The cost of transforming our homes to net zero is going to be huge. One estimate puts the cost of getting all English housing association homes to net zero at ~£60bn. For context, the present Government has pledged £3.8bn over 10 years for decarbonising social homes. And in another context private debt finance in the delivery of new social housing has debt levels currently standing at £80 billion.
Whilst there are significant operational costs savings from net zero[1] it is unlikely these will cover the cost of the necessary upgrades. In turn this means it is highly likely that funding will have to come from other sources, yet to be identified. While we wait for a more sustainable funding mechanism, there are a series of upfront grants which are notorious for being laborious to apply for, difficult to deliver to the timescales and insufficient amounts of money. The next announcement is for ECO 4 second wave.
We suggest that landlords, together with peers and other stakeholders lobby Government for a sustainable funding mechanism. We suggest the model below which will also provide a huge financial incentive for landlords to proceed at pace:
- Landlords raise ESG finance to fund decarbonisation programmes
- For each home that the landlord gets “net zero ready” (e.g. EPC C + electrical heating), the landlord receives an annual payment from central Government
- This payment is used to repay the ESG investment
This seems to have the following advantages:
- Avoids the pain of grant applications
- Avoids costs inflation when there are grants available
- Satisfies investors’ ambitions to fund ESG entities
- An efficient way to distribute central Government funding, which seems inevitable
Assuming something like this is put in place and landlords can gain something in the region of ~£300 per home per year, this will amount to the vast sums required to decarbonise.
As ever, these things are simple on paper, but let us know what you think. You can add comments on our Linked In post here: linkedin.com/posts/richardlupo
[1] E.g. Lower maintenance; reduced voids and rent arrears; cheaper fleet costs; no need for gas safe checks; attract ESG funding; https://shiftenvironment.co.uk/news/6-financial-opportunities-climate-change-could-bring/