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May 2

Rental Rates: Should Poor EPC Homes Have Lower Costs?

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A housing industry group proposes a new approach to setting social rent by factoring in the energy efficiency of the property. According to the Housing Forum, social housing stands out as the most energy-efficient type of housing in England. With around 60 percent of social rented properties currently meeting Energy Performance Certificate (EPC) standards, there’s an opportunity to leverage this advantage to benefit tenants.

However, despite the overall energy efficiency of social housing, disparities exist within the sector. The Housing Forum highlights that tenants residing in properties with lower EPC ratings, such as EPC D-rated homes, often face disproportionately higher energy bills. In fact, these bills can be up to twice as high as those for tenants in properties with higher EPC ratings, like EPC-B rated homes. This discrepancy places a significant financial burden on tenants and can contribute to financial hardship, particularly for those on lower incomes.

Furthermore, the challenge extends beyond financial implications. Tenants in properties with lower EPC ratings also have limited options to improve the energy efficiency of their homes. Unlike tenants in properties with higher ratings who may have more efficient heating systems or insulation, those in lower-rated properties often lack the resources or support to make similar improvements. This exacerbates the issue of energy poverty and can perpetuate inequalities within the social housing sector.

The proposition put forward by the Housing Forum suggests a nuanced approach to rent adjustments, aiming to create a fairer balance between tenants’ rent obligations and their energy expenses over a reasonable timeframe. By integrating the additional cost of higher energy bills into rent payments, tenants facing elevated energy expenses could see their overall financial burden eased within a span of four years. Conversely, occupants of more energy-efficient dwellings might see a marginal increase in rent, offset by the savings accrued from lower utility bills. This strategy not only promotes equitable distribution of housing costs but also incentivizes energy-conscious behavior among tenants and landlords alike.

Moreover, embedding considerations of energy efficiency into the social rent formula holds the potential to catalyze a positive feedback loop of investment and improvement within the social housing sector. Landlords, motivated by the prospect of rent adjustments linked to energy performance, may be more inclined to undertake retrofitting projects aimed at enhancing the energy efficiency of their properties. This proactive approach to property upgrades not only benefits tenants by reducing energy bills but also enhances the overall quality and sustainability of social housing stock. Furthermore, the integration of energy efficiency metrics into rent calculations could serve as a catalyst for broader industry shifts towards greener and more resilient housing infrastructure.

The current social housing rent formula, established nearly two decades ago in 2001, operates on a simplistic framework primarily based on property size and location. However, the proposal to incorporate energy efficiency considerations into rent determinations represents a forward-thinking evolution of housing policy. By accounting for the true cost of occupancy, including both rent and utility expenses, this updated approach ensures that social housing remains affordable and sustainable for tenants while encouraging responsible stewardship of energy resources.

Not all social housing rents adhere strictly to a standardized formula; some properties, particularly newer constructions, may fall under the category of ‘affordable rent,’ which is typically capped at 80% of the prevailing market rent. However, social rent remains the prevailing form of tenure within the social housing sector. Maximum annual adjustments for social rents are determined by central government and have typically mirrored the Consumer Price Index (CPI) with an additional one percentage point increment, commonly referred to as ‘CPI plus one.’ However, between 2016 and 2020, rents experienced a deviation from this trend, decreasing by one percent annually.

Jamie Ratcliffe, Chief Communities and Sustainability Officer at the Sovereign Network Group, a prominent housing association within the forum, highlights a pressing concern regarding the state of housing in the UK. He emphasizes that the nation’s homes rank among the least energy-efficient in Western Europe, compounded by soaring energy costs, posing vulnerabilities and undermining national security. Ratcliffe advocates for urgent measures to address these issues, stressing the need to improve the thermal performance, health, and affordability of residential properties.

“At present the complicated formulas for social rents take no account of the cost to heat a home and they should. A “warm rent” would increase the funding options available to landlords and be fairer to tenants.” 

And Ian McDermott – chief executive of Housing Forum member, Peabody – comments: “I’ve been an advocate for “warm rents” for many years and welcome this policy paper from the Housing Forum. It’s a good exploration of the issues. At Peabody we support the principle of taking thermal comfort and energy efficiency into account in the future social rent formula. 

“This could incentivise energy efficiency work and retrofit investment, help reduce residents’ energy bills and support a fairer and more equitable approach to rent setting. We are concerned about additional complexity however, and any changes would need to enshrine affordability in rents and service charges whilst safeguarding landlords’ ability to invest for the long-term. We look forward to being part of the discussion going forward.” 

 


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Rental Rates UK, Should Poor EPC Homes Have Lower Costs?


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