The Home Retrofit Challenge: How is it Financed?
![The Home Retrofit Challenge: How is it Financed?](https://theippo.co.uk/wp-content/uploads/2023/09/iStock-664247144-900x500.jpg)
Tom Handford MRICS, Director at Develeco
This year we have seen ice storms in Texas, flash floods in Sudan, European ski resorts without snow, and wildfires across the globe. As a direct consequence of human activity, our world is quite literally ablaze. The World Health Organisation projects that between 2030-2050, climate change will cause approximately 250,000 deaths per year, from malnutrition, malaria, diarrhoea, and heat stress.
In the UK, while the built environment is struggling to adapt to the changing climate, we are also experiencing soaring levels of fuel poverty. Within a fuel poor home, the occupants cannot afford to heat their household to an adequate temperature.
In 2023, there are an estimated 5.1 million fuel poor households. This represents roughly 18% of all UK homes, up from the official number of 13% in 2019. Not only is this impacting the quality of life for millions of people, but the economy is suffering. According to the End Fuel Poverty Coalition, underheated homes result in health issues that cost the NHS around £6.9 million a day.
Both climate change and fuel poverty can be combated by improving the energy efficiency of our homes. It is approximated that 14% of the UK’s total carbon footprint can be attributed to heating within domestic properties alone. It is for this reason that ‘retrofit’ is essential when considering our transition to a sustainable future. Retrofit is the upgrading of an existing building, with the aim of improving its energy performance and internal comfort levels. A successful retrofit will improve occupant health and wellbeing, whilst ensuring that the building is appropriately adapted for our changing future climate. So, why are we not all retrofitting?
The ‘retrofit challenge’ involves the retrofit of around 28 million UK homes before the year 2050 – roughly equating to one retrofit every two minutes. Without a doubt, the most significant factor to this challenge is cost. Financial information taken from over 200 deep retrofit projects completed in 2022 indicates an average cost of between £870/m2 and £1,100/m2, based on gross internal floor area. For a typical UK home (94m2), this equates to an eye-watering all-inclusive cost of between £80,000 and £100,000. However, these costs reflect best practice retrofit, delivered to the highest standards of air tightness and fabric performance. The costs include all fees associated with PAS 2035 compliance (the government endorsed standard for retrofit), as well as new windows, new electric air source heating and ventilation systems, fully extensive external wall insulation, roof insulation, and solar PV installations with battery storage.
In reality, dwellings do not need all of these measures. Each dwelling should be assessed individually, based on its condition and the specific requirements of the end user. Expenditure can be managed accordingly and if necessary, retrofit strategies can be implemented over a 10-30 year period. This means that, so long as the individual measures are installed in the correct sequence (fabric-first), the costs of deep retrofit can be extended over a duration that works for the end user. There are also funding opportunities for retrofit measures, most of which require the homeowner or occupant to meet a set of eligibility criteria. That said, for the Boiler Upgrade Scheme (BUS), the eligibility requirements are minimal; funding of £5,000 – £6,000 is available even for second homeowners.
Of course, it must be acknowledged that a sustainable future relies on a lot more than just retrofit. We urgently require a reform within our energy market, away from outdated government subsidies and tariff structures which fail to incentivise a transition to electrified homes. We need to terminate our reliance on, and production of, fossil fuels, bringing forward a green, renewables-led energy system. We require a government committed to a broad, bold, and considered low carbon agenda. That said, as we move towards 2050 and our Net Zero target, it is clear that retrofit has an important role to play and that the UK government cannot foot the retrofit bill alone.
It is essential that both private investment and green financing solutions, such as demand aggregation financing and ‘Green Leases’, become more widely trialled in the UK. Furthermore, the UK government should consider new fiscal policy specifically focused on poorly performing homes. The UK Green Building Council, for example, propose a Stamp Duty calculation method that is linked to building energy performance. Separately, the Royal Institution of British Architects have advised the government on the potential benefits of linking Council Tax to domestic energy performance, on a bonus-malus scale with associated exemptions.
There are solutions available to increase the uptake of retrofit in the UK. We now need political engagement at local and national level. In response to this, over recent months, the IPPO have been working with Develeco and a wide range of industry professionals, to bring forward a Retrofit Systems Map. Now available online in early form, the interactive map will provide a clear and robust picture of the retrofit landscape, for policy makers, investors, and key decision makers.
If you would like to learn more about retrofit, please do get in touch with Tom Handford.