Landlords face a £21.6 billion bill for EPC upgrades

Landlords in England and Wales’ private rented sector are looking at forking out £21.6 billion to meet new energy performance certificate (EPC) standards, research reveals.

The government has announced a consultation on how EPCs are calculated and another one which would see all new tenancies needing an EPC certificate from 2028.

All tenancies, under the government’s current plans will need a new EPC by 2030.

And now research from Knight Frank points to the average cost of upgrading each property at £8,148.

This figure considers the five million households in the PRS, where 60% are currently rated D or below.

How will the government deliver EPC

The firm’s head of ESG research, Flora Harley, said: “This policy is not new. What needs to be different this time is a firm commitment that also sets out how the government is going to deliver this with both carrot and stick.

“Previous attempts have seen limited uptake for efficiency improvements and the recent news about the quality of wall insulation delivered is unlikely to help confidence in this.

“A clear, well thought-out and holistic approach is required.”

She added: “Finance also has a crucial role to play in enabling upgrades to be made.

“The discussion around property-linked finance could further enhance this.”

Landlords carry out 2.2 upgrades

The real estate firm looked at 31,000 properties and it says achieving an EPC C rating will typically involve landlords having to carry out 2.2 upgrades, on average.

Landlords would need 1.6 interventions for properties previously rated EPC D, to around four interventions for those rated F or G.

Costs vary depending on the property’s initial rating, ranging from £5,841 for D-rated homes to more than £18,000 for G-rated ones.

Flats average £5,869 in upgrade costs, while houses average £9,410.

A proposed cost cap of £15,000 for landlords is being considered, with potential reductions to £10,000 for certain exemptions.

34% fewer PRS homes listed

Ms Harley said: “Across the private rented sector there has been a notable reduction in rental supply in recent years: there are still 34% fewer homes listed to rent across the UK compared to the 2017–19 average, although a rise in Build to Rent is helping to alleviate some of this.

“The proposed MEES regulations mean landlords who fall below the EPC C threshold will have to make a choice between upgrading existing homes to the new standard or exiting the sector which could see supply further contract in the coming years.

“Longer-term, we expect the new homes market will stand to benefit, given higher building and efficiency standards which will be more attractive to new investors than non-compliant older stock.”

Upgrading to a C rating

Knight Frank says that upgrading to a C rating could save around two tonnes of CO₂ annually per property.

For all affected rented homes, this translates to a potential 4.5 million tonne reduction in C02 emissions.

The improvements could cut UK emissions by 1%, or residential real estate emissions by 5%.

Many landlords don’t make a profit

The head of lettings at Knight Frank, Gary Hall, said: “Landlords are consistently tackling a series of evolving requirements from the government.

“Many are not making a profit on their rental property, making it challenging to fund substantial improvements without clear guidance on implementation options and financial support.

“To make meaningful progress in improving energy efficiency, landlords need assurance from the government that there will be grants available and a cap on the amount they will be required to spend.”

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