The government of England and Wales has set a daunting challenge for landlords: to ensure all rental properties achieve an energy performance certificate (EPC) rating of ‘A’ to ‘C’ by 2030. While some progress has been made, recent data suggests that meeting this target on time may be more challenging than anticipated. According to Hamptons, a prominent residential estate agent, at the current pace, it could take until 2042 for all rental properties to comply with these standards. This delay underscores the need for a significant ramp-up in efforts to improve the energy efficiency of rental homes across the region.
The Current State of Energy Efficiency in Rental Properties
Hamptons’ data shows that while energy efficiency improvements have accelerated since 2016, the current rate is still inadequate. Previously, it would have taken 89 years to meet the EPC rating goals set by the government. With the recent improvements, it is now projected to take another 18 years. Although significant progress has been made, it’s evident that a much faster pace is required to hit the 2030 target.
Specifically, in 2024, about 39% of rental properties that underwent EPC assessments advanced to a higher efficiency band. However, this is below pre-2018 levels when the minimal EPC rating requirement was ‘E’. To meet the 2030 deadline, approximately 340,000 rental homes need to improve their EPC ratings every year. Current trends indicate that only about 115,000 homes will achieve an EPC rating of ‘C’ in 2024, pointing to a required threefold increase in annual upgrades.
Challenges and Obstacles for Landlords
A significant obstacle to achieving the EPC goals is the type and location of properties with lower ratings. These are often older, cheaper homes situated in the North of England. Such properties tend to be less energy-efficient but offer higher rental returns. For example, homes with an EPC ‘D’ rating have a gross yield of 7.6%, while EPC ‘A’-rated properties yield 5.5%. EPC ‘E’-rated homes offer the highest returns at 7.9%. Upgrading these properties could be financially prohibitive for many landlords, making it harder to improve their energy efficiency ratings.
Additionally, about 3 to 4% of rented properties might never achieve an EPC rating of ‘A’ to ‘C’ due to various constraints. Although this percentage has decreased since mid-2022, thanks to changes in the EPC methodology, it remains a concern. The updated methodology, which assumed a lower environmental impact of electrical appliances, occasionally results in higher ratings for electrically heated homes compared to those heated by gas. These challenges necessitate targeted strategies and potentially government incentives to bridge the gap in achieving energy efficiency.
Potential Savings for Tenants
Higher EPC ratings contribute significantly to tenant savings on energy bills, adding another layer of importance to the need for energy-efficient homes. Upgrading a property from an EPC ‘D’ to ‘C’ rating could save tenants approximately £499 annually. More substantial improvements from an EPC ‘E’ to ‘C’ rating can save tenants up to £1,248 per year. These savings have increased by 76% and 83%, respectively, since 2019.
Such savings highlight the broader social benefits of meeting EPC goals, as energy-efficient homes help reduce the financial burden on tenants. However, achieving these benefits requires significant upgrades and investments from landlords, underlining the need for a strategic approach and possibly financial incentives from the government. These tenant savings also play a crucial role in promoting a more sustainable living environment, making the case for energy efficiency improvements even more compelling.
The Influence of Evolving Regulations
One of the most challenging aspects for landlords has been navigating the constant changes in energy efficiency regulations. Aneisha Beveridge, head of research at Hamptons, emphasized the moving targets and evolving requirements, making it difficult for landlords to plan and act effectively. Achieving the 2030 goal would necessitate an unprecedented number of homes to see energy upgrades in the next five years, equal to the improvements made over the last 30 years.
Beveridge underscored the need for landlords to have adequate time, resources, and clear guidance to meet these ever-changing requirements. Without a coordinated approach and sufficient support, hitting the 2030 target seems increasingly unlikely. The evolving regulations make it imperative for landlords to stay highly adaptive and well-informed to navigate the complexities and demands of achieving stringent energy efficiency standards.
Market Dynamics and Rental Trends
While landlords struggle with energy efficiency upgrades, rental prices across Great Britain continue to rise. In July, the average rent for a newly let property increased to £1,354 per month, marking a 5.7% year-on-year rise. The North of England has seen the most significant increases, with rent growth of 10.3%. In contrast, London saw a year-on-year rent increase of just 3%, down from the 13.9% rise recorded in July 2023.
This rise in rental prices is coupled with tenants opting for smaller properties to manage costs. In July, the average rent for a one-bedroom home increased by 7.6% to £1,092 per month. In comparison, rents for three-bedroom and four-bedroom properties saw more modest increases of 5.2% and 3.8%, respectively. This trend reflects tenants’ increasing efforts to mitigate rising living costs, emphasizing the need for affordable rental options in an escalating market.
Impact of Rental Stock Levels
The government of England and Wales has issued a substantial challenge to landlords, mandating that all rental properties must achieve an energy performance certificate (EPC) rating between ‘A’ and ‘C’ by the year 2030. This initiative aims to enhance the energy efficiency of rental accommodations, thereby reducing carbon emissions and lowering energy costs for tenants. While some strides have been made toward this goal, recent figures indicate that achieving this target may be more arduous than initially thought. According to Hamptons, a leading residential estate agent, at the current rate of progress, it could take until 2042 for all rental properties to meet these stringent standards. This significant delay highlights the urgency for a concerted effort to accelerate improvements in energy efficiency across rental homes in the region. The implications of missing this target are not insignificant, impacting not only environmental goals but also the financial well-being of tenants. The pressure is mounting for landlords and officials to find innovative solutions to expedite these necessary upgrades.
