Residential Landlord’s Face Sizeable Energy Efficiency Upgrade Cost

Posted by Knight Frank Newcastle on 11th April 2023 -

The government’s proposal for all rental properties to have a minimum Energy Performance Certificate (EPC) rating of C by 2025 will add pressure to those already faced by landlords and may lead to many exiting the sector. We calculate the total bill for all landlords to upgrade to this level is an estimated £17.9 billion.

Whilst some 13% of renters are willing to pay a premium for a low carbon property, the average annual rent in 40% of local authorities wouldn’t cover the average £9,260 spent to bring a property up to EPC C, these location face particular pressures.

What are the minimum energy efficiency standards?

While still at consultation stage, the legislation would require rental properties to have an EPC rating of C or above by 31 December 2025 for new tenancies and by 31 December 2028 for all existing tenancies. Current regulation, in place since 2020, dictates all tenanted properties be rated EPC E or above, notwithstanding exemptions.

Should the legislation pass, this will place a greater urgency on the private rented sector to improve the energy efficiency of stock than the broader ambition to have all homes up to EPC C by 2035.

Of the 4.8 million households in the private rented sector (PRS) across England, some 60% have a rating of EPC D or below. Just 2.4% have an EPC rating of F or G, falling below the current legal for a minimum EPC E, which is an indication of the level of exemptions in line with current regulation. These exemptions include listed properties and properties where the cost of even the cheapest recommended improvement exceeds £3,500.

Under the proposed legislation, the cost exemption is likely to rise, with many speculating a cap of £10,000, bringing many more properties into the fray.

Our previous analysis of EPC certificates of 30,000 dwellings that improved their home energy performance found that the average cost spent to upgrade a dwelling previously rated EPC band D or below to at least a band C is £9,260. Though this varies, properties with an EPC rating in band D, for example, typically spent £5,500 on the necessary improvements to move to band C, with this figure doubling to over £10,000 on average for properties in bands F and G.

By applying these cost estimates to the PRS, omitting exemptions, and placing a maximum spend of £10,000, we calculate the total bill for landlords to upgrade to the minimum requirement of an EPC C is an estimated £17.9 billion.

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