Energy efficiency is becoming more important in influencing what buyers will pay for a home, latest research from Nationwide suggests.
Energy efficient properties rated A or B attract a premium of 2.8% compared to similar property rated ‘D’ (the most commonly occurring rating). But there is little difference for properties rated C or E compared with D.
Robert Gardner, Nationwide’s Chief Economist, says decarbonising and adapting the UK’s housing stock remains critical if the UK is to meet its 2050 emissions targets, “especially given that emissions from residential buildings account for 15% of the country’s greenhouse gas emissions”.
PAY A PREMIUM
Robert Gardner, Nationwide“We’ve used our house price data to examine the extent to which owner occupiers pay a premium or discount for a home due to its energy performance rating.
“To do this, we included energy efficiency ratings from energy performance certificates (EPCs) alongside the usual property characteristics we use in our index. This allows us to control for other factors that can influence the value of a house or flat, such as the number of bedrooms, location and whether it is newly built.”
He adds: “There is a noticeable discount for properties rated F or G – the lowest energy efficiency ratings. Indeed, an F or G rated home is valued 4.2% lower than a similar D rated property.
“Our research suggests while energy efficiency impacts remain relatively modest, they have increased relative to pre-pandemic levels, with A/B properties now attracting a larger premium compared with 2019 and F/G properties seeing a larger discount.”
ENERGY EFFICIENCY
Gardner reckons that the value that people attach to energy efficiency is likely to continue to evolve, especially if the government takes measures to incentivise greater energy efficiency to help ensure the UK meets its climate change obligations.
He says: “Over the past ten years, energy efficiency has improved significantly, thanks in part to the higher energy rating of newly built properties. However, the rate of improvement has slowed markedly in recent years. The latest data (2022) shows 48% of the housing stock is now rated C or higher, up from 18% in 2012.”
Newly built properties typically have a much higher rating (97% are rated C or above), although the stock increases very slowly (typically by c.1% per annum).
But while these homes are energy efficient once built, a significant proportion of new homes’ carbon footprint (between 25% and 50%) relates to its construction.
IMPROVEMENT MEASURES
Gardner says: “Government analysis based on the latest English Housing Survey suggests that if all applicable energy improvement measures were applied to all dwellings rated below C, 96% of those would shift into bands A to C, while 4% of dwellings could not be improved beyond a D rating.
“The average cost to improve dwellings to band C was c.£7,400, with an overall estimated total cost for upgrading the entire housing stock of between £91bn and £94bn[1]. As expected, dwellings with a rating E to G have a higher average cost to improve than D rated homes (£13,500 vs £6,200).
“The Government’s current aspiration is to upgrade as many homes as possible to band C by 2035. However, the current pace of energy efficiency improvements is relatively slow, given the scale of the challenge. For example, the rate of insulation installs is a fraction of the 2012 peak (see chart below), the last year of the Carbon Emissions Reduction Target and the Community Energy Savings Programme. This suggests a need for further incentives to help decarbonise homes.”
