Ever wondered how in practice housing can be decarbonised, what it might cost and how the works might be funded? Savills Housing Consultancy has published a report for the National Housing Federation "Decarbonising the housing association sector - costs and funding options ", which gives some of the answers.

In principle the answer is simple. The Government has set out plans for the electricity grid to be completely decarbonised by 2035. Housing associations could then replace gas heating with electric heat pumps - job done. Unfortunately things are not that simple. Electricity costs around 4 times as much as gas per Kilowatt hour. Housing association residents already experience fuel poverty and a switch to electricity would plunge many more of them into financial stress, which would be contrary to sector values.

The answer is to couple the switch to electricity to investment in the fabric of homes to improve energy efficiency. This means much improved insulation and also improved ventilation systems and heating controls. As a Base Scenario the 650,000 homes currently with an Energy Performance Certificate worse than C should be brought up to that level. Unfortunately this will still impose significant increases in energy costs on residents unless electricity costs are reduced and heat pumps become more efficient. So Savills Central Scenario aims to achieve decarbonisation with no change in residents' fuel costs and comfort.

So how much will this all cost? Savills costs estimates are based on its work tendering for decarbonisation works, including in response to the Government's Social Housing Decarbonisation Fund. On average we estimate the costs for a flat at around £24,000 and a house at £37,000, before on-costs and VAT. In total, allowing for changes in the stock the bill for the Base Scenario is £36bn and for the Central Scenario £49bn over the 29 years to 2050. Even the Base Scenario would increase the sector's spend on its stock by 50%.

Mounting such an ambitious programme will be challenging. We explored approaches to drive down costs by achieving scale. This is likely to require multi-year funding and collaboration between associations and their stakeholders.

The increased spend will have profound effects on Asset Management Strategies. The investment in the fabric of the stock is heavily front loaded, which has significant effects on economic performance. This is likely to drive the sale or redevelopment of hard-to-treat properties.

Finally we looked at the impact on a sector-wide business plan to examine funding options. Whilst associations will be able to employ some of their financial capacity to invest in decarbonisation they will not be able to complete the job without some external help. Development actually builds capacity long term. We modelled a number of funding options that combined are recommended for further investigation:

  • Reductions in VAT on energy efficiency measures
  • Government guarantee on borrowings for retrofit
  • Grant to contribute to the costs of retrofit
  • Review of accounting conventions for expenditure on decarbonisation
  • Renegotiation of sector standard interest cover covenants with lenders

We and the NHF recognise the need for information sharing, likely though a Centre of Excellence.

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Savills plc published this content on 19 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 19 October 2021 12:21:06 UTC.