Road to net zero: unlocking the UK’s retrofit potential
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Road to net zero: unlocking the UK’s retrofit potential

By Susanne Hauner 07 Oct 2021

Retrofitting existing buildings is essential to reaching net zero in the built environment, but policy and financing changes are needed to kick-start the UK’s retrofit market.

Road to net zero: unlocking the UK’s retrofit potential

Most of the UK’s buildings will still be in use by 2050 despite contributing around 20% of the country’s carbon emissions. This means reaching net zero in the built environment will be impossible without retrofitting these buildings for better energy performance and lower emissions.

At the Net Zero Festival in September, a panel of experts explored the economic, social and environmental benefits of proven retrofitting solutions and discussed the policy and finance measures needed to support the nascent retrofitting market.

“We know 29 million houses need retrofitting by 2050, that’s 1.8 homes per minute, according to the Committee on Climate Change,” said Munish Datta, director of membership and operations at the UK Green Building Council, who led the panel.

“To do that, according to UK100, we’ll need half a million builders and planners and the rate of buildings retrofit needs to at least double in order for 2030 emissions targets to be met, let alone 2050 zero carbon targets.”

A clear government strategy is needed

This requirement for large-scale retrofitting represents ‘a huge opportunity for the country right now’, said Louise Kjellerup Roper, CEO of change advisory Volans and a founder of the Bankers for Net Zero initiative.

“It will create a new, booming industry,” she said. “There will be demand for new technology companies, manufacturing, installers, consultants. We estimate that there will be more than 150,000 skilled and semi-skilled jobs created by just 2030 across the country.”

However, such a market can only take off if clear policies are in place, giving property owners and banks the confidence to invest. “A few things are urgently needed from the government,” Kjellerup Roper said. “Key is a longer-term, clear strategy, not piecemeal announcements.”

We need long-term clarity on regulation for minimum energy efficiency standards, both in rental and in owner-occupied homes.

She highlighted three points such a government strategy should include: strategic market support which is set to taper off incrementally, encouraging property owners to act sooner rather than later; financial regulation and incentives to support retrofit projects; and regulation on energy efficiency standards with penalties for non-compliance.

“We need a government-backed loan guarantee mechanism to lend to large-scale renovation projects,” Kjellerup Roper said. “We need long-term clarity on regulation for minimum energy efficiency standards, both in rental and in owner-occupied homes. And we need fiscal incentives [such as] lower stamp duty for more efficient homes, enhanced capital allowances and zero VAT on low or zero-carbon products.”

In its 2019 manifesto, the UK Government pledged to spend £3.9bn on decarbonising social housing and public real estate, but only 3% of that amount has been spent since, Kjellerup Roper said.

“If they make good on this commitment, there is an opportunity to really build demand, get to a tipping point where costs come down, and private investment and banking can take over and start financing more of this,” she concluded.

Building sustainability into real estate value

Sam Carson, head of sustainability at CBRE, explained how improving environmental assessments as part of the real estate valuation process could support investment in retrofitting projects. Valuations are generally based on a framework from the Royal Institute of Chartered Surveyors and assess a building’s ‘fair and present value’ at the given time.

“The problem with sustainability is that the risks that we’re talking about aren’t necessarily today’s risks,” Carson explained. “It’s the horizon that we’re looking at and the big challenge is: How do you bring together this horizon challenge and today’s fair, present value?

One solution, Carson believes, lies in combining valuation data that is already available on ‘hundreds of billions of pounds of commercial real estate assets’ with environmental data. The challenge is finding types of environmental data that can be used at scale across the entire real estate market.

Improving environmental assessments and linking them closely with the valuation process is at the heart of building investment cases for retrofitting.

EPCs are generally used to assess environmental performance. While they are cheap and versatile enough to be used across most types of buildings, they don’t provide a sufficiently detailed and sophisticated picture. To create better environmental assessments, new data sets and new uses for existing data are needed, according to Carson.

He explained how making environmental data part of the asset valuation process can help secure investment for improvement work. “If you’re trying to develop a green finance product, you need to be able to talk about what’s changed,” Carson said.

For a retrofit project, this means comparing a building’s environmental performance before and after the retrofit and assessing what the value implications and payback could be.

“We can add more environmental detail on that because we’re probably looking at the building anyway to understand financial value,” he added. “Let’s streamline that process, reduce costs overall and set up a process so the improvement is linked to the value.”

The construction sector prepares for a retrofit boom

 Brian Berry, chief executive of the Federation of Master Builders, called retrofit ‘a huge opportunity’ for the UK construction industry, but added that demand remains low as consumers haven’t been sufficiently informed about retrofit solutions and the construction industry is facing a shortage of installers trained in retrofitting.

“If we’re going to kick-start this market, we need government intervention to provide the long-term leadership that is needed,” Berry said. “This is a major infrastructure project it needs to be labelled in those terms. It’s going to take decades to transform our existing housing stock.”

We’re asking the government to commit just over £5bn to kick-start the [retrofit] market. We think this would unlock private capital over £11bn.

The Federation of Master Builders is working closely with the Construction Leadership Council (CLC), which published its ‘National Retrofit Strategy‘ earlier this year, setting out a 20-year plan for the industry to work with government to upscale retrofits.

“We’re asking the government to commit just over £5bn to kick-start the market,” Berry said. “We think this would unlock private capital over £11bn to get to get this market started, and the economic benefits would be 100,000 new jobs over the next four years.”

The CLC’s retrofit strategy calls for eight interlocking deliverables: building passports, retrofit training and qualifications for builders, involvement of local authorities, financial incentives to stimulate the market, securing the supply chain, educating consumers on retrofit options and a quality regime to protect the market.

“The next stage, of course, is for the government to listen and take it on board, and we are waiting for the Heat and Building Strategy [which is expected later this year],” Berry concluded.

“We’ve got the COP coming up in November: what a brilliant opportunity for this government to say that they’re going to launch a national retrofit strategy, part of a green homes revolution, to show the world that we are tackling our existing building stock and delivering real change.”