amongst consumers. These could be relatively low-cost but impactful avenues to improving WH:SHF and other retrofit fund delivery.
6. The general scale of funding for the WH:SHF also remains a delivery challenge. The recent announcement of £1.29bn for the WH:SHF 2025-28 was a welcome funding clarification, but this amount is insufficient for the task at hand and it is our understanding that the WH:SHF Wave 3 has been significantly over-subscribed with applications. In line with the government’s manifesto commitments to double spending on home decarbonisation through the Warm Homes Plan, we want to work with the government to ensure the 2025 Spending Review WH:SHF allocations are sufficient to meet the challenge. We support the recommendations of the National Infrastructure Commission for at least £5.1bn to be allocated to the fund to 2030. How any increased funding is allocated, now that applications to the WH:SHF have formally closed, will also be of critical importance to our members. Having long-term, secure and sufficient funding will not only help housing associations deliver, but also improve the capacities of the wider supply chain which will have positive spillover effects for other retrofit schemes.
7. The funding allocated to schemes such as the WH:SHF and the success of such schemes must also be considered in the context of wider financial and regulatory pressures on social landlords. For example, whilst housing associations are committed to playing their part in the decarbonisation mission through match funding of the WH:SHF, this commitment is being made more difficult by significant financial pressures and regulatory uncertainty. Broader policy measures to rebuild the financial capacity of housing associations, for example through a sustainable rent settlement, will greatly improve the sector’s capacity to deliver successful retrofit funding schemes.
8. In regard to other funding streams, some housing associations already have the vast majority of their homes at EPC C and they are in need of access to funding for other decarbonisation measures (e.g. solar panels and low carbon heating) which is not currently facilitated by the WH:SHF or ECO. This lack of current funding diversity could be slowing down earlier potential and beneficial uptake of some technologies.
9. On ECO, social housing eligibility is limited, and we would like to see this reviewed as part of the design of any future ECO5 scheme. Within the confines of current scheme eligibility and design however, we do think there is scope to improve delivery by bringing together ECO5 obligated suppliers with housing associations to better identify properties, engage with residents and develop more coherent delivery plans. We would welcome the opportunity to work with government to explore this further.
How will the public afford the switch to low carbon heating?
10. In social housing, the capital costs of upgrading to clean heating systems are the responsibility of the social landlord. The costs of the clean heat transition for the social housing sector will be significant, with the National Infrastructure Commission recommending that £33.8bn be allocated by the government to 2050 to fully fund this transition in the social housing sector. The costs of heat pumps clearly need to be driven down and the supply chain and workforce bolstered and we welcomed the recent government announcements on measures such as the Clean Heat Market Mechanism. However, we would note that the ongoing delays to the Future Homes Standard are a very significant barrier to heat pump supply chain scaling.
11. Many housing associations are leading the way in rolling out heat pumps, and in some households they can already be a positive alternative to legacy heating systems in terms of both comfort and cost (e.g. in households with LPG or electric heating). However, the primary barrier to the deployment of heat pumps in the social housing sector is the higher cost of electricity compared to gas. Despite having the most homes at EPC C of any tenure, fuel poverty remains a major issue in the sector and stubbornly high energy prices for the foreseeable are a key driver of that. Until the ‘spark gap’ is dealt with, heat pump rollout (regardless of the incredible COP efficiency of heat pump technology) will be limited, as social landlords do not want to exacerbate fuel poverty. The NHF have been supportive of a range of options to deal with this issue including the introduction of a social energy tariff, a specific clean heat discount and the removal of levies from electricity bills (ideally into progressive taxation).
12. This issue of energy pricing impacts not just residents but also social landlords. To combat fuel poverty and make clean heating technologies viable, social landlords are often having to target much more expensive energy efficiency upgrades than is perhaps necessary for heat pumps to operate efficiently. As the National Infrastructure Commission has noted, around 90% of homes “are already likely to have a peak heat loss rate that makes them suitable for heat pumps with minimal to no energy efficiency improvements”. They also state than in many cases “high temperature heat pumps could be more cost effective for these homes than carrying out extensive energy efficiency improvements.” In short, lower heat pump running costs could save social landlords and government money through reducing the required capital costs of extensive insulation, and help deal with hard-to-decarbonise homes.
13. Heat networks are also expected to play a key role in the switch to decarbonised heating and are estimated to meet around a fifth of the country’s heat demand by 2050. Around two-thirds of all heat networks are currently owned and managed by not-for-profit social landlords. The NHF and wider housing association sector are supportive of the forthcoming regulatory programme managed by OFGEM, and are working to ensure this regulatory regime is practical for our already highly regulated, not-for-profit sector. We believe that supportive regulation and best practice guidance on pricing and procurement can help to drive efficiencies in the sector. We also agree that the forthcoming Heat Network Technical Assurance Scheme (HNTAS) will help to lower costs for consumers. However, we have significant concerns about the costs to social landlords of the HNTAS – and believe that an aligned package of government grant funding will be necessary to make delivery of the regulatory regime viable.
Does the EPC framework help customers to make informed decisions?
14. Government, consumers and social landlords all rely on the current EPC frameworks to measure and plan their decarbonisation journeys. The NHF has long raised, alongside many others, that EPCs in their current form are not fit for purpose. They can be unreliable, unclear and unaligned to the clean heating transition.
15. We support reforms to the EPC system such as the Home Energy Model and will be engaging with the proposals in the government’s recently-released EPC reform consultation.
16. However, any proposals for EPC reform should be carefully considered and set out alongside the introduction of any Minimum Energy Efficiency Standard regulation that relies on their usage. This will ensure social landlords are clear about the standards they are working towards, and the measures to prioritise. It is important that any changes to the current EPC frameworks recognise that social landlords have already planned and invested on reaching EPC C based on current frameworks, and any change to these frameworks that result in moving goalposts for achieving this could result in uncertainty and additional costs. One of our member’s recently shared data with us showing that, by adopting the new Home Energy Model version of SAP, around 6% of their total housing stock which is currently at EPC C, would fall below that rating, and potentially require further retrofit works. This would be both a significant required increase in their planned expenditure and highly disruptive for residents where retrofit works may have already taken place.
December 2024