Rishi Sunak has announced that the government has scrapped the requirement for all new private rental properties to have an EPC (Energy Performance Certificate) rating of C, but the government is still committed to launching a consultation on Minimum Energy Efficiency Standards (MEES) in the social housing sector in early 2024.

In this insight we will provide an analysis of these announcements and the potential impact on Registered Providers (RPs).

What has changed?

Prior to the September announcement, the government’s proposals were to:

• raise the minimum MEES rating of rented units to EPC C
• deliver carbon emission savings to achieve progress to the net zero targets.

In September 2023, Rishi Sunak announced a change in approach, softening targets.

The key changes for the housing sector are:

• the ban on new oil fired boilers has been pushed back from 2026 to 2035
• the requirement for all rental properties to have an EPC rating of C has been abolished – although whether this extends to RPs is still to be established.

The impact on RPs

For most landlords, the target requiring a minimum EPC rating of C has been dropped and, instead, they are being asked to upgrade energy efficiency where possible.

For RPs, however, the position might differ. The Department for Levelling Up, Housing and Communities (DLUHC) will be launching a consultation on MEES for the social housing sector in England in early 2024.

Many RPs have already been taking active steps since 2021 to improve EPC ratings of their stock in anticipation of the new EPC requirements. The real impact of the government’s change in approach will, however, depend upon:

• the outcome of the DLUHC’s consultation in 2024
• further government policy changes, particularly as a general election must take place within the next 16 months.

In practice, does this mean RPs will scrap energy efficiency targets?

The government’s announcement seems to have had little impact to date. Despite the current uncertainty, many RPs have re-affirmed their commitment to sustainability targets for a number of reasons, including:

• energy bill savings and improved living conditions for residents
• existing/future commitments to funders (e.g. sustainability linked loans)
• funder requirements for minimum EPC C (or a plan to achieve EPC C) before properties will be accepted as suitable security
• existing business planning based on these commitments
• ensuring the organisation is on-track to achieve net zero by 2050.

Financial implications

Whilst grant funding was available for energy efficiency improvements, there is still a significant cost and time implication involved in upgrading and improving properties.

If targets are to be retained for RPs, RPs will be keen to understand whether this will be accompanied by additional funding (e.g. via the Social Housing Decarbonisation Fund), as the retrofitting costs across the sector are expected to total approx. £12-18bn.

Conclusion

None of this, however, changes the government’s commitment to achieving net zero by 2050 (i.e. a 100% reduction in greenhouse gas emissions compared to 1990 levels), which is contained in the Climate Change Act 2008 (2050 Target Amendment) Order 2019. 

The recent policy change means a period of uncertainty for RPs as we await further clarification. Further information will be released by the government soon, and we will provide further updates as the position develops.

Many RPs remain committed to sustainability goals and are keeping their current energy efficiency targets. It may, however, be that the government’s change of position provides some short term “breathing room” when it comes to assessing targets and stress testing business plans.

How Capsticks can help

We can help you understand your energy efficiency commitments and support you with ESG funding and security charging. In particular, ensuring targets are achievable and measurable (and properly benchmarked) - going about this the right way can really help with investor confidence.

Capsticks aims to be the firm of choice to RPs, offering a full service across, corporate and securitisation, development and planning law, housing leasehold and asset management. We can provide advice and assistance on changes discussed above and any updates that come in the future on this topic.

If you have any queries around what's discussed in this article, and the impact on your organisation, please speak to Susie Rogers to find out more about how Capsticks can help.