UK Housing Sector at Risk of Losing Out on £31 Billion of Sustainable Investment

London, Tuesday 19^th March 2024 – The UK Sustainable Investment and Finance Association (UKSIF), which brings together 300+ members managing over £19 trillion in global assets under management (AUM), has today released a report showing that the UK could potentially lose out on up to £31 billion of private investment.

UKSIF polled 100 business decision makers across the UK housing sector, representing £300 billion in turnover, on their views about the current opportunities and challenges of decarbonising the UK housing sector.

The research found that only 15% of UK real estate companies place the UK as the top market for sustainable investments, with 63% of respondents planning to move investments out of the UK to a market that is more supportive of their sustainability goals.

However, improvements in the sustainability policy landscape could see the UK housing sector benefit, with almost all large UK real estate companies considering an increase in investment if this was the case. The respondents identified various factors which could support this further investment drive, including:

• Nearly three quarters (71%) of large UK real estate companies believe that introducing a long-term, CPI-linked rent ceiling for social housing, post-2025, would have a positive impact on companies investing in sustainable real estate in the UK.
• Recognising the multiple participants involved in decarbonsing the UK housing stock, respondents said that if the government collaborated with lenders and brokers to better signpost green mortgage options, it would encourage over half (56%) of large UK real estate companies to increase investment in sustainable housing.
• Over four in five (85%) of UK’s large real estate companies also said that they believe skills training hubs to reduce heat pump installation delays would have a positive impact on companies investing in sustainable housing in the UK.

The UKSIF Financing the Future: Housing Report is the second of a four-part series of research and policy papers calling for a series of practical and cost-effective policy reforms required to unlock greater investment for the UK’s highest carbon-emitting sectors and fulfil the UK’s true potential for sustainable economic growth.

Within the report, UKSIF has identified three key measures required to unlock the private capital needed to decarbonise the UK’s housing stock, including:

1. Set a requirement for private rented homes to achieve an EPC rating of C by 2035
   • Widespread retrofitting including new skills hubs, and the rollout of heat pumps will help to significantly reduce the UK’s carbon emissions and save £8 billion in energy bills over the next decade.
2. Increase green mortgage take up
   • The FCA should adopt a clear definition of green mortgages to better align market products. This could include developing a lenders’ charter for green mortgage providers or encouraging lenders to offer their green mortgages to any home that has an EPC rating of C and above.

3. Secure longer-term rent settlements for social housing providers to support them to retrofit and decarbonise
   • Funding remains the biggest barrier for social housing providers to retrofit their housing stock. Introducing Capital Allowances for private investors to invest in the sector can help decarbonise the UK’s housing stock more efficiently.

 

James Alexander, CEO at UKSIF comments: “Successive governments’ wavering on decarbonising the UK’s housing stock has hampered private investment into one of the UK’s highest emitting sectors. Our research shows that there is huge demand from real estate companies and investors alike to invest in the UK, but policy reform and government measures to close the skills gap are critical if the UK is to avoid falling behind other countries in the race for capital. 

UK residents can live in greener houses that are cheaper to heat as long as policymakers remain focused on the critical role of private investment in  the transition. Investors are in desperate need of clarity from the government on sustainability policy, and only then can opportunities be unlocked for the UK housing sector, with benefits realised for consumers, the environment and the wider economy.”

Chris Taylor, Head of Real Estate at Federated Hermes, comments: “It is critical that we take immediate steps to unlock the private capital needed to decarbonise the UK’s housing stock and achieve our net zero ambitions. The scale and complexity of this challenge demands a tailored approach that considers the unique characteristics of the sector and supports the role of private investment in driving this transition.

By its nature, the UK housing market is highly fragmented with a large number of stakeholders, including homeowners, developers and social housing associations, which makes it challenging for private capital to scale up potential solutions. Therefore, we need a joined-up approach with the creation of appropriate mechanisms and legislative frameworks, as well as well-defined, interim targets and long-term policies to facilitate and encourage private investment in the decarbonisation of UK housing.

Political certainty will be vital to providing investors with the confidence needed to invest long-term, patient capital into major new residential developments. Whichever government succeeds in winning the forthcoming election will hopefully grasp the importance that private investment plays in delivering relevant and resilient residential projects, aligned to the country’s decarbonisation goals.”

Tim Lord, UK Head of Climate Change, HSBC UK, adds: “We need to unlock investment to retrofit almost all of the 28 million homes in the UK – and if we get it right we can cut emissions, increase comfort, and reduce running costs. At the moment, the upfront costs of measures like replacing gas boilers with green alternatives, installing solar panels, and upgrading insulation can be challenging for households to meet. We need to create the right incentives for householders to invest.”

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