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The business case for Retrofit

It’s a telling detail that the case for retrofitting housing is often presented in non financial terms with the focus on benefits such as reduced carbon, improved tenant welfare and avoiding fuel poverty. 

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This may be because for many registered providers, constructing a clear business case from the data available is very challenging. But without a detailed business case buy in from senior leadership is slow, and finding appropriate funding opportunities becomes difficult.

Driven the wider adoption of strategies committing housing providers to netzero (a recent Inside Housing survey found 20% of landlords with ambitions to introduce Netzero targets before government deadlines), detailed thinking about how to make the business case and how to fund retrofit is evolving.

Much of the challenge is in identifying and quantifying the variables that drive the business case. A complete business case for retrofit could include data on:

1. Existing maintenance commitment: budgets for maintenance of the home already committed for the year.

2. Repairs avoided: this can include immediate requirements for repairs, and anticipated reductions over the lifecycle of the investment. The effect can be profound, especially for lower rated homes: housing with an EPC lower than a D has 48% more repairs relating to mould and damp than stock average

3. Reduced rental arrears: homes with high fuel poverty risk are more likely to be in arrears than other homes. The effect can be particularly pronounced for particular tenant demographics such as younger and shorter term tenants

4. Reduced complaints/tenant contacts: poor energy performance drives higher levels of complaints, especially in complex and hard to treat issues such as condensation and mould.

5. Reduced voids: both in total and in reduced re-let periods. Studies of large scale datasets show homes with a SAP rating over 80 have 40% fewer voids than those below 50. A detailed analysis would add in indirect costs (staff costs, refurbishment for marketing, depreciation in property value)

6. Uplift in stock valuation: although the impact is variable across the regions, for most parts of the UK there is a clear correlation between better energy efficiency and valuations.

There is no doubt that producing the data to assess the impact of retrofit on these cost centres is not easy for most landlords – for many it will be partial, scattered across different systems and rarely considered as a whole. For some datasets – notably EPCs – there can be a lack of confidence in the quality of the data held.

However, in an environment where the range of funding and partnering options is expanding, producing the right data is a wise investment of time. Whole home retrofit models such as Energiesprong rely, in part, on reduced long term maintenance costs. The affordability of green mortgages and energy service packages also depends on providers having robust estimates on the future performance of their stock.

Further, improving trust in data used to make the business case will make it easier to confirm that any retrofit programme has been a success on its own terms. In time monitoring from completed projects offers the opportunity not only to confirm that the business case has been met but also to compare the effectiveness of different types of project.

The social and carbon case for retrofitting in housing is clear; evidence suggests that the financial case can support it too, but it will need new thinking about how to gather, define and make sense of housing data.

Hermione Crease is a cofounder at Purrmetrix, who provide solutions for measuring housing fabric performance.

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