Wednesday, 29 March 2017

The final countdown

The government’s green deal retrofit programme is due to launch in just a few months. So, is it a good deal for social landlords and their tenants? Sustainable Housing conducted an exclusive survey and gathered a round table of industry experts to find out. Keith Cooper reports.

Photography: Jonathan Goldberg

The government bills its green deal as the most ambitious home improvement initiative since the end of the Second World War.

Managing director, Willmot Dixon Energy Services

Robert Lambe, Willmott Dixon Energy Services

Over the next decade, billions will be invested in Britain’s draughty houses through the green deal and its sister subsidy, the energy company obligation, ministers claim. The beauty of both measures, ministers enthuse, is that neither requires the cash-strapped Treasury to reach into its pocket.

So, while the policy is obviously sweet to a government on a tight budget, what do social landlords think? Is it a beauty or a beast for their businesses and the tenants they house? To answer these questions Sustainable Housing, in partnership with contractor Willmott Dixon, conducted an online survey of 127 housing associations, then gathered a panel of industry experts in a London hotel to discuss the findings and pinpoint the
potential benefits and pitfalls of the deal.

Under the green deal, due to launch this autumn, the upfront costs of improvements are met by ‘green deal providers’. Their investment is then recouped by attaching monthly charges to improved properties’ energy bills. Tenants and homeowners who sign up are offered protection from profiteering by the deal’s ‘golden rule’. This demands that payments are always less than savings on average energy bills.

Project director, Places for People

Nicholas Doyle, Places for People

Under the accompanying ECO subsidy, utility firms will be expected by the government to invest £14 billion over the next decade in efforts to improve homes in fuel poverty, and ‘hard-to-treat’ homes requiring more expensive types of insulation. The fine print for both the green deal and ECO is still being drawn up.

Both our survey respondents and the expert panel reveal a range of views from concern, through ambivalence, to optimism that the green deal will help tenants’ cope with spiralling fuel bills.

Some landlords also view the policy as an opportunity to expand their businesses by becoming green deal providers.

Fighting fuel poverty

Tackling tenants’ fuel poverty and reducing their utility bills are the top two reasons landlords say they are improving the energy efficiency of their housing stock, according to our survey. Sixty five per cent of respondents cite these reasons - compared with just 3 per cent which say they are driven to cut their own costs.

Business development manager, Asra Housing Group

Emily Braham, Asra Housing Group

Landlords are, however, sceptical about the capacity of the green deal to deliver on its promise, respondents indicate. Just 11 per cent say they would switch from financing eco-improvements themselves to the government-devised deal.

A significant minority of 45.4 per cent disagree that the green deal represents a good deal for tenants. ‘Why should tenants’ [savings] be used to fund installations that do not belong to them at the end of the day?’ one survey respondent asks.

This question is picked up by Nicholas Doyle, project director at 62,000-home housing association Places for People. ‘It has to be a good deal for tenants otherwise we won’t get anywhere,’ he tells the panel. ‘But there is no plan B. We don’t have an alternative way of improving homes - and we need to because energy is the second largest cost for our residents.’

The green deal is only likely to catch on among tenants once they see the benefits it brings to their neighbours, Mr Doyle suggests. ‘If you try to knock on doors and try to sell it, it would be like selling me Tarmac. The people who can sell it for us are the residents. If they can see Mrs Jones’ home improvements, that starts to sell itself.’

Head of affordable renewables and green, Circle

Helen Wilson, Circle

Mr Doyle’s concerns are reflected in our survey results. Landlords doubt tenants will sign up to green deal measures, despite strong evidence of the need for such improvements. More than a third of respondents - 38 per cent - think fewer than one in five of their tenants would be interested. ‘Very few,’ and ‘I suspect that most don’t yet know about it’, are two of the comments about tenant take-up.

The survey, however, also reveals a pressing need for the energy efficiency measures the green deal should promise. Thirty-nine per cent of respondents say more than 60 per cent of their homes are in need of retrofits. The same proportion do not know what proportion of their households are in fuel poverty, but of those who do 30 per cent believe it is 41 per cent or more. Respondents are unsure about how well the green deal will operate in the social housing sector.

‘Nobody knows how it will work yet,’ says one.

No golden guarantee

Director of property investment, Affinity Sutton

Jeremy Kape, Affinity Sutton

The aspect of the green deal which most concerns panellists is the golden rule. Jeremy Kape, director of property investment at 57,000-home Affinity Sutton, fears that housing associations which champion the golden rule risk tarnishing their reputations. ‘It is a rule; it isn’t a guarantee. We are saying, “this will save you money” but it may not. Only time will tell.’ This is because the calculation is based on modelling and projections, not the individual’s own property and energy use.

Emily Braham, business development manager at 13,000-home Asra Housing Group, and project director at East Midlands Green, which supports landlords’ retrofit schemes in that region, is also concerned. ‘I don’t think the golden rule will work unless it [clearly] saves people money,’ she says. ‘People might see savings initially but as [fuel] prices rise the perception will be that it is costing them more,’ she adds.

Panellists are also concerned that the green deal will be inaccessible to their poorest tenants, as the economics of the golden rule won’t work for tenants in fuel poverty. ‘The vulnerable and the fuel poor miss out. That is one of our big, big concerns,’ says Jim McFadden, head of asset management at 21,000-home Catalyst Housing. His view is reflected in responses to our survey.

Head of sustainable investment, Orbit Group

John Barnham, Orbit Group

‘[The green deal] will have a potential impact among wealthier owner-occupiers… it will not be as relevant in its ordinary form with [housing
associations] and in the private rental sector,’ one survey respondent says.

The government hopes the ECO subsidy will help those who cannot afford to sign up to the green deal. At first social housing tenants were to be excluded from the pot of ECO money set aside to help those in fuel poverty, even though it is to be funded by increases to everyone’s energy bills. In response, climate change minister Greg Barker announced in April an additional £190 million chunk of ECO will be available for social landlords dealing with fuel poverty.

Our survey, which was conducted before this announcement, reveals social landlords’ wish list for ECO. We hope ministers are listening: respondents’ top asks are that ECO provides extra funding, that social housing is included in the whole scheme, and that ECO is separated from the green deal completely. Two respondents ask for greater priority in particular areas. ‘There should be regional targets for ECO to ensure that high-cost areas like London get a reasonable share of the programme,’ says one. ‘The resources available for Scotland need to be proportionately higher to reflect the harsher climate,’ claims another.

Director of assets, Alliance Homes

Steve Drew, Alliance Homes

Business case

Social landlords are not, however, solely concerned for their tenants’ well-being. They are also worried about how the green deal will hit their businesses. Housing providers are concerned that lenders may view the green deal as a ‘charge’ on the property, and not allow work to go ahead, warns John Barnham, head of sustainable investment at 36,000-home Orbit Group. He adds that the lenders may also wish to carry out checks on the financial health of green deal providers. ‘A big cost for housing associations is that every time a new provider comes along, you will have to go through checks with your funders. It has got to be affordable for us as landlords and for the residents,’ he says.

Steve Drew, director of assets at 6,500-home Alliance Homes, is concerned about green deal providers using contractors he has not had the chance to vet properly. ‘The idea of other providers applying products to our assets puts us in defensive mode,’ he says. ‘We have to look long term at what costs and liabilities we might pick up.’

Alliance Homes plans to avoid this worry by becoming a green deal provider itself. Our survey indicates that other social landlords have a similar idea - about 18 per cent of respondents say their organisation has already decided to become a provider, although the majority - 52 per cent -
say theirs is still undecided.

Head of asset management, Catalyst Housing

Jim McFadden, Catalyst Housing

Tenant turnover

Another concern raised by panellists is that prospective tenants could be put off letting properties which have green deal charges attached to electricity bills - the green deal has been designed so that it is attached to a property, so that potential investors aren’t put off by the thought that the costs will follow them if they move. ‘There is a risk of someone getting a green deal and then moving. The next person would then pick up the bill,’ warns Lindsay Todd, chief executive at 18,000-home Radian Group. ‘Will this home then become difficult to let? Will it become a void?’

Radian believes efforts to change tenants’ lifestyles will reap greater rewards than the physical improvements the green deal aims to deliver. ‘We have just had a long period of retrofit,’ Mr Todd says. ‘We think we can get more out of lifestyle changes rather than interventions because of the condition of our stock.’

Most panellists agree the green deal should complement rather than totally replace their existing energy-efficiency strategies. ‘The unknown factor is the person who switches the lights on and off. The home is just an inert physical lump,’ Affinity Sutton’s Mr Kape tells the panellists. ‘If people don’t adapt their lifestyles then they won’t make the savings. People have to live differently.’

Helen Wilson, who has just joined 63,500-home Circle as group head of affordable warmth from the Department of Energy and Climate Change, describes the green deal as just one of the tools at social landlords’ disposal. ‘It will be one of the mechanism that we use - not the only one.’

Chief executive, Radian Group

Lindsay Todd, Radian Group

Mr Barnham from Orbit thinks too much emphasis is placed on the green deal. ‘It just one of a myriad of tools. There is too much emphasis on technology being the panacea - but it isn’t.’

Emerging market

Despite all these worries, prospective green deal providers hope social landlords will help kick-start the retrofit market. Robert Lambe, managing director at Willmott Dixon Energy Services, which aims to deliver green deal packages to tenants, says social landlords could play a key role in getting the green deal off the ground. ‘From a business point of view, we do see a role for the public sector as a really key part of this. How do you stimulate the market? One thing we think will help is the social sector.’

David Adams, technical director at Willmott Dixon Energy Services and a former advisor to the climate change minister, says the green deal should not be seen as a cure-all to cutting carbon emissions. ‘Unsurprisingly it has been oversold. It was never going to be a panacea, but there is an opportunity to examine how the green deal can help landlords achieve their retrofit objectives,’ he adds.

Social landlords should, however, explore how the green deal and ECO could help them improve the energy efficiency of their stock. ‘To miss the

Technical director, Willmott Dixon Energy Services

David Adams, Willmott Dixon Energy Services

opportunity presented by the green deal would be wilful neglect,’ he warns. ‘I am enthusiastic but realistic about what needs to happen to make this work,’ he says.

One point on which most panellists appear to agree is that ‘the devil’ of the green deal is in the detail, an adage frequently deployed throughout the afternoon’s discussion. ‘The overall picture is that we are extremely interested but the details have to be right,’ says Circle’s Ms Wilson.

‘Places for People fully supports the green deal but there is no way we would be able to do it if it doesn’t make financial sense.’ Mr Doyle adds. Whatever those details turn out to be, something has to be done to tackle tenants’ fuel poverty, the panellists agree. ‘We can guarantee that in five years’ time there will be more people in fuel poverty.

If we get millions of homes retrofitted, that is a result and that is what we should focus on,’ concludes Mr Doyle.

Survey responses

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