Adecoe Feature - Housing has got its climate change mojo back. So what now?

For some time we had seen the private sector including developers, investment funds and contractors looking at the opportunities and risk around climate change. In the last year and half this has rapidly begun to change, and we are seeing signs that the sector might soon retake its position at the forefront of delivering low carbon housing. So what does this mean for the sector as a whole and how can it now capitalise on this progress?

 

So first let’s put some of this in context.  The sector has a had a tough time for a number of years. The overwhelming need to deal with Fire Risk Assessments and the ongoing challenge of the rent limit had both immediate and long term impacts on costs and management. Quite understandably the sector needed to focus on these areas, and combined with back tracking on government policy and the unwinding of the Code for Sustainable Homes and the cuts to funding for even basic energy efficiency measures, it meant that climate change took a back seat.

This was unusual for the sector that had a long and rightly proud track record of leading on the environmental agenda. Homes in the sector were and are the most energy efficient of any tenure, bar none. It was often the pioneer of new approaches and new technologies and was one of the leaders in the roll out of renewable energy in housing. It had led the way in environmental sustainability for its existing homes, its new homes and often its corporate portfolio. However it often did the right things for unclear reasons that lacked focus, were aimed at the feelgood factor and tended to be somewhat fluffy. But the agenda has now moved on – the focus is very clear in delivering zero carbon.

We have seen a very fast turnaround in the sector that began in 2019 and accelerated rapidly in 2020. We have seen housing clients across the country move quickly to understand what the agenda means for them and their customers. It began with real concern about delivering EPC Band C by 2030 for existing homes and the increasing regulation on heat networks that put them under the cost and delivery microscope. The next jolt to action was the announcement of no new gas connection in 2025 and the clear stair-casing for new homes to the Future Homes Standard. We saw the private sector move very rapidly on no new gas connections as they mapped both the risks, opportunities for their development pipelines . For both sectors there was a growing awareness that this was only the start and zero carbon was the real goal. The final piece of the jigsaw has been the growing pressure from investors and Boards for organisations to take a strategic approach to Environmental and Social Governance (ESG), sometimes because it was seen to be the right thing to do, but it was clear early on that ESG was an excellent proxy for good management, especially around risk management and long term business development.

So now we have three main areas of action in the sector: the challenge on delivering new homes, how to reduce the carbon impacts on the existing portfolio to zero and how this is brought together in a corporate ESG strategy that reports externally, particularly to investors. Existing homes are the biggest challenge, new homes will be the most immediate, but bringing these together under ESG will be what delivers the sectors’ credibility.

What is significant is that the agenda is now being driven by forces much wider than housing and this will be important to the way the sector responds to zero carbon. It was certainly true in the past that the while the sector led on the agenda it determined how and what it did. It was largely a housing agenda after all, but this is no longer the case and what the sector does will have to respond to this. What hasn’t changed is that housing providers must decide how they do this for themselves and take charge of their own destiny to deliver this.

There is a lot of noise out there right now, but there are only three things that the sector needs to focus on: zero carbon, zero carbon, zero carbon. So how might the sector do this and can we begin to sketch out the manifesto for zero carbon housing in the UK? Having worked with many clients on developing their pathway to zero carbon the following are some lessons and thoughts on how this might begin to look.

1.   The housing sector needs to stop listening. The low carbon industry is high on opinions and talk and is always keen to tell housing how it should do things. Just now housing needs to stop listening and start making its own noise and decide how it needs to take the agenda forward. For sure it will need some help in the future – zero carbon is not going to be delivered alone - but right here, right now it needs to get together and start shaping its own future – by housing, for housing, of housing.

2.   The housing sector needs to stop buying. There are plenty of people and businesses trying to sell the sector shiny new things that all say they will deliver zero carbon. There is growing knowledge and confidence in the sector, but it’s still some way off being a universally well-informed client. And that’s a dangerous place to be when you are looking at buying things that you have to live with for 30 years. We have seen clients move quickly to understand what the agenda means for them and their customers as they develop their own approach to zero carbon - there is no substitute for dirt under the fingernails. Getting in there and working out what you need and when you need it is what will build that that knowledge and confidence but many more in the sector still need to do this.  With that confidence and knowledge in place, housing providers can then challenge and engage with their traditional supply chain and work with those who have the exciting new products and services.

3.   Housing needs to stop competing. For now.  The sector has always had a very polite but quite sharp edge of competition and rivalry that has kept people keen and the innovation coming. But that competition needs to be smart, and the zero carbon agenda is a shared one with lots to be gained from working together, particularly in developing the approaches, financing mechanisms and lobbying that will help deliver zero carbon. This is also especially true of the next challenge.                     

4.   Housing needs to do real research and development. Back in the day when the environmental agenda was largely optional and often the preserve of the annual report jazz hands we did them all: the pilots, the one offs, the funky stuff that had a lovely picture and great story. But there was no real research and learning. This stops now. Housing is a £multi billion industry and it needs to invest in real research and development that it determines and manages. And it cannot simply outsource the whole thing to academia or industry. That’s just buying again. It needs to set out what it needs, when it needs it and critically how much it can invest for what return. And it needs to learn the lessons – good, bad and ugly. That’s why its research AND There are many areas that will need this approach but two are emerging as key issues:

      i) Finance: our work with clients has shown not surprisingly that zero carbon doesn’t come at zero cost. In fact it’s a huge cost. All portfolios are different but on average it comes in between £20,000 and £40,00 per property. Some of this can come from optimising business as usual investment and some from grants but that still leaves a big gap. And this has to come from new sources of finance including, amongst others, warm rents, energy flexibility and electric vehicles charging services. Much much more needs to be done on this and critically it has to be led by the sector. Great work is being done by the Green Finance Initiative and the Energy System Catapult, but this can only be the start. So far they are leading the sector and not the other way round.  The sector needs financial products that work for them and their customers, and critically can deal with the barriers around current legislation and regulation. We cannot afford another Green Deal debacle.

   ii) Data: we are currently using data for zero carbon strategies that was developed for different reasons including Decent Homes, asbestos and short-term investment. It does the job for now, but zero carbon is going to drive the need for different and better data. This starts in new homes but will become critical to the delivery of zero carbon existing homes. No, we don’t know what direction this is going in, but we do know that we need to start laying the foundations for the role of data - how homes generate energy, how they are heated and ventilated and how they will connect to the grid and transport infrastructure. And to build in that data flexibility the sector needs to be developing open-source data platforms that meet its needs and not those who want to sell data back to those generating it.

There are many more areas that will need collaborative sector research and development to generate the investment and the learning. But it’s important to remember that whilst technology and services will be critical, zero carbon it not about kit.  It’s about management of the kit: the tech and the toys need to serve that, not lead it.

5.   Housing should largely ignore government policy right now. But it does need to shape government policy soon. Government policy is rapidly developing and is full of inconsistencies and unintended consequences – consequences the housing sector will end up living with and paying for. Housing providers need to shape policy and this means making a deal with Government. In return for delivering zero carbon (and the jobs, knowledge and growth that go with this) there are some asks. And the ask isn’t about grants because they will never cover the costs. Yes, investment is needed, for example in helping to develop the new financing mechanisms, but even that is more about removing the barriers around current regulations. No, what is needed is for the Government to engage where there are blockages, where the sector is simply being ignored and where funding or policy diverts the sector from the final goal – zero carbon. And part of this is recognising the real potential of the sector. This is the final and, in some ways, the most important part of this manifesto.

6.   The sector needs to recognise its potential and the opportunities it has. And so does Government. The housing sector is unique in managing and investing in very large portfolios of homes over long periods of time. This model provides opportunities around zero carbon, energy generation, management and storage, as well as opportunities around electric vehicle charging and data. No other sector can do these at the scale the social sector can and over the timescales needed, and this has huge commercial and economic potential. It also has the potential – through real research and development – to help the UK build world a leading low carbon housing industry. One that can sell its know-how, its skills and its products to the rest of the world.

The housing sector is emerging fast from a short period when it had lost its drive, but now it’s back and beginning to recognise that the zero carbon agenda comes with challenges and opportunities for sure, but could end up being responsible for realising its real potential. Now it’s down to the sector to make it happen.