Richard Payne, Director of Development at Oblix Capital, looks beyond the Covid-19 crisis and considers the problems the Future Homes Standard, due for implementation in 2025, may present for housebuilders.
In October 2019, the Government published the first of a two-part consultation called the Future Homes Standard. In it, the department for Housing, Communities & Local Government set out proposed options to improve the energy efficiency of new homes. As a result, new-build homes in the UK are likely to be required to feature low-carbon energy sources and high energy efficiency ratings from 2025.
That will mean a shift to prioritising designs that prevent heat loss, offer improved insulation and for example have triple glazing or use alternatives to gas boilers. But with this change comes a number of challenges to housebuilders. Does the construction industry have enough people with the right skills to implement the new standards, and can consumers expect reductions in the price of new homes to reflect higher energy costs caused by an increased use of electricity?
Deliverability
Gas boilers in new homes are likely to become a thing of the past. In theory, gas boilers are still permitted under the Future Homes Standard, but they currently produce too much carbon dioxide to meet the required standards.
There is no guidance on what technology is to replace gas boilers, giving the industry licence to innovate, but the Government anticipates that heat pumps will play a major role. Heat pumps draw heat from the air outside, which is used to warm up a liquid refrigerant; an electric pump then compresses the liquid to increase its temperature, before the resulting heat is released into a water-based heating system. However, poor system design and installation can reduce the efficiency of these systems significantly.
This means that a large number of gas boiler engineers will need to retrain on the installation of heat pumps, in a relatively short time. With uncertainty currently rampant in the market, and pressure to deliver an average of 200,000 new homes every year for the next five years, it is questionable whether retraining a large portion of the heating engineer population in such a short timeframe is an achievable target. Perhaps the challenge provides the industry with an opportunity for a new trainee and apprenticeship initiative.
Affordability
Affordable housing and green energy have been hot topics for successive Governments, but the two may come to a head if the Future Homes Standard is implemented.
Should gas boilers be replaced by heat pumps, as is likely at least in the short-term, then this may lead to higher energy costs in new homes. According to building.co.uk, even a well-designed and well-fitted heat pump system could result in 66% higher heating costs, due to the disparity between gas and electricity price. Such a hike in running costs could prove to be a disincentive for prospective buyers of new-build homes.
As these factors drive the cost to run a new-build home higher and higher, developers could find themselves struggling to sell properties, or in a position where they are forced to reduce margins.
Although heat pumps are an option, with electric boilers and solar heating systems as alternatives, it appears unlikely that there will be any single industry-wide solution while it adapts to the new standards. Although this allows developers the freedom to choose the best product on a house-by-house basis, that in itself may drive up costs as economies of scale become harder to achieve.
Does the timing need to be reconsidered?
Although reducing the UK’s CO output is an urgent priority, it may be that the relatively tight timeframe for the implementation of the Future Homes Standard is unhelpful, for both the housing market, and the aims of the standard itself.
Once the Covid-19 crisis is behind us, the construction industry will be tasked with catching up on housebuilding, and training for new heating systems could be an unwelcome distraction. A delay and further consultation may be welcomed by many; it will be interesting to see whether the Government is willing to push back its environmental targets, in recognition of the turmoil that has been created in the construction industry.