UK Expert session: energy efficiency increasingly recognised in lending criteria

UK Expert session: energy efficiency increasingly recognised in lending criteria
November 10, 2015 Rolf Bastiaanssen

REV UK Expert session1RICS and Savills hosted a UK expert session on valuing and investment in energy efficiency in the (social) residential housing sector. Representatives from the housing sector, the financing industry and the valuation sector discussed topics ranging from expected ROI and value for money, the potential impact of a revision of appraisal norms and the link with lending criteria.

Main conclusions of the session are

  1. Social housing owners normally undertake energy efficiency upgrades only where there is an opportunity to so do and capital is available. Whilst vanguard organisations have strategic upgrade plans, few have the financial capacity so to do.
  1. The rationale and motivation for social landlords to upgrade is driven primarily by health and wellbeing issues and the desire to take people out of fuel policy; however a decrease in tenant default was noted as a benefit in some cases.
  1. An increase in Market Value as a result of investment works is not yet a driver – and the presence of rent caps in the social sector makes translation from CAPEX to added MV virtually impossible.
  1. It was noted that the introduction of MEES will help in providing the stimulus for PRS and social landlords to upgrade.
  1. Although there is increasing evidence of differential values between green and non-green in the commercial real estate sector, this is not the case with social housing or PRS.
  1. Cash flow analysis may provide a case for added ‘worth’ but the split incentive of tenant benefiting from landlord expenditure still exists.
  1. Data availability and reliability are still major issues – and make meaningful cashflow predictions difficult.
  1. The role of the professional body in providing guidance and education to valuers could be strengthened, particularly in the area of due diligence and this might help to accelerate change.
  1. The role of lenders could be critical moving forward. As they increasingly perceive energy informed asset management plans and evaluation of environmental risks to be important within their lending criteria, so the financial ink between energy efficiency and asset value will be strengthened.