Landlords Opt for Energy-Efficient Homes - Response

A recent article in the Financial Times discusses Government policy and regulation regarding energy-efficient properties, specifically the Minimum Energy Efficiency Standards (MEES), and the positive impact on the buy-to-let industry (Financial Times, 2022).

Following the MEES extension announced last year, buy-to-let investors are now placing a higher priority on energy efficiency. A record 50% of homes purchased so far in 2022 fall into the top three energy efficiency categories – homes with an Energy Performance Certificate (EPC) rating of C or above. This is in an increase of around 33% from 2020.

The MEES extension requires all let properties to have an EPC rating of C or above for new tenancies by 2025 and all tenancies by 2028. The changed behaviour demonstrates the growing impact of government proposals and policy changes surrounding energy-efficient properties over the last few years.

The industry is currently awaiting a government response to a consultation on the matter, which closed in January.

Article response:

The article places MEES and EPCs in a positive light, which is a good sign for the industry and public opinion of energy efficiency efforts. The data suggest that EPCs provide guidance and information to buyers, encouraging them to make smarter choices that prioritise energy efficiency and higher EPC ratings.

However, although a focus on energy-efficient homes is welcomed, the article suggests that buy-to-let investors are beginning to focus solely on purchasing properties with a higher EPC rating and discarding any property that falls short but still has potential. This behaviour is likely to impact market value and place increased pressure on stock levels. Many older and less energy-efficient properties can still achieve an EPC C rating with the proper knowledge and investment.

The article does not mention relevant exemptions to the Government policies, which exist to ensure that properties are still improved but are not required to hit the minimum standard. These exemptions ensure that these properties are not taken out of the market.

There is also a potential for properties to be abandoned in volume, which will affect the supply of rentals. There are two likely impacts here:

  1. Less supply and high demand will increase rentals in a market where occupants tend to earn less, increasing ‘housing poverty’.
  2. This may result in poorly performing, expensive to run properties being taken out of the rental market, and the benefit is a reduction in occupants who are in fuel poverty.

However, all stakeholders seem to be in unanimous agreement that all rental properties should perform well (or be improved where they don’t perform well) and cost less to run.

Links:

Referenced article - Financial Times: Landlords opt for energy-efficient homes ahead of rule changes.

Further information on MEES - MEES Compliance Deadline Extended