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Wrecking the private rented sector

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In 2007, the Government introduced Home Information or Sellers’ Packs. The idea behind these was to speed up the home buying process, prevent gazumping and reduce abortive sales by bringing together a lot of the information that a buyer would need before the sale took place.

There was a lot of opposition to the idea (and some support), and the requirement was scrapped in 2010, save for the Energy Performance Certificate or EPC. The EPC was supposed to provide a prospective buyer with an assessment of the property’s energy consumption, together with a list of practical measures that could be taken to cut fuel bills and carbon emissions.

The assessments are made by trained Domestic Energy Assessors, although the course can be done in as little as five days and costs less than £1000.

The assessment originally produced two ratings, the Energy Efficiency Rating (EER), which calculated the cost of heating space and water in the house, and the Environmental (CO2) Impact Rating (EIR), which estimated the amount of carbon dioxide produced by the property. Over time the EIR has been dropped and the only measure now produced is the EER, now known as the EPC.

Its focus is cost, and produces a rating from A – G, with A being the most energy efficient and G the worst. It has been mandatory to produce an EPC to sell or to rent a property for many years, yet most people take little or no notice of them.

As part of its Green Agenda, the Government wishes to improve the energy efficiency of heating our homes. Since April 2020 it has been illegal to let a property in the private sector with an EPC lower than an E and the Government is now proposing to raise that to a minimum of EPC C. We are still waiting for the Bill to be published, but the proposal in the consultation document was that all new tenancies issued by private landlords require the property to have an EPC level of C or above from 2025; from 2028 all privately let properties must achieve this standard.

I believe there will be some serious consequences of introducing mandatory EPC C across the PRS: 

  1. EPC points are based on cost, not carbon emissions, so they are the wrong measure to use if you want to ‘green up’ housing. Gas scores more highly than electricity even though gas is carbon emitting and electricity can be entirely green. The recommendations given to improve the EPC of a property are often inappropriate & costly – solar water heating and wind turbines, for example – or require tradesmen that we simply do not have enough of – external wall insulation being a common example. The algorithm changes regularly – I have a property that lost 10 points between assessments – with no explanation to the end users. And the assessors are poorly trained and have to make many assumptions, resulting in inconsistent and sometimes simply incorrect results.
  2. The Government wants all rental properties to achieve an EPC C by 2028. However, a large proportion of our housing stock is turn of the century, solid walled Victorian and Edwardian terraces. These properties, often highly desirable to tenants and owners, score very poorly on the EPC assessment and will be extremely expensive to bring up to EPC C (£10–15k per property). The work is often very intrusive, requiring tenants to be moved out. Moreover, the cost is deemed to be capital in nature for tax purposes, and so has to be set against future capital gains tax. Any return on my investment is likely to take more than 30 years. I also own more modern properties, with highly efficient electric radiators. However, these are becoming increasingly expensive to run as electricity prices soar, a function of the green subsidies being added to the bills. They therefore score very poorly on the EPC assessment. The EPC recommendation for these types of properties is high heat retention storage heaters, but I do not believe anyone would choose to live with storage heaters. The only reason they are recommended is because Economy 7 electricity is cheaper than standard rates – an advantage that is often lost because of the way storage heaters run and the fact that all daytime electricity is then charged at a higher rate.
  3. I have been a landlord for 20 years and I have a portfolio of 10 properties. Like many other landlords of my era, the cost of bringing already renovated properties up to EPC C is too high to be worth it. The time for renovation is when you first purchase a property and as mine have already been brought up to scratch, with new bathrooms, kitchens, boilers, carpets and so on, ripping them apart again to insulate them is extremely unappealing. If EPC C becomes law I will be looking to sell the majority of my portfolio. As you can imagine, it takes time to sell properties, so in spite of the legislation not yet being in place, the first of these will go on the market in this month. I believe many other landlords are also quietly exiting the market and that is the reason that rents are at all time highs, voids are at all time lows and would be tenants are struggling to find homes.
  4. If the move towards EPC C continues at the proposed rate and with the complete lack of financial support to landlords I believe a large proportion of properties in the private rented sector will be lost. Once gone, they are unlikely to return, and I believe this could precipitate a housing crisis of immense proportions. We already have a huge number of people trying to access limited social housing because they cannot afford private rents. There is certainly not enough social housing being built to replace those being lost. Build to Rent may replace some, but the numbers are too low at present and they are also not always the type of family homes many small private landlords supply. As the number of private rentals reduces, the rents of those remaining will increase, pushing more people into the arms of unscrupulous landlords, renting out non-compliant, and possibly dangerous housing – think gas safety, electrical safety, smoke alarms, overcrowding in addition to low EPC ratings. I do not believe the Government has thought about the serious unintended consequences of its Net Zero policy.
  5. Although the Government is trying to push all housing towards EPC C, I do not believe they will be successful. Our housing stock is too old for the measures currently being offered. Most people do not have the will or the financial resources to go through with these costly ‘improvements’. However, their experiment with the private rented sector (and that is how I see it) may have far reaching consequences for those unable to buy their own home. All the older, lower EPC rated properties will be quietly absorbed in to the owner occupier sector, where few improvements will be made. Landlords wishing to be compliant will buy modern well-insulated boxes and rent them out to the fortunate few at sky-high prices. The remainder will be left trying to access social housing or renting non-compliant properties.
  6. The Government’s own proposed solutions are flawed: heat pumps (which ironically score poorly on the EPC assessment because they are powered by electricity) are very expensive to install, and grant funding makes only a small dent in the bill (and funding has only been allocated for 90,000 pumps anyway). They are also entirely unsuitable for older, poorly insulated properties without other extensive upgrades. In fact, even houses built after 2000 may be unsuitable, because they were built with microbore central heating pipes, which would need to be replaced, wrecking walls, flooring and decor. We also have insufficient tradespeople to install the numbers proposed. Hydrogen-ready boilers have also been suggested, but unless we use green hydrogen (very expensive), we will create carbon emissions producing it, and I understand we are nowhere near ready to produce the volume required to make a significant difference. The lack of a credible future-proof solution means that landlords are unwilling to spend large sums of money. For many, the only sensible solution will be to sell.
  7. There is time to prevent the Government’s plans causing a housing crisis. A complete review of the EPC algorithm and assessment is required (I believe there are some changes coming in 2022). Reducing the target to EPC D would be a useful step – this is a much more achievable goal and many of the measures required to achieve it are cost effective and unobtrusive – loft insulation, LED light bulbs, double glazing, modern boilers. A longer horizon, with EPC C as the target, would give landlords longer to plan, cost and do the work between tenants, and would also give time for new technologies to give us cheaper and better solutions. We need to bring the issue to public consciousness and allow all of us to engage with the process and make our views known. Devising a policy that everyone supports and can afford is the only way to reduce the emissions of the sector. The policy as it is now proposed will do very little to reduce our emissions, but will heap untold misery on thousands of renters caught in the middle.

The author is a private landlord.

via Net Zero Watch

Tuesday 4th January 2022

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