Non-member landlord survey pt2 - potential changes to MEES

Introduction

In the Summer of 2022, the NRLA commissioned market research company DVJ Insights to undertake research on landlords across England & Wales who were not necessarily members of the NRLA.  DVJ Insights conducted almost 900 on-line interviews through a questionnaire-style survey.  This is the second of three summary blog posts reporting on key insights from this research. 

This post focuses on how landlords may respond to mooted changes to current Minimum Energy Efficiency Standards (MEES).

Minimum Energy Efficiency Standards

In line with plans to reach net-zero carbon emissions by 2050, in September of 2020 the UK Government launched a consultation on improving the energy efficiency of rented properties.

Currently, landlords letting properties in England and Wales are required to have a minimum EPC rating of E. By contrast, the proposals - if implemented - would require a minimum EPC rating of a C. If this proposed standard is introduced, it could affect new tenancies from as soon as 2025.  Existing tenancies would possibly have to be brought into line by 2028. 

The Government are yet to release the outcome of the consultation. At present these are only suggested proposals and are not official policy. The longer the delay, the less likely these time horizons can be considered realistic.

Government support for new MEES standard

In August of 2020, a month before the launch of the consultation on MEES in the PRS, the Government announced a £2 billion package to incentivise energy improvements. The Green Homes Grant allowed landlords to re-claim two thirds of up to a £5,000 investment in energy improvements. 

However, a mixture of poor communication, inadequate design and eligibility issues, the scheme closed before any significant impact had been made. For more information on  the Green Homes Grant please read the NRLA’s report here.

Awareness of possible changes to MEES

The government department overseeing MEES targets - BEIS - estimates the average investment needed for a property to reach an EPC-C to be £4,700. BEIS recognises in some cases there will be significantly higher costs.

Given how significant this change could be, landlords were asked whether they were aware of possible changes to MEES policy.

• Overall, 57% of all landlords surveyed were either unaware or unsure about possible changes to MEES regulations.
• Only 37% of all landlords surveyed reported being aware. 
• NRLA members were more likely to be aware of the possible policy reform when compared to non-members: 
  • Over two-thirds of NRLA members were aware of possible plans to increase EPC minimum ratings. 

Landlords, and their response to possible changes

Landlords were asked whether any legislation emerging from the Government’s consultation on MEES would have a big impact on them as landlords and their portfolio.  

• Overall, 37% of landlords reported that this would have a big impact on them and their property portfolio.

The chart below separates responses by (i) whether the landlord holds an NRLA membership or not, and (ii) the number of properties owned.

The chart shows:

• NRLA members and landlords owning 10 plus properties, are among the landlord groups most likely to think any change to MEES regulations would have a big impact on them and their business. 
• By contrast, non-members and single property landlords are among the landlord groups least likely to believe changes in MEES would have an impact on them. 

Why do landlords think possible changes would have a big impact?

Landlords indicating that any future changes to MEES would have a big impact were asked to describe why and how the change would have such an effect.

One key concern expressed by landlords was the cost of reaching EPC-C:  Older properties are more likely to have a lower EPC rating and can be more difficult and expensive to improve the rating compared with newer properties.

• Many landlords referred to this cost-based difficulty:
  • In the absence of a financial support package, the cost of improvements could make their business model uneconomic.  
  • The result may be a reduction in the supply of properties in the PRS. 

Landlord comments

A selection of landlords comments collected in the research are shown below:

“It will be extremely costly and punitive. There will be paltry support and grants. Also disruptive to tenants and may cause rental voids”

“I have done everything I can reasonably afford to improve my property. I will have to sell now as I cannot bring my older property up to spec”

“While it is a good idea to raise the ratings, I fear the costs of achieving them may mean letting is no longer economic”

One landlord also stated they were “not sure about the energy efficiency of my property and how it could be improved.” 

Changes to MEES: An alternative view

Landlords who stated the proposed changes would not have a big impact were also asked why they held this belief. Examples of responses include:

“Because we only have one property.”

“All of our properties have a good rating and we will take measures where necessary if we feel that we are falling behind. Energy efficiency is important to us.”

Landlords who said the changes to MEES would not have a big impact were also, unsurprisingly, more likely to own a property that already meets or exceeds the proposed minimum EPC rating of C.  

Summary and policy implications

If landlords are going to be able to meet any revised MEES rating such as EPC-C, further support is critical. Responses indicate for many landlords, rather than attempt to meet the costs of upgrading a property, they will opt to sell. The overall impact then would be a loss of choice in the PRS.

If the Government were to go ahead with MEES changes as proposed, a range of incentives which stimulate landlord investment in energy efficiency is vital. The Green Homes Grant demonstrates that the [Conservative] Government of the day recognised the important role of financial support to incentivise green investment.  Without funding – correctly targeted – and necessary exemptions for older properties, many landlords feel they would be unable to meet revised targets. 

Further NRLA recommendations, based on the views of landlords and wider stakeholders, can be found here.