How do we make UK housing net zero? Doing it is one thing. Paying for it is entirely different. In his fourth of our series of articles, Andy Sutton, Co-Founder and Chief Innovation Officer at Sero, focusses on the money.
We need to talk about how we pay for net zero carbon.
First, let’s put to bed the idea that net zero carbon can be paid for by public funds from government, whether devolved, national, or international. The macroeconomics just don’t add up, even for economies that are used to carrying a much higher tax burden than is politically acceptable here in the UK. There’s a case for national debt financing, of course, but that’s just swapping one massive burden on future generations for another (albeit a less existential one).
Grant funding and subsidy schemes have to focus on the two areas government money can make a meaningful difference: supporting the most vulnerable in society; and accelerating innovations that offer wider solutions after they have achieved cost reductions. The smart public money will be spent on these two areas, and in many cases at the same time. Welsh Government’s Innovative Housing and Optimised Retrofit Programmes both typically illustrate combining these objectives.
With the public purse limited to helping those who need it most, how do the rest of UK homes decarbonise?
Firstly, we need to see our home’s journey to net zero carbon as a pathway, not a one-off cost. By breaking the scale of the challenge into smaller pieces, and spreading this cost over time, it can be included as part of the ongoing repair and maintenance expenses of a home. Whilst most owner-occupiers don’t overtly budget in those terms, every home has an annual maintenance spend, and the “distress purchase” to replace a broken combi-boiler can become a planned switch to a decarbonised heat source at the end of its service life.
Secondly, we will see normal commercial behaviours begin to come to bear. For decades, new home buyers have ‘chipped’ sales prices to reflect a need to fit new windows or replace an old boiler. These behaviours are buyers pushing costs they expect to bear over to the seller. As awareness of the legal net zero carbon obligation rises, this existing negotiation behaviour can be expected to more commonly include the cost of works required to make a home net zero. We’re already aware of new homes bought by a larger landlord that are having the cost of decarbonisation deducted from the purchase price, and these are likely to represent early movers for the wider housing market.
If we fast-forward a decade, to hold or maximise your property value, you’re likely to need to be able to show that the home has a low future cost for it to achieve net zero. Homes with significant retrofit expenses are likely to struggle to command the best asking prices, since buyers (and their underlying mortgage providers) will be far more aware of their future liabilities.
Thirdly, relevant costs will move to support net zero. In part, this will be the regrading of taxes on electricity as alluded to in the UK’s ‘Heat and Buildings Strategy’. This will reduce the tax on the lower carbon electricity supply and increase it on the higher carbon gas supply. The resulting impact on home energy bills will affect the choice of heat source at replacement (and will need some more vulnerable to be supported during the transition).
Manufacturing scale and supply chain will, of course, be the other major cost movement here. Many retrofit measures, especially the low/zero carbon technologies, are only at the beginning of their cost reduction curves as the volume of production increases. These, with the associated efficiency innovations, will drive unit costs for many technologies down. Combined with reduced time-per-install, such cost reductions will reduce the capital price of measures as each step on a home’s Pathway to Zero becomes needed.
Taken in combination, the increase in cost to take a home to net zero from a basic level of annual maintenance costs will therefore reduce. It will be seen in the context of preserving the intrinsic value of the home, or even improving it. It will be measured against the reduced operational costs of lower carbon energy, and avoidance of the inevitable taxation that will be levied on carbon-profligate homes at some point. In this context, what we currently worry as being £20k capital costs to be spent now, will be £500 annual maintenance costs spent over the coming decades to avoid high fuel bills and retain property value.
Britain’s homeowners have long been fascinated by the value of their homes; that fixation might just be enough to save them.
