Household energy efficiency as a levelling up issue
“Government is not on track to deliver its commitments on heat or energy efficiency. Energy efficiency installations are too low. A concrete plan for reducing energy demand is required, with a particular focus on driving action in homes and facilitating the investment needed.” - National Infrastructure Commission, March 2023
The UK is home to some of the least energy-efficient housing in Europe, with the heating of our housing stock accounting for nearly 23% of the UK’s greenhouse gas emissions total in 2022.
In the 2022 Autumn Statement, the government announced an ambition to reduce energy use in buildings and industry by 15 per cent by 2030, compared to 2021 levels. According to the National Infrastructure Commission’s annual Infrastructure Progress Review 2023, “Key policies remain missing, and government funding is insufficient to deliver the required change.”
Since this Review, the Government has announced its Great British Insulation Scheme, which would cover around 300,000 homes, based on council tax bands. This is a first step, but further complementary action is needed to incentivise all households to make the necessary upgrades to their homes. Around 14 million homes need to be retrofitted in England alone to be deemed energy efficient. The 300,000 target - as we highlight in this research - is just the tip of the iceberg.
Our analysis in this paper shows just how vast the challenge is, and thus how ambitious our solutions must be. Policy must be bold and go with the grain of consumer behaviour to address this deficit.
As it stands, households are not making the necessary changes to improve the efficiency of their properties with implications for energy security, decarbonisation of heat, grid peak load and fuel poverty and the cost of living. This could be down to a number of factors. Retrofit, like any home improvement project, has the potential to be disruptive, but also costly at a time of a cost of living squeeze – whether switching a gas boiler to a heat pump, insulating a loft or installing double glazing.
The objective of this report by the Better Homes Alliance is to assess the current state of England’s housing stock - and just how extensive the challenge of energy inefficiency may be. In particular, it aims to understand which areas of the country have the least efficient residential properties, how much it might cost the average household in those areas to upgrade their homes and what level of reduction in energy bills and carbon emissions households could see, were they to invest in upgrading their properties.
Our analysis demonstrates that many of the homes most in need of improving their energy efficiency ratings are found in those areas that are also most in need of levelling up, according to the government’s own criteria. We argue that fiscal incentives are needed to help all households make the necessary changes to transform our housing stock whilst also developing policy to ensure those who are struggling are most supported.
Key findings include:
England is home to some of the leakiest housing stock in Europe. Some 59% of homes in England have an EPC rating lower than ‘C’, amounting to nearly 14.7 million of the country’s 25 million homes3. It has been estimated that leaky stock costs the taxpayer £12.7 billion over two years in energy costs.
There are more properties in levelling up areas that have the potential to be transformed. 19 out of 20 of the local authorities with the least energy efficient housing stock are located in areas in need of ‘levelling up’ (Priority 1 and 2). More than half - 12 - of those local authorities are in areas defined by the government as most in need of levelling up (Priority 1).
A greater proportion of homes in priority levelling up areas - 50.6% - have the potential to upgrade to a C rating, whereas 44.1% of homes in affluent areas also have the potential to upgrade.
The average household could expect to see an annual saving of £348 were they to upgrade the energy efficiency of their home, based on pre-energy crisis prices. However, this could rise substantially in some parts of the country. For example, households in West Devon could see annual savings in the region of £576 a year whilst households in North Norfolk could see approximately £450. This would have a beneficial impact, too, on quality of life, particularly during winter.
Without incentivisation, many households are unlikely to cover the upfront costs of retrofitting. It would cost a household £8,338 on average to upgrade their property if aiming for EPC C (as currently defined), exclusive of heat pumps, whilst in areas with particularly leaky stock, these costs may be even higher. In West Devon, the average is £12,199. Costs are determined by the means that households choose or will need to choose.
By upgrading to EPC C, as an example threshold, the average household could reduce its carbon emissions by almost 2 metric tonnes per year, with the most savings to be achieved in ‘levelling up’ authorities with the least efficient homes. By comparison, the average round-trip flight from London to Boston emits 1 tonne of CO2 per passenger.
The report concludes by making a clear argument: without significant and wider-ranging fiscal incentives, we are highly unlikely to see any improvement in our housing stock’s energy efficiency and thus will struggle to meet our decarbonisation goals. As such, the Better Homes Alliance is proposing a Rebate to Renovate, a stamp duty rebate for homeowners who invest in upgrading their properties within two years of purchasing their property.
Stamp duty already works to match the consumers’ ability to pay as it is collected when they have sold a property, and thus have liquidity to pay (or the mortgage lender can provide the tools to spread those high upfront costs for the buyer and deliver permanently reduced energy bills). A Rebate to Renovate would work to place an incentive at this particular point – for the seller to improve and increase the value of their property and for the buyer to make changes when they would normally upgrade to gain the rebate.
It is clear from the scale of the challenge that all homes must be encouraged to make home upgrades, with a fiscally neutral, yet fair, mechanism. A mechanism available to all is thus needed: and it is the Rebate to Renovate that addresses that challenge.
For the lowest value, least efficient homes, an ‘enhanced’ rebate could be applied to incentivise home energy efficiency upgrades. Where energy efficiency improvements are undertaken in lower-value homes under a certain threshold, the rebate can be ‘enhanced’ via a grant or better targeting of existing grants. Homes above the stamp duty threshold are also numerous in levelling up areas, with the average house prices across Priority 1 areas exceeding £250,0004.
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