Inside Housing – Commentary – New financial models could unlock social housing renovation

Opposition from private tenants in blocks of flats or rows of terraced housing can prevent social housing owners from carrying out multi-property renovations. If private tenants were provided with funding for tenant renovation on attractive terms, this could increase take-up.

Comfort as a service and heating as a service – where third-party service providers decarbonize social housing and recoup their expenses by charging residents an energy service fee through performance-based contracts – could increase renovations if they could access large-scale financing on the capital markets.

If the the definition of affordable rent included a tenant’s modeled energy costs, this would reduce energy poverty and incentivize landlords to carry out large-scale renovations to reduce the combined cost of rent and energy.

“Market participants say the UK government also needs to clarify what constitutes net zero and the right performance metrics”

A national methodology to measure energy efficiency savings in real time over the lifetime of renovated buildings could support the development of new targeted renovation financial products. In February 2022, the CEEB published Towards a protocol for measured energy savings in UK buildingswho explained how this could be achieved.

A certification system for green buildings and renovation projects, across all tenures, that aligns with third-party labels and certifications that housing associations are already using to issue sustainability bonds, could boost investment environmental, social and governance (ESG).

The path to follow

To further accelerate the renovation of social housing, landlords could issue larger, longer-term contracts to boost the supply chain. Financial institutions could adopt innovative renovation financing models and more flexible loan terms. The development of the sustainable investment model for social housing could unlock more investment.

Market participants say the UK government also needs to clarify what constitutes net zero and the right performance metrics to achieve this. Social housing organizations strive to reduce the EPC ratings of their stock, but EPC ratings do not necessarily correlate with reduced carbon emissions.

Among other recommendations, the NHF urges the UK government to reform the Standard Assessment Procedure (SAP) and EPC methodology, unlock more funding for the sector and support the supply chain so that technology and installation cheaper renovations are available on a large scale.

With the right financial solutions and policy and regulatory environment, the social housing sector could be modernized at scale, driving market efficiency and demonstrating how to decarbonize all UK housing.

Emma Harvey, Program Director, Green Finance Institute

Robert D. Coleman