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Cold cash

New research shows tackling cold homes can save social landlords money, says Sean McLaughlin

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Cold cash

Old woman in a cold home

In recent years’ great strides have been made in proving the environmental, health and social problems caused by people living in cold homes. Indeed, earlier this year a report by National Energy Action found that more than £1bn of costs were accrued by the NHS last year, in treating the health problems caused by cold homes.

With the social and environmental case now repeated almost daily and the wider financial benefit to the NHS clear, why is it so hard to get energy efficiency projects funded? Simple – the business case hasn’t been made.

Whilst social landlords have been proactive in carrying out these works, the lack of a business case has made energy efficiency projects a slave of funding programmes such as ECO, or a response to the regulators stick.

If I had a pound for every asset manager who has said to me: “the trouble is that we spend the money and the tenant saves it”, then I’d be able to fund a few decent sized projects myself. Now this can change thanks to a landmark report issued by Sustainable Homes called Touching the Voids, which involved studying data from 200,000 homes belonging to 25 social landlords over a two-year period.

“This report shows the clear business case for putting energy efficiency at the heart of stock improvement plans.”

This comprehensive piece of research, now provides hard evidence for the creation of some simple KPI’s which form the basis of the business case. For the first time a detailed study has calculated the costs to landlords of rent arrears, extended void periods and additional maintenance to the fabric caused by energy inefficient properties.

The research showed that a theoretical 10,000-home landlord could boost their bottom line by £2.43m a year by carrying out a targeted energy retrofit program to bring older properties up to an EPC rating of C. It provides evidence to show a dramatic inverse relationship between void days and SAP ratings. The average number of void days drop by a staggering 31% between an F and a C EPC rating.

As every landlord knows the loss of income from voids and rent arrears is only one part of the story. The cost of staff time, legal fees, and refurbishing void homes, all add up. Rent arrears are a growing problem for almost every social landlord and especially the 10% of housing associations which are dealing with rent arrears of £2m or more.

The Sustainable Homes research showed that colder homes, especially those in band F, have on average two weeks more rent arrears than higher bands. The move to Universal Credit will exacerbate this problem as rent will no longer be paid directly to social landlords by the Government. Heat or eat (a stark choice already) then becomes heat, eat or pay the rent. Sadly, research published by ALMOs earlier this month proved that more than three quarters of council tenants in receipt of Universal Credit (UC) are in rent arrears.

Scotland is taking the lead on imposing stricter regulatory standards. We applaud that but it should not just be a case of “OK then if I must” – it’s time for landlords in both the private and social sectors to recognise that there is a business case for doing this.

As new entrants such as Legal & General and other American and European players signal their interest in entering the UK rental sector this business case will be magnified. It’s not possible for these organisations to build enough new houses to satisfy their ambition so they will have to buy existing stock.

This report will provide the evidence they need to either focus on buying properties with high energy efficiency ratings or buying poorer performing properties and instigating industrial sized upgrading programs Why? Because it makes sound financial sense – especially as the regulatory hurdles get higher between now and 2030 in England and now and 2020 in Scotland.

If RSLs want to remain competitive with each other and these new entrants this report shows the clear business case for putting energy efficiency at the heart of stock improvement plans.

Sean McLaughlin, managing director at Matilda’s Planet

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