The UK government has legally committed to going carbon neutral by 2050. That’s going to require a huge effort and significant changes across essentially all commercial sectors, including the private rented sector.
Carbon neutrality and the PRS
As a densely-populated country, the energy-efficiency of homes is likely to play a huge role in getting the UK to its target of carbon neutrality by 2050. The government has very little scope to force the owners of private, residential properties to make improvements to them to improve their energy efficiency. They can certainly encourage them, but they cannot force them.
They can, however, force home builders and property investors to comply with minimum standards of energy efficiency as a condition of being allowed to build/let properties and it appears that this is exactly what they intend to do.
The rules on minimum energy efficiency standards are being expanded
From 1st April 2020, all let properties will be required to have an EPC rating of E or better, unless they specifically qualify for an exemption. Exemptions only apply in a very small range of circumstances. These are typically:
+ The work would devalue the property by 5% or more (exemption valid for up to five years)
+ The landlord cannot obtain the necessary permission for the work
+ The work would cost the landlord more than £3,500 (including VAT).
NB: existing cost-based exemptions are only valid until the end of March this year.
A person becomes a new landlord (exemption valid for up to 6 months).
The minimum energy efficiency standards are enforced by local authorities and they are allowed to keep the funds from any fines levied. It’s therefore probably safest to assume that the rules will be enforced with vigour.
The MEES is likely to be increased in future
The Scottish government has already stated its intention to increase the MEES to a D by 2022 and to raise the cap on the amount landlords must spend to meet the MEES from £3500 to £5,000. It seems highly likely that the Westminster government will follow suit. In fact, it is entirely possible that the MEES will be pushed at least as far as C to match the minimum standards expected of new-build properties, many of which are now rated B and some of which are even achieving an A rating.
Even without the MEES, market demand favours energy-efficient buildings
Period properties may look charming, but the blunt fact of them is that a lot of them have serious energy-efficiency issues, which can take a lot of time and money to resolve (assuming the necessary permissions can be obtained). Modern tenants (and many buyers) are therefore increasingly favouring new-build properties, which are, literally, designed and built from the ground up with energy efficiency in mind.
This means that new-build properties not only keep landlords on the right side of the law (both now and in the foreseeable future), but are also easy to market to tenants looking to get the best value for their money.
Mark Burns is the Managing Director of Manchester estate agent Indlu.