EEH0031

SUBMISSION FROM NATIONWIDE BUILDING SOCIETY

26 June 2020

• Are the Government’s targets on residential energy efficiency still appropriate to achieve its ambition to reach net zero emissions by 2050?
• What are the potential risks and opportunities of bringing forward the Government’s energy efficiency target?

Nationwide Building Society wants to move to net zero as swiftly as possible, but we should focus on the actions which will get us there.  Regulatory and policy change that will support this action includes:

-          Encouraging the growth of energy-efficient alternatives and zero carbon heating options such as air source heat pumps and ground source heat pumps.  Nationwide’s experience so far from the commissioning an design of 239 homes (which should be EPC A rated when complete) in a model development called Oakfield in Swindon will allow us to develop our understanding of the practical implications of using air source heat pumps.  From our work on Oakfield it is already clear that this market needs development and an injection of orders at scale for the social housing sector would help grow this sector.  This is essential if we are to move homes off the gas grid. 

-          Exploring what regulatory reform could encourage more joined-up work between energy-providers and builders and developers working in housing delivery – to ensure that all new and existing homes meet improved energy-efficient standards and rely on cleaner power.

-          Consideration of incentives in the tax system to support retrofitting including VAT relief on retrofitting and a reform of Council Tax to incentivise the greening of homes.

In this sense, the risk of bringing the energy efficiency target forward is that it may not be introduced in concert with regulation and incentives that make it simpler for the private sector to deliver the products and services necessary to hit the new target.

• Should Government targets for energy efficiency be legislated for, and if so, what difference would this make?

Legislation would create a hard deadline for all to work towards.

However, deadlines enshrined by legislation will not be met without a plan, supported by Government, which aligns the supply chain for energy efficiency in retrofitting and the development of zero carbon heating.  In short, it needs to be easier, cheaper, and more straight-forward for consumers to retrofit their homes – to ‘green’ them – and for developers to deliver green homes.

The private sector is already moving to anticipate and meet consumer demand. Here at Nationwide Building Society we have pledged the following:

-          We have earmarked £1bn for green lending for EPC A rated homes and eco-home improvements.

-          Our Green Additional Borrowing facility gives a lower initial interest rate on borrowing from £5000 to £25,000, provided at least 50% of the new advance is spent on energy efficiency home improvements.[1]

-          Longer-term, upgrading homes in this fashion makes financial sense, but it can take many years to recoup the cost via lower bills – which is why we are keen to see how regulation could be changed to make the economics of making your home more environmentally friendly more viable. This could take the form of government incentives for homeowners or VAT relief on retrofit.

-          A reform of Council Tax to incentivise the greening of homes should also be seriously considered by Government.

• How effective is the EPC rating at measuring energy efficiency? Are there any alternative methodologies that could be used? What are the challenges for rural areas?

The EPC rating system is far from perfect, but it does provide a framework which can be developed. To this end Nationwide is working with the Green Finance Institute to see how energy efficiency values can be captured in the valuation and mortgage purchase process. For example, EPC values could be included in land registry information.  This builds on our property hub which we have worked with since 2016. In conjunction with key partners such as Airbus Defence and Space, JBA Risk Management Ltd and Ordnance Survey we are able to assess how changing climate and environmental factors will impact properties over their mortgage term. This is the first step in a fundamental change to valuation methodology, moving away from a pure present-day comparable basis to incorporate new longer-term environmental data sources and models of climate change impacts.

Currently it is unclear whether buyers of properties or new tenants consider an EPC rating before making their decision about renting or purchasing a home. Factors such as cost, location, number of bedrooms and the proximity of local amenities are all likely to be higher priorities. This is particularly likely to be the case in high demand markets, such as the London rental market, where the need to make quick decisions and compromises is likely to be higher.

It is also worth noting that many properties do not have an EPC, as they have not been sold or let recently, and even if they do that the rating may not be up to date.  As this data point is the main one used to measure energy efficiency exploring how the system is improved and expanded will be essential.  Consideration of how retrofitting in a home can enable a re-rating also needs to be considered.  In addition to improving the rating system the Committee may want to consider how to ensure the ratings are used so that they can provide a driver for change.

In particular, the in information included in the EPC should be reviewed to ensure it is clear and consumer friendly. Government should work with consumer bodies, estate and letting agents, surveyors and mortgage lenders to ensure the EPC is a useful document which can be used by consumers as a basis for understanding how to improve the energy efficiency of their home.

• How will lack of progress on residential energy efficiency impact the decarbonisation of heat and the associated costs of this?

Improving the energy efficiency of a building – residential or otherwise – requires a ‘whole-home’ approach. Improved insulation and double-glazing will reduce heat wastage, but it is better still if the heat in question is from a sustainable, decarbonised source.

We support that from 2025 the Government will be introducing a Future Homes Standard requiring all new-build homes to produce an estimated 75-80% fewer CO2 emissions than is typical under the current regulations. The Committee on Climate Change have recommended that – alongside gas-free technologies – wider uptake of energy efficiency measures are necessary to help combat climate change.[2]

Nationwide looks to lead by example. Our construction partners Mi-space are currently on site delivering 239 homes in a not-for-profit housing development, Oakfield, commissioned by Nationwide in our home-town of Swindon. We are planning with sustainability in mind, and as such have committed to the following:

-          The development will be off-gas, instead using air source heat pumps in place of gas boilers. In their lifetime, air source heat pumps produce 20% of the carbon emissions gas boilers do.

-          Solar panels – when combined with air source heat pumps, this renewable energy technology can substantially reduce C02 emissions and energy bills.

-          All homes will be battery-ready so that occupiers can add a battery and store energy from their panel system, if desired.

-          At the end of the process all of the homes should be EPC A-rated.

We would be delighted to work with Parliamentarians and the Government to explore how regulatory reform in the built environment could encourage the roll-out of similar standards across the sector.

• How can the Government frame a Covid-19 stimulus strategy around improved energy efficiency of homes?

The Future Homes Standard will go some way to ensuring that the tomorrow’s homes hasten the journey to net zero. However, as it stands, 15% of the UK’s carbon emissions came from the existing residential sector.

Clearly, ensuring that the current housing stock is energy-efficient should be a major priority in terms of both environmental imperative and industrial strategy opportunity.

As discussed in response to the first question, Nationwide would like to see more done to encourage the market and consumer appetite for the retrofit and refurbishment of the UK’s homes. Moreover, we believe that this is an opportunity to up-skill those looking for work in the construction sector, as part of a wider pivot to ‘green construction’ and sustainable jobs more broadly.

In Nationwide’s draft Empty Homes Manifesto[3], we make the case for reintroducing the Empty Homes Grant Funding scheme (and investing a minimum of £185m in it) with a view to using it to bring the UK’s 226,000 empty homes back into use, and using their refurbishment as an opportunity to assess best practice in retrofit and create new green construction jobs. Consider the following:

-          By the time a residential building is complete, 51% of its whole-life carbon will have been emitted.[4] Refurbishing a building is an opportunity to reduce waste and reduce the emissions produced throughout the building’s lifecycle. Small changes during the refurbishment process such as proper insulation and ventilation, double-glazed windows, renewable energy etc, can radically reduce emissions and save on fuel costs too.

-          Britain is on the cusp of a construction skills crisis. It is estimated that the sector needs to recruit and train an extra 158,000 workers over the next five years in order to keep pace with demand.[5] The refurbishment of empty homes is an opportunity to create quality local jobs and help tackle the looming construction skills challenge.

• Is the £5m Green Home Finance Innovation Fund enough to stimulate the market for and drive action from the banks to encourage owner occupiers to improve the energy efficiency of their homes?
• What policy and / or regulation could supplement it?

As discussed above, Nationwide is developing our green lending offer with an explicit view to encouraging members to make their homes more energy efficient.

In addition to this, Nationwide is exploring constraints or blockages in the retrofitting process that consumer’s experience.  We intend to identify the latent demand for retrofitting and how that demand can be best fulfilled through a more targeting supply chain.

There is scope to revisit how existing interventions in the housing market could be used to green homes.  For example there could be a transition from help to buy to a help to green at some point in the future.

• Which models in other countries have been successful at stimulating demand for energy efficiency within this market?

Sweden made the switch from oil to district heating in the 1990s and since then, has drastically reduced their contribution to the emission of greenhouse gasses. Specifically, Sweden’s second largest city, Gothenburg, has implemented a district heating network which heats 90 percent of the apartment blocks in the city as well as 12,000 stand alone homes.

As Danish homes require heating for over half of the year, their Government has put a strong focus on creating more energy efficient buildings in the country. As a result any Danish companies are working to make Danish structures more sustainable by creating energy efficient windows, heating, indoor water sources and insulation.

• What additional policy interventions are needed for social housing, leaseholders, landlords, and tenants?

The Clean Growth Strategy asserts that BEIS will consult on how to ensure that social housing, 17% of the UK’s housing stock, can meet EPC band C by 2030.[6] However, it is worth looking beyond social housing to the broader private rented sector, which accounts for 21% of the UK’s housing stock[7]. Within this sector, there are obstacles to higher standards which need addressing.

As Nationwide the second largest buy-to-let lender, we are invested in ensuring that landlords who purchase property using our products, and the tenants who inhabit them, contribute to improved overall standards in the UK housing stock. Government intervention in the following areas, coupled with the reforms mentioned in our response, could help deliver this:

-          New regulation dictates that all privately-rented properties must meet the ‘minimum level of energy efficiency’, EPC E band[8]. However, because there is no centralised source of information regarding the standards, quantity, and ownership of the UK’s privately-rented properties, it will be difficult to actually enforce this new regulation.

-          Indeed, because take-up of landlord registration and licensing schemes is non-mandatory across the UK, there is no way of assessing how many landlords are aware of their regulatory obligations in this regard.

-          With this in mind, we take the view that, in order to push for and enforce best practice, a mandatory landlords’ register is necessary. This would operate as a centralised data-base where the following simple data points would be logged: name and address of landlord, EPC rating and gas certificate (and any other safety and energy-adjacent information). This information would also give the Government an improved source of data regarding the UK’s growing population of renters, and the conditions they live in.

• Are there examples where energy efficiency policy has fallen between Governmental Departments? How could cross-departmental coordination be improved?

A clear ownership of the ‘green homes’ agenda within Whitehall could enable a more joined-up approach, considering planning, house building in the social rented sector, energy efficiency standards, the heat strategy, and financing of home improvements.  The health benefits of cleaner air within houses as well as in the environment could also be considered.  Nationwide would support a taskforce that drew together Government departments towards this common cause of reducing carbon output from the nation’s homes.