Net Zero Policy Shifts: Unpacking the Impact on UK Housing

September saw the UK Government reposition its net zero policy, encouraged, it said, by what had been achieved so far. The changes were proposed to ease the burden on British citizens, citing the need to lower the pressure that certain measures would have cost them financially during the ongoing cost-of-living challenges. There was significant backlash from climate change groups who are concerned that the last thing the UK needs is to slow down on its journey to net zero.

So what does this all mean for the housing market?

What changes has Rishi Sunak made that impact the housing market?

In his September announcement, Prime Minister Rishi Sunak said that the UK’s ‘over-delivery’ on reducing emissions ‘provides space to take a more pragmatic, proportionate, and realistic approach to reaching net zero’.

The UK has a target to reduce carbon emissions by 68% by 2030, compared to 1990 levels. It claims that the UK’s progress means that we have already hit the 48% mark, slashing emissions faster than any other G7 country. 

As a result, these announcements are now seen by many as a major U-turn on the net zero plans for the UK, several of which have a direct impact on the housing market.

1. Scrapping of policies forcing landlords to upgrade the energy efficiency of properties

For landlords, and indeed tenants, one of the biggest proposals and one of the only ones to be fully scrapped as part of the net zero policy revision, was the proposal to force landlords to upgrade the energy efficiency of their properties. 

The introduction of the C rating as part of the Minimum Energy Efficiency Standards for the rental sector (which is currently set at an E rating as a minimum) was to have been introduced by 2028 at the latest. Instead, households will only be encouraged to do this voluntarily.

2. Exemption to the ban on new fossil fuel boilers 

An exemption to the phase-out of fossil fuel boilers, including gas, in 2035, was introduced, This will impact around a fifth of homes and means that households who will most struggle to make the switch to heat pumps or other low-carbon alternatives won’t have to do so. It will also cover homes that are off the gas-grid – those that will need expensive retro-fitting or a very large electricity connection.

3. A delay on the ban on installing oil and LPG boilers, and new coal heating, for off-gas-grid homes

The Government also announced a delay on the ban on the installation of oil and LPG boilers, and new coal heating, for off-gas-grid homes. The phasing-out period was to have begun in 2026 and has now moved to 2035 instead. The Prime Minister admitted that many of these homes are not suitable for heat pumps, and said the changes ensure homeowners won’t have to spend around £10,000-15,000 on upgrading their homes in just three years but instead will have longer to plan.

4. Increase in value of Boiler Upgrade Grants 

The policy review saw an announcement that the Boiler Upgrade Grant would be raised by 50% to £7,500 to help households who want to replace their gas boilers with a low-carbon alternative such as a heat pump or biomass boiler.

What impact will these changes have on the housing market?

These changes are significant for the housing market. Although it may be a relief for landlords that the pressure is off to improve the energy efficiency of their properties, the changes would have been of huge benefit to tenants, with lower energy usage prices and greater comfort as a result. This is particularly relevant following the energy price hikes of the last year and the fuel poverty that many have suffered.

There is also a growing demand and expectation from tenants that properties should be energy efficient and climate-friendly, meaning that those landlords who relax their plans to improve the energy efficiency of their properties could see weaker demand as a result.

Although the policy revisions focus on the costly boiler changes many point out that energy efficiency improvements include simpler, cheaper measures such as insulation, better heating controls and reducing draughts, which could still have been encouraged and brought benefit without great cost.

Retro-fitting of traditional boilers with climate-friendly alternatives such as heat pumps or biomass boilers, improves their resale value by making them more attractive to buyers since the work is already done and subsequent energy bills will be lower.

Ultimately, improving energy efficiency within the housing market is essential long-term – whatever deadlines the government is setting. And that has been the biggest reason for criticism from many in the housing industry for the U-turn. Critics point out that backtracking on phasing out traditional boilers and introducing energy efficiency measures, delays improving living conditions and reducing energy bills for tenants and homeowners alike.

The flip side of this is that those who do invest, regardless of regulation, are more likely to be able to rent or sell their properties and charge more of a premium for doing so.