Henry Revill and Paul Nash from the team at developer and Thames Tap partner Jansons Property discuss what net zero means for the property industry and how the industry will be impacted by new regulation and policy changes.

Regulatory Environment

In recent years the regulatory environment that governs the built environment has changed in response to demands for improved energy performance and lower carbon emissions.

These changes can already be seen as a new Part L of the Building Regulations, which deals with the conservation of fuel and power, is due to be published this December with an implementation date of June 2022 and, amongst other changes, will require all new homes to reduce CO2 emissions by 31 per cent.

And with the Energy Performance of Buildings Regulations that were introduced in 2012, properties are required, whether private dwellings or used for commercial purposes, to have an Energy Performance Certificate (EPC) when constructed, sold or let.

In addition, larger buildings (of more than 250 sq m), occupied by public authorities and frequently visited by the public, are required to display a Display Energy Certificate (DEC). The final requirement of these regulations is that air conditioning systems of more than 12kW must be inspected regularly by energy assessors and given an Air-Conditioning Inspections Report (ACIR).

The Minimum Energy Efficiency Standards (MEES), which were introduced in the Energy Act 2011 have meant that, since 2018, private landlords may not let domestic properties on new tenancies to new or existing tenants if the EPC rating is an F or G (unless exempt). The higher the rating (the highest being A), the more energy efficient a building is and the lower its running costs are.

In addition to this, leading global Environmental Assessment Methods such as the Building Research Establishment Environmental Assessment Method (BREEAM) and Leadership in Energy and Environmental Design (LEED) have also been extremely influential in increasing the focus on sustainability in the built environment.

Government’s Net-Zero Focus

A key target of the UK Government is to reach net zero by 2050. There are two main ways to do this: reduce existing emissions or actively remove greenhouse gases.

The Net Zero Carbon Toolkit outlines four core principles of net zero carbon buildings: energy efficiency, low carbon heating, renewable energy generation, and embodied carbon. These are defined below.

  • Energy efficiency: refers to a reduction in the running costs of buildings and their carbon emissions. Importantly, increased energy efficiency reduces a building’s impact on the wider energy supply network.
  • Low carbon heating: an essential feature of net zero carbon buildings which emphasises a movement away from gas and oil.
  • Renewable energy generation: for new buildings, the renewable energy generation should be at least equal to the energy use of the building on an annual basis. Using technologies such as photovoltaic (PV) panels this is achievable for new homes.
  • Embodied carbon: Net zero carbon buildings should minimise embodied carbon in the materials used to originally construct it.

Toolkits like this provide a useful framework for companies operating in the real estate industry to better understand the various components of net zero and develop effective strategies.

How is the regulatory environment constantly adapting?

The Future Homes Standard 2019 consultation, due for full implementation in 2025, proposed an ambitious uplift in the energy efficiency of new homes through changes to Part L and F of the Building Regulations.

A 31 per cent reduction from current standards of CO2 emissions produced by new homes (by mid-2022) will be implemented by the new interim Part L and Part F legislation from December 2021 that will be enacted in June 2022. This shows a further tightening of building regulations as the focus on sustainability in the built environment increases in importance.

The Heat and Building Strategy, published last week, sets out plans to decarbonise homes and workplaces on the road to net zero. Within this strategy, the UK Government announced that from April 2022 households will be offered subsidies of £5,000 to aid the installation of heat pumps as a replacement for gas boilers.

This is part of the Government’s wider strategy to phase-out gas boilers due to the high level of carbon emissions they produce and is directly related to the second core principle outlined in the Net Zero Carbon Toolkit above.

However, questions remain over how comprehensive this plan is, whether there is enough trained labour to carry out the installations, and if it will be too costly for the majority of households to install these pumps.

Why is this relevant to Real Estate Development and Investment?

According to the chief executive of Sustainalytics, a leading independent Environmental, Social & Governance (ESG) research and analytics firm, ESG is at an ‘inflection point’. This means there is a sharper focus on ESG in the real estate sector than ever before.

ESG factors are increasingly being integrated into investment analysis by key stakeholders in the real estate industry in order to identify additional risks and key growth opportunities. Within Real Estate Development and Investment, the ability to comparatively evaluate performance in order to create gross development value whilst reducing risk is crucial.

As mentioned above, the tightening of regulations has caused a greater focus on sustainability in the built environment and this needs to continue in order to significantly accelerate the decarbonisation of the built environment and the wider economy.

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