Communities and Local Government CommitteeWritten evidence submitted by Friends of the Earth and the Association for the Conservation of Energy

Summary

1. Friends of the Earth and the Association for the Conservation of Energy welcome the opportunity to contribute to this inquiry. We have campaigned on the issue of fuel poverty and cold homes for more than a decade. We were leading members of the coalition which campaigned for the Warm Homes Bill which eventually became the Warm Homes and Energy Conservation Act 2000. Together we led (along with Citizens Advice) a coalition of almost 40 health and consumer organisations, green groups, children’s charities, councils and grassroots tenants’ rights groups campaigning for the introduction of a minimum standard of energy efficiency for private rented properties in the Energy Act 2011. Most recently we were founding members of the Energy Bill Revolution coalition which now has 120 member organisations calling for the revenue from carbon tax and trading to be used to dramatically increase funding for energy efficiency programmes targeted at the fuel poor.

2. The Private Rented Sector (PRS) contains a large number of households in fuel poverty; many are so cold and poorly insulated that they are a health hazard and cost a huge amount to heat.

3. Information failures, the split incentive, poorly implemented Energy Performance Certificates, landlord inertia, fear of retaliatory eviction and inadequate funding for energy efficiency schemes are all barriers to the take up of energy efficiency in the PRS. The Green Deal provides a much needed mechanism for landlords to finance improvements but by itself it will not drive the take up of energy efficiency in the sector.

Fuel Poverty and Energy Efficiency in the Private Rented Sector

4. According to the most recent English Housing Survey (headline report 2011–12):

The private rented sector had the lowest proportion of dwellings with double glazing, loft insulation and cavity wall insulation.

The proportion of properties with the very worst energy ratings of Energy Performance Certificate Band F and G halved across all tenures between 1996 and 2011. However, properties with an energy efficiency rating of F or G are more common in the PRS than in other sectors—more than five times as common as in the social sector (11.4% for PRS compared with 2% for local authority and 1.6% of housing association).

There are about 458,000 private rented properties in England with the lowest two energy efficiency ratings of F and G.

15.2% of PRS homes are estimated to fail the decent homes thermal comfort criteria.

Overall private rented homes have poor overall energy performance. The average SAP of homes in the PRS was 55.4, compared with 55.3 for owner occupied, 61.9 for local authority and 63.8 for housing association.

5. According to ONS in 2010 (the most recent year for which figures are available) 18.4% of households (627,000 households) in the private rented sector were in fuel poverty.1

6. According to DECC over forty% of households in PRS F or G rated homes live in fuel poverty.2

7. The Association for the Conservation of Energy estimates that there are 301,000 children in fuel poverty in the PRS—a higher proportion than any other sector.

Dependent children in fuel poverty by tenure3 (England 2013)	Number of children in fuel poverty	% of children in fuel poverty
Housing associations	118,000	9.0%
Owner occupied homes	677,000	9.2%
Local authority housing	121,000	9.7%
Private rented accommodation	301,000	14.7%

8. Modelling commissioned by Friends of the Earth4 estimates that £145m is currently spent by the NHS in England every year treating illnesses caused by living in cold rented homes.

What are the Barriers to Energy Efficiency in the Private Rented Sector?

9. The “split incentive” is often identified as a major barrier to improving energy efficiency in the PRS. The landlord is responsible for investing in energy-saving measures, but the tenant benefits from the reductions in fuel bills.

10. Turnover in the PRS is high, with 50% of private tenants occupying their home for less than two years.5 This means that there is little incentive for tenants to request energy efficiency measures from their landlord as they are likely to leave the property soon and may not wish to suffer disruption or conflict with the landlord for the sake of improvements from which they are unlikely to benefit from for any length of time.

11. Many tenants are deterred from making requests of their landlords for improvements and maintenance works because they are afraid of being evicted.6 This is known as “retaliatory eviction” and is made possible by Section 21 of the Housing Act 1988.

12. Take up of energy efficiency schemes has historically been very low even when these—for example EEC and CERT—are at low or no cost to the landlord7 (indicating that the availability of the Green Deal as a mechanism to avoid upfront capital costs will not be enough to drive take-up and hence the need for regulation to complement it).

13. Landlords’ Energy Saving Allowance was taken up in 2007–08 by only 0.2% of UK landlords, despite offering a tax allowance of up to £1,500 per property for landlords installing energy saving measures.

14. DECC8 characterises the problem thus: “The information failures in the PRS are particularly strong with a diverse set of owners, and tenants, who have failed to take advantage of as many subsidised energy efficiency measures as other sectors.”

The Potential for Improvement and the Cost

15. The cost and impact of introducing a minimum energy efficiency standard in the rented sector was explored in modelling commissioned by Friends of the Earth from the Energy Saving Trust.9 Their conclusions comparing the impact of a minimum standard in the PRS of Band E with one of Band D are shown in the table below.

	Improving PRS F & G	Improving PRS E, F & G
No. of homes in GB10	754,000	2.03 m
Average SAP rating before improvement	31 (F)	41 (E)
Average SAP rating after improvement	47 (E)	61 (D)
Total cost of improvements	£1.91 billion	£7.92 billion
Average cost per improved home	£2,535	£3,890
Total annual CO2 saved	1.87 MtCO2	5.00 MtCO2
Average annual CO2 saving per improved home	2.48 tCO2	2.46 tCO2
Total annual fuel bill reduction	£368 million	£968 million
Average annual fuel bill reduction per improved home	£488	£476

16. The EST also modelled the cost of improvements to reach EPC Band’s E and D. These are reproduced below:

	Percentage of PRS homes brought up
	EPC band F&G to E	EPC band E,F&G to D
1—less than £900	37%	32%
2—£1,000 to £2,500	1%	2%
3—£2,500 to £3,500	36%	36%
4—£3,500 to £7,250	21%	4%
5—over £7,500	5%	25%

17. This shows that the thermal efficiency of 70% of PRS E, F or G properties could be transformed for less than £3,500—currently this equates to 1.1m homes.

Impact of the Green Deal and Energy Company Obligation on the PRS

18. The Government has recently launched the Green Deal and the Energy Company Obligation to improve energy efficiency in the housing stock and tackle fuel poverty. The table below shows the expected take-up of basic insulation measures in the private rented sector (figures supplied by DECC in personal communication) due to the Green Deal and ECO.

19. The shape of deployment of measures in the PRS clearly shows the influence of the 2018 minimum standard contained in the Energy Act 2011 (which states that from 2018, at the latest, it will be an offence for a landlord to let a commercial or domestic property which falls below a specified energy efficiency rating. Initially this standard will be set at Band E) and that the installation of measures is being driven to meet that deadline rather than being driven by the Green Deal itself.

20. DECC’s Green Deal Impact Assessment states: “In the private rented sector, activity increases more rapidly [than for the owner occupied sector] as landlords take steps to meet the private rental sector (PRS) supporting policy that comes into effect in 2018. Once this regulation has come into effect and the stock of F and G rated properties have been retrofitted, uptake declines.”

21. This is confirmed by the Energy Act 2011 Impact Assessment which shows that the regulations passed to establish a minimum energy efficiency standard for the rented sector will have a dramatic impact on the number of potential installations which remain in the F and G properties.11

Measure	Number of installations available in F and G PRS properties (,000)	Number that will be completed due to PRS measures in the Energy Act 2011 (,000)
Cavity Wall	243	230
Loft	148	128
Loft top-up	250	245

22. Research by Consumer Focus12 showed a minimum energy efficiency standard of Band E for private rented homes could take 150,000 private rented households out of fuel poverty. This is 25% of all those private rented households currently living in fuel poverty. If the minimum standard was raised to Band D it would take 300,000 households out of fuel poverty—50% of the total in the sector.

23. However DECC admits that the impact of the minimum energy efficiency standard regulations in the Energy Act 2011 will depend on the number of exemptions which are allowed.

Implementation of Measures in the Energy Act 2011

24. In order to ensure the measures on the PRS in the Energy Act 2011 have the maximum impact the following should happen:

Start in 2016 rather than 2018, in line with the statutory requirement to end fuel poverty.

Ensure landlords still have to meet the standard even if the tenant does not give consent for a Green Deal charge to be levied on the energy bill.

Ensure properties have to actually meet the specified minimum standard in order to be legally let rather than being able to be let just because they have taken out a Green Deal or ECO (but are still below the standard).

Set a date of 2020 for the minimum standard to rise to EPC Band D.

Include HMOs (see below).

Keep exemptions for other reasons—eg listed buildings—to a minimum.

Ensure the regulations extend to letting agents acting on behalf of landlords as well as the landlords themselves.

Communicating with the huge number of small landlords is a problem. Introduce a register of landlords so that they can be informed about their new legal duty and how to access financial help and advice such as Landlords Energy Saving Allowance and the Green Deal, and keep enforcement costs to a minimum. At the very least the national EPC database should record with the EPC the address of the landlord even if this isn’t made public but only available to enforcement authorities.

Fear of Retaliatory Eviction as a Barrier to Energy Efficiency

25. The Government has also included a provision in the Energy Act 2011 which means that from 2014 landlords cannot refuse consent for reasonable requests by tenants for energy efficiency measures. This means they cannot unreasonably block a Green Deal or ECO.

26. The Energy Act 2011 Impact Assessment—which predicts just 2.2% of the measures taken up in F and G rated properties will be due to this policy—states that the impact of the “tenants request” measure would be limited because “For those tenancies of a few years or less, it is unlikely the bill savings under the Green Deal will repay the hassle costs of requesting consent for a measure from their landlord” and that even longer term tenants who might benefit more “may not want to risk losing their tenancy by confronting the landlord, especially in the case that tribunal is required.”

27. The recent Green Deal consumer insight research for DECC13 reports that those tenants who might want to take out the Green Deal “felt uncomfortable about the prospect of broaching the subject with their landlord. They were concerned that it would be seen by the landlord as overstepping the mark, and might annoy the landlord if they failed to handle the discussions carefully.”

28. This confirms the case being made by Citizens Advice, Crisis and tenants’ rights groups that tenants would be unlikely to request measures from landlords because of their fear of eviction and that they should be given proper legal protection when they request energy efficiency improvements.

29. Work by Citizens Advice14 and others shows that fear of eviction is an established barrier to many tenants asking for improvements and maintenance works in rented properties.

30. A 2000 survey by the ODPM15 found 8% of private rented sector tenants surveyed were very dissatisfied with repairs and did not try to enforce their rights because they thought their landlord would end their tenancy.

31. According to a YouGov survey commissioned by Shelter in 2011,16 7% of tenants who had had a problem with their landlord did nothing about it because they were scared of the consequences.

32. Under the Housing Act 2004 tenants are now protected from retaliatory eviction when the landlord fails to protect their deposit. This principle should extend to tenants who make energy efficiency requests using the provisions in the Energy Act 2011.

33. In 2008, Grant Shapps MP declared his opposition to retaliatory eviction in an interview with Environmental Health News:17 “Retaliatory evictions are completely unacceptable and I throw my weight behind EHN’s campaign…It is absolutely wrong and inappropriate.”

34. A simple solution would be to limit the use of Section 21 by landlords when an energy efficiency request had been made by a tenant under the regulations. It is disappointing that the Government did not take the opportunity of the Energy Act to put in place protection for tenants who take up the “tenants request” measure. With this protection tenants would be much more willing to demand energy efficiency improvements of landlords.

Enforcement and Visibility of Energy Performance Certificates

35. The means by which the energy efficiency of rented homes are recorded and communicated to landlords and tenants is through Energy Performance Certificates, which since 2007 have been required whenever a property is made available for sale or rent. Numerous studies have shown that while energy bills are one of the highest concerns for citizens, energy efficiency has not traditionally been a top priority for consumers when choosing a place to live.

36. Far too often tenants do not get to see the EPC for their property, and so are unaware of the property’s thermal efficiency—reinforcing the lower priority given to this factor. This means that even where the tenant might be in the position, and minded, to exercise a choice between properties in favour of a more efficient property—thus driving the market in favour of greater energy efficiency—they are denied the opportunity to do so. Research by Consumer Focus shows that just 31% of tenants who moved in the past two years received an EPC, as compared with 79% of owner occupiers.18 This is despite a legal requirement for them to have done so.

37. In a sample of 1,500 properties19 available for rent on the Rightmove website conducted by Manchester Friends of the Earth in September 2011, fewer than one in five (19%) had listings that included EPC details, and fewer than one in four agents (24%) had EPC details on any of their listings.

38. Recent changes to regulations governing Energy Performance Certificates due to the recast of the European Energy Performance of Buildings Directive should make the energy rating of properties more visible and hopefully increase its perceived importance in rental decisions. The Directive states that the energy rating should be “stated in advertisements in the commercial media”. CLG guidance states that this means include newspapers and magazines, written material produced by the landlord or letting agent, and the internet. However no provision has been made for enforcement of these provisions so essentially they are voluntary.

39. Non-compliance with EPC regulations is widespread. Mike Ockenden of the Property Energy Professionals Association (a trade body which represents businesses engaged in the provision of Energy Performance Certificates and Display Energy Certificates) states: “We believe that non-compliance is currently running at 30% on domestic properties listed for sale, over 50% for domestic rentals and between 60 and 70% on non-domestic sales and rentals.” It is the duty of local Trading Standards to enforce EPC regulations.

EPCs and Houses in Multiple Occupancy (HMOs)

40. There are an estimated 300,000 HMOs in England and Wales.20

41. The Energy Act 2011 (Section 43) states that the minimum standard regulations will apply to landlords of a property “in relation to which there is an energy performance certificate”. HMOs do not currently require an Energy Performance Certificate when one of the rooms is let (though if the whole property were let or sold as a single unit an EPC would be required) because a room is not defined as a building and therefore not technically covered by the EU Energy Performance of Buildings Directive (EPBD). An HMO created/converted before the Energy Performance Certificate regulations came into force in 2007 will not have an EPC and will not be required to receive one until the property is sold regardless of how many times the individual units it contains are rented out.

42. This means that not only will prospective HMO tenants be denied the opportunity to assess the possible heating requirements of the property, but perhaps much more importantly the property will not be covered by the “minimum standard” regulations in 2018.

43. It would be technically difficult for an EPC to be provided for an individual bedsit because the methodology is designed for individual properties. However it would be possible for an EPC for the whole property to be required to be shown to prospective tenants for one of the rooms or bedsits. This proposal was made in a CLG consultation issued in March 2010. Ninety four% of respondents agreed with this proposal. However it was not carried forward.21

44. All three major organisations representing landlords (the Residential Landlords Association, the National landlords Association and the British Property Federation) have agreed that it is appropriate to extend the coverage of EPCs to HMOs.22

45. There is no evidence to suggest that the omission of HMOs from the Energy Act 2011 legislation is anything other than an oversight. However it should be put right as quickly as possible so that landlords of HMOs are given the certainty that they too will be required to meet the regulations and that there will be a level playing field with non-HMO landlords.

46. The Dept of Communities and Local Government is resisting extending EPCs to HMOs because an individual unit of an HMO is not technically a building and this is not specifically required by the EPBD until the whole property is sold or let. Article 11 of the recast EPBD clearly states that the intention of EPCs is to provide information about the energy efficiency of a property to “owners and tenants”. We believe that requiring an EPC on HMOs is not gold-plating, and not requiring them is simply using an unintended loophole to do less than the minimum required by the Directive.

47. In addition, irrespective of what the EU Directive may or may not say, the UK Parliament has decided to pass the Energy Act 2011 and the PRS measures it contains. Friends of the Earth and the Association for the Conservation of Energy do not believe that it was the intention of Parliament to exclude a significant number of the worst properties, many housing vulnerable tenants, from the scope of legislation on a technicality.

March 2013