The Labour government has reinstated energy efficiency targets for UK rental homes, but landlords who own or invest in a new-build can stay ahead of the changes.
It did not come as a surprise to most when Labour’s energy security and net zero secretary, Ed Miliband, confirmed recently that minimum energy performance certificate (EPC) ratings would come back into play for the private rented sector.
Last year, then-Prime Minister Rishi Sunak scrapped plans to enforce stricter regulations on the sector that would have meant all rental homes must achieve an EPC rating of C or above from 2028. Now, Labour has announced a reinstatement of this target, but from 2030.
However, while this target may seem a long way off, analysis from Hamptons indicates that it could take up to 18 years for every privately rented home in England and Wales to meet this standard, based on the current rate of progress in upgrading lower-performing properties.
Yet while some existing landlords and investors may opt to upgrade their existing properties, which may be more time consuming, many are increasingly looking at the new-build model as a way of getting ahead of the changes, saving time and money in the long run by providing an energy efficient home from the start.
Upgrade or buy new-build?
For both existing and new landlords, the decision on whether to buy – or keep – an older, less energy efficient property and upgrade it, or to invest directly in a new-build, comes down to both time and cost.
ONS data from the first quarter of this year shows that 85% of new-build homes were given an A or B rating in their EPC. By contrast, less than 4% of existing homes reach the same standard. New-build flats in particular tend to have higher energy efficiency standards.
The cost of completing building work has skyrocketed in recent years, due partly to staff shortages as well as the significantly increased cost and scarcity of materials. This must be weighed up against the sometimes higher price tag that can come with a new-build investment – although this cost can be reduced by investing off-plan.
Under the Conservative government there was a £3,500 spending cap per property that landlords would need to spend in order to bring it up to the required EPC. If this were not enough to achieve the minimum EPC rating, the landlord could then apply for an exemption.
There were proposals while the Tories were still in power to increase this spending cap to £10,000 – meaning landlords would be required to spend up to £10,000 of their own money in order to hit the minimum EPC standard.
Higher EPCs will become more sought after
Another reason why property investors are increasingly interested in new-build investments comes down to tenant interest. Multiple surveys have found that tenants are putting energy efficiency higher than ever on their priority lists when looking for a home, meaning top-rated homes are becoming more desirable.
As a result, landlords are likely to see more interest and achieve better rents when offering a modern, energy efficient home to tenants, that is more environmentally friendly and cheaper to run.
Many property investors and landlords had already been preparing for the impending new regulations under the Conservative government, meaning the private rented sector has already seen improvements in its ratings – and the sector now has higher average EPC ratings than owner-occupied homes.
Aneisha Beveridge, head of research at Hamptons, said: “Successive changes to proposed energy efficiency rules have shifted the goalposts for landlords, some of whom face costs which can run into tens of thousands of pounds.
“Despite this, many investors have continued to improve the energy efficiency of their rental homes and we’re currently on track to see 100% of rental homes where an EPC A-C is viable, reach that rating within a generation.
“To meet the government’s 2030 target, the same number of homes will need to see energy upgrades over the next five years as we’ve seen make improvements in the last 30 years.
“While a requirement for all rental homes to achieve an EPC A-C rating by 2030 is achievable at a stretch, landlords need adequate time and resources to meet it. It is essential landlords receive complete clarity on this target this year.”
If you’re interested in finding out more about new-build property investment in some of the UK’s most lucrative investment destinations, get in touch with BuyAssociation today.