Energy efficiency: building towards net zero Contents

6New Build Properties

Zero Carbon Homes

120.The Government’s 2007 ‘Building a greener future: policy statement’ required all new homes to be ‘zero carbon’ by 2016.312 In July 2015, after nine years of discussions with housebuilders and the gearing up of the supply chain, the policy was dropped by the Treasury six months before its expected implementation in an attempt to speed up housebuilding.313 With the UK Government committed to building 1.5 million new homes by 2022,314 this decision is now having costly impacts. Not only have hundreds of thousands of homes that emit more than they need to been added to an already inefficient stock, but their occupants are paying over £200 per year more on their energy bills than they should—nearly three times the amount sought by the energy price cap.315 Since 2015, owners of new build homes in England have collectively paid more than £120 million in additional energy costs—a figure that will likely swell to more than £2 billion by 2020 as more new dwellings are occupied.316 As Lord Deben, Chairman of the CCC said, there was only one beneficiary of this policy:

The people who laughed all the way to the bank were the builders who decided in advance that the Government would never get on with that, never prepared for it and are still building houses that are, frankly, not suitable for today’s demands.317

121.We were dismayed to hear from Persimmon that it had lobbied the Government to ditch the zero carbon homes policy.318 Peter Jordan, Group Planning and Strategic Land Director, defended Persimmon’s position by telling us that the relaxation of standards had delivered a boost in housebuilding since 2015.319 But the UK’s largest developer, Barratt Developments’ group chief executive, David Thomas, stated that the scrapping of the standard had not been a “significant factor” in driving up their house building rates.320 Persimmon’s own figures suggest that all of its new homes built in 2018 could have been developed to zero carbon standards for around £165 million.321 This is a small proportion of the £600 million paid out to its senior managers in bonuses that year,322 including the now infamous £75 million awarded to the Chief Executive, Jeff Fairburn—a telling indication of Persimmon’s priorities in respect of serving the interests of its customers as opposed to its senior staff.

Future Homes Standard

122.When already faced with the challenge of upgrading the energy performance of the entire housing stock, it is nonsensical to be continuously making the problem worse by allowing new homes to be built that will also need to be retrofitted. Housebuilders receive billions of pounds in taxpayer support through the Help to Buy scheme.323 These funds should not be used to build dwellings that will need to be retrofitted later at up to five times the cost of designing-in appropriate standards from the start.324 The CCC warned that for ultra-energy efficient fabric measures, the “prohibitively high retrofit costs (£20,000+) mean that this is unlikely to be done in practice.”325 Thus, designing efficient homes from the outset is a one-time opportunity.326 We therefore welcome the announcement in the 2019 Spring Statement that new homes will have to be built with low carbon heating systems and meet “world-leading levels of efficiency” by 2025.327 It is vital that the Government delivers this policy in full. Any efforts by housebuilders to dilute the standards need to be rebuffed by the Government.

123.However, we are disappointed that we may have to wait until 2025 for homes to be built with “world-leading levels of efficiency” when the UK’s two largest housebuilders confirmed they do not require a long lead in time to deliver higher standards.328 Barratt and Persimmon said that higher standards could viably be delivered within 18 months.329 But with profit margins and shareholder returns the overriding priority for the majority of large housebuilders, they will not upgrade their standards without being required to do so by regulation. We recognise that there are some more progressive housebuilders who have indicated willingness to deliver higher standards at scale,330 but there is no commercial case to do so without a level playing field among all developers.

124.If new homes are to be built with “world leading” energy efficiency standards by 2025, legislation needs to be passed by 2022 at the very latest. This is because new standards only apply to buildings that do not have planning permission. If planning permission is already granted, builders can go on developing a site to previous standards as long as development begins within three years (discussed further below).331

125.The Government should utilise a range of policy drivers at its disposal to encourage early uptake. At a minimum the Government should put in place a compulsory ‘learning period’ from 2022 in a subset of properties in preparation for full-scale deployment by 2025, to avoid the standard being haphazardly introduced. The future changes should comprise an obligation on the bigger housebuilders to undertake regional demonstration projects to show how they will achieve the standard. Scaling up before 2025 could drive down costs and drive learning for industry before full deployment as well as signal to housebuilders that the Government is not going to blink this time round. The sooner the skills and materials are required at scale in the new build sector, the sooner costs will fall across the entire housing sector.

126.We welcome the announcement of a Future Homes Standard. Any attempts by housebuilders to water down the standard should be blocked by the Government. The only barrier precluding housebuilders developing to higher standards before 2025 is a preoccupation with profit margins and shareholder returns. Despite receiving billions in taxpayer funds, most housebuilders will only raise the energy standards of their stock if forced to do so. Progressive housebuilders who want to go further are being held back by the laggards who actively lobby the Government to boost their profits, rather than help meet carbon reduction obligations.

127.We recommend that the Government legislates for the Future Homes Standard as soon as practically possible—and by 2022 at the very latest—to guarantee that no more homes by 2025 are built that need to be retrofitted. We recommend that the Government considers policy drivers at its disposal to drive early uptake. At a minimum, the Government should put in place a compulsory ‘learning period’ from 2022 in a subset of properties in preparation for the full-scale deployment. The Government should oblige bigger housebuilders to undertake regional demonstration projects to show how they will achieve the standard.

Outdated regulatory standards

128.If the Future Homes Standard is to be delivered by 2025, loopholes that allow developers to build homes to outdated standards need to be closed urgently.332 The review of Building Regulations expected to take place later this year is the time to do so.333 As noted, development has to begin within three years of the date planning permission is granted, or else planning permission expires. But the broad definition of what it means for development to have ‘begun’, allows for minor work to be carried out in the first three years, with significant build happening years later.334 Building Regulations may have elapsed between permission granting and building completion, but developers are not required to update the standards they build to. This means homes are being built now to standards in place a number of years ago. Government data shows that 12 per cent of the homes built in 2018 were rated EPC C, whilst 7 per cent were rated D or below.335

129.The latest Building Regulations related to energy efficiency were set in 2013, with previous iterations in 2010 and 2006.336 We asked the three biggest housebuilders in the UK for the percentage of dwellings that they built in 2018 that do not comply with the most recent 2013 regulations. We were surprised to hear that 62 per cent of homes that Persimmon built last year were to standards that pre-date the 2013 regulations,337 as were 52 per cent of Taylor Wimpey’s338 and 47 per cent of Barratt’s.339

130.The housebuilders told us that they had made significant changes to the homes built to pre-2013 regulations to bring them closer in line with current standards, with some areas of their energy specifications being upgraded across all of the homes that they build.340 But we have no way of verifying this information. It is unacceptable that the system leaves it open to developers to build to outdated standards—all within the law. If these loopholes are not closed it may be a very long time before we see any future improvement in standards coming to fruition. We are not impressed by housebuilders threatening that building to the most updated standards risks stalling development.341 When the new standards are introduced, they should be compulsory on all buildings, except where the builder can prove that it is truly the case that the build has gone so far that moving to new standards would be prohibitive.342

131.We also heard that when planning permission is given prior to 2013, housebuilders can use a prior to 2013 Standard Assessment Procedure (SAP) model to calculate the EPC that is provided to the homeowner.343 The data which is put in to an old engine typically produces a higher SAP score to the current version.344 Therefore, the EPC rating provided is overstated. EPCs last for 10 years. At the point that someone renews their EPC or goes to sell their house, they will likely see their SAP score drop. Not only are consumers being cheated, but the Government’s statistics on new build homes may also be overestimating their energy performance.

132.It is unacceptable that new developments are not always built to the latest building standards. The classification of what counts as a commenced building project is too lax. This provides developers with a loophole that allows them to claim a project is too far advanced to meet changes to Building Regulations. As a result, a substantial number of new homes are being built to outdated standards. If loopholes are not closed it will almost certainly be much later than 2025 before we actually see houses with “world-leading” levels of energy efficiency built. The Government cannot continue pandering to housebuilders’ claims that delivering the latest standards would stall development. We recommend that the Government urgently closes those existing loopholes that allow homes to be built which do not meet the current minimum standards for new dwellings. The Government must ensure that the most recent building standards are complied with in all but exceptional circumstances.

133.Those who purchase homes that are built to outdated standards should not be provided with EPCs that are based on outdated modelling. This typically results in their energy efficiency rating being overstated, so when the home owner goes to renew their EPC they will find that they have been misled. We recommend that the Government requires that the EPC provided to the home purchaser must be the most current version.

The performance gap

134.The setting of higher energy efficiency standards needs to be matched with certainty that they will be met in practice. We currently have no such certainty. The Building Regulations regime for energy efficiency is a design-based compliance system. Developers need to demonstrate that their design complies with regulations, but do not need to show that the final building actually performs in accordance with the Building Regulations targets (other than an airtightness test).345 But there is a portfolio of evidence which demonstrates that there is a substantial gap between the modelled energy efficiency performance of dwelling as designed and their actual performance ‘as built’—the ‘performance gap’.346 The performance gap on fabric heat loss has been found to in some cases be more than double the design value.347 The CCC stated “Assuming a central estimate that new build homes lose 50 per cent more heat than they should, closing the gap now could deliver £70-£260 in annual bill savings per household”.348

135.Selling houses that do not perform in line with the standards advertised is, in effect, mis-selling. Conveniently for housebuilders, the regulatory system provides no risk of discovery. Developers do not have to provide the information used for the SAP calculation to the purchaser or test the properties ‘as built’ performance. The house purchaser has no way of knowing what was ‘designed’, let alone whether the property operates to that energy efficiency standard in reality. Lord Deben argued that it should be “much more possible to sue a builder for selling you a house that is not what it says on the tin”349 We agree. We need a regulatory framework that ensures developers are bound to the standards that they advertise and provides a route to redress when these are not met.

136.We found no evidence to suggest that the large housebuilders are working to overcome the ‘performance gap’. This is hardly surprising, given that it is never tested, while more process and better-quality control will cost housebuilders more time and money. But it is critical that the ‘performance gap’ is addressed immediately. We heard that there are larger carbon savings in closing the performance gap than making standards more onerous.350 This is not a reason against raising standards; rather it underlines what can be gained by eradicating the discrepancy. Furthermore, when homes are delivered with low carbon heat, if the fabric efficiency of the home under-performs, the impact on consumer bills will be greater than it is now. The cost per unit of energy through low carbon heating technologies is expected to be higher than gas. If homes have poor thermal efficiency and energy is unnecessarily wasted, the impact will be disproportionately greater on energy bills than it is currently with gas heating.351 This needs to be resolved to avoid unintended consequences of building homes with low carbon heating.

137.It is not sufficient for Building Regulations to delineate what builders should do, without any robust procedures that require builders to prove what they have done, their quality control purposes and to test whether the dwelling performs to the standard required. When we asked Barratt, Persimmon and Bovis whether they would be happy to test their ‘as built’ performance, they told us that in principle they would be if Building Regulations mandated it.352 Taylor Wimpey said, “Should a robust and implementable test of ‘as built’ performance be developed and mandated by Building Regulations, we would be happy to test our homes, however we are not currently aware of a suitable or reliable test that could be applied at volume.”353 We accept that there is more work to be done to introduce a test approach that is scalable. But it is unsurprising that companies are not queuing up to develop tests when there is no demand for them. We are confident that once there is demand, suitable tests will be made available.

138.It is highly regrettable that the Building Regulation regime enables developers to sell homes that do not meet the energy efficiency standards they advertise, with no risk of discovery. Currently, the house purchaser has no way of knowing what was ‘designed’, never mind whether the property actually operates to that energy efficiency standard in practice. Developers should be bound to the standards they advertise, and consumers should be able to access redress when these are not met.

139.We recommend that the Government ensures the ‘as built’ performance of homes is better monitored. The Government should incentivise the voluntary take up of ‘as built’ testing while it puts in place a suitable framework for this to become mandatory. The direction of travel must be for the Government to mandate percentage level testing of ‘as built’ thermal performance of new dwellings and for housebuilders to be required to publish their results.

140.We also recommend that the Government requires housebuilders to provide the information used for the Standard Assessment Procedure calculation to the purchaser. Should this be incorrect there is then a ‘risk of discovery’ and the housebuilder would be open to a legal claim through existing routes.

312 Communities and Local Government, Building A Greener Future: Towards Zero Carbon Development (Dec 2006)

314 Department for Business, Energy and Industrial Strategy, Industrial Strategy - Construction Sector Deal, (July 2018)

316 As above

317 Q295 [Lord Deben]

318 Q244 - Q246 [Jordan]

319 Q270 - Q271 [Jordan]

320 Q270 [Thomas]

321 Q223, Q224 [Jordan]; Based on 16,499 new homes, zero carbon cost of £10,000

322 As above

324 Committee on Climate Change, UK Housing: Fit for the future? (Feb 2019)

325 As above, p.65

326 As above

328 Q276-Q277 [Adams; Thomas; Jordan]

329 Q276-Q277 [Adams; Thomas; Jordan]

330 Letter from UK Green Building Council in March 2018 to the then Secretary of State for Housing, Communities & Local Government and Secretary of State for Business, Energy & Industrial Strategy, calling on the Government to signal as soon as possible that by 2030 all new buildings should be ‘net zero carbon’. This letter was signed by builders such as Barratt Developments, Berkeley Group, and Lendlease

332 For an in-depth discussion on the loopholes that require closing, see: Committee on Climate Change, UK housing: Fit for the future? (Feb 2019)

333 Department for Business, Energy and Industrial Strategy (ENE0069); A review of Part L (which covers conservation of fuel and power) and Part F (ventilation) of Building Regulations is expected in England and Wales in 2019 and 2020. A review of the energy standards of the Building Regulations in Scotland is also underway.

335 Ministry of Housing, Communities and Local Government, Live tables on Energy Performance of Buildings Certificates (2018)

336 Ministry of Housing, Communities & Local Government, Conservation of fuel and power: Approved Document L

339 Q150 [Thomas]

342 This was also the view of Lord Deben [Q285]

343 Q158 [Adams]

344 As above

345 Ministry of Housing, Communities & Local Government, Conservation of fuel and power: Approved Document L

346 Zero Carbon Hub, Carbon compliance for tomorrow’s new homes - Topic 4, closing the gap between designed and built performance (Aug 2010); Gupta, R., Kotopouleas, A. (2018) ‘Magnitude and extent of building fabric thermal performance gap in UK low energy housing’. Applied Energy, Vol. 222, pp. 673–686; Johnston, D., Miles-Shenton, D., Farmer, D., (2015) Quantifying the domestic building fabric ‘performance gap’, Building Services Engineering Research and Technology, Vol. 36, pp.614–627; Innovate UK, Building Performance Evaluation Programme: Findings from domestic projects, Making design match reality (Jan 2016); Policy Connect, Bricks and water: A plan of action for building homes and managing water in England (June 2018); Passivhaus Trust (ENE0022); Tyndall Manchester (ENE0057)

347 Gupta, R., Kotopouleas, A. (2018) ‘Magnitude and extent of building fabric thermal performance gap in UK low energy housing’, Applied Energy, Vol.222, pp. 673–686

348 Committee on Climate Change, UK housing: Fit for the future? (Feb 2019), p.115

349 Q294 [Lord Deben]

350 Q186 [Adams]

351 For unit prices of energy, see: Department for Business, Energy and Industrial Strategy, Updated Energy and Emissions Projections 2018 (April 2019); see also: Committee on Climate Change, UK housing: Fit for the future? (Feb 2019)

352 Qq188–193 [Thomas; Jordan]

Published: 12 July 2019