What’s the cost of net-zero homes?

Comment from Ted Pearce, Director of Strategic Asset Management, Orbit Group.

£104bn is a lot of money. That’s roughly a quarter of what the Government has spent so far on the national Covid-19 response. But that’s the estimate of how much investment the social housing sector will need to reach net-zero by 2050, making sure our homes are fit for purpose and fit for the future.

It’s easy to be negative: how will we fill this funding gap when, as a sector, we are under increasing pressure to deliver this in addition to changes resulting from the Building Safety Bill, the Social Housing White Paper, Decent Homes two, etc., when rents are capped and, in any event, where the sector clearly has a responsibility to protect our customers from worsening what, in many instances, are already stretched financial circumstances. Are there any causes for optimism about where this money will come from, and more importantly, the way innovation and collaboration will play a role in reducing this cost over time?

If you briefly look at the energy industry, the Government has talked at length about its successful intervention in off-shore wind, increasing competition and collaboration to drastically reduce wind-energy production subsidy/intervention costs. There’s no doubt in my mind that the social housing sector is potentially going to find itself in a similar position and that the Government is looking for disruptors to ignite change in what is still, in many ways, a very traditional sector. The Government is looking to us for innovation and collaboration to match this challenge, and for us to work together with our supply chain to achieve a similar intervention on costs.

Green finance

Yes of course there is a massive funding challenge, but rather than asking ourselves how can we afford to reach net-zero, I think we should be asking ourselves a bigger question: can we really not afford to, given the cost to the environment and potentially to the very wellbeing of the customers we strive to look after?

Increasingly investors are looking for opportunities that deliver the “E” in ESG. Whilst we’re already seeing some in our sector benefit from lower-cost ESG related external funding, at some point this will become the norm and those without strong environmental credentials will miss out on the lowest cost funding opportunities.

I also believe that, as we improve our stock, we’ll find that people will only accept highly efficient homes, with the new “norm” becoming net-zero carbon buildings. Come 2050, if your business and your homes are not net-zero, it’ll be very difficult to lease and sell homes, and to raise funds.

A team effort?

Currently, the sector is disparate with organisations working towards different objectives and targets, with some saying they will meet net-zero as early as 2030.

With a very small portfolio of housing stock or access to a massive workforce this could be possible, but the scale of what is needed - the innovation in technology; the skills in maintenance supply chains; the product development; the decarbonization of grid electricity, and equality in energy prices; and the sheer size of the skilled-up installation workforce required - cannot be delivered overnight. We must be realistic and build standards and specifications together carefully; the need to do the right thing for our customers and their homes, and engage them in the journey, is much greater than trying to promote individual business interests.

Where are the skills coming from?

There’s currently not enough experience and knowledge to retrofit four million social homes to meet net-zero carbon targets, and these are just a fraction of the UK’s housing stock of 28 million homes. But flip that position on its head and it becomes incredibly exciting: if the Government can effectively and efficiently disrupt the sector and the larger property and construction industry, there is a huge amount of employment to be created - at a time when it’s needed most. 

We’re talking about very varied employment too, with a range of innovative roles and skills. By disrupting what is a traditional industry, we will increase and attract new skills, helping the wider economy to grow.

Can we meet the challenge?

I ask myself two questions when I think of the road ahead: “Is this good for our business and for our customers?” and “Is this good for UK Plc?”. Both answers are, obviously, a resounding yes. We know warmer homes create healthier communities, resulting in fewer customer issues, and the potential to reduce strain on our health care infrastructure.

As we reduce our sector’s energy consumption, we will also create significant headroom for the UK energy network, maybe then we can further advance electrification in other sectors, like electric vehicles.

So, from a business perspective, we’ve got to do it, and from a UK Plc perspective, it’s a no-brainer too.

Yes, it’s a challenge, but as ever, where there is a challenge there is also a great opportunity. The digital push into industry and manufacture coined the term the fourth industrial revolution, Industry 4.0. I believe that the change and challenges facing the sector, and the innovation, skills, and collaborative ways of working required, have created not only a seismic moment for social housing but also construction as a whole. I think this could be our industrial revolution - and it’s probably long overdue. Welcome to Industry 5.0.