The shift toward Net Zero has certainly begun, with countries representing 80.7% of global emissions having either committed to a plan or enshrined it in law.
A significant part of this shift is the move away from fossil fuels as an energy source. As heating and powering buildings accounts for 30% of the UK’s total energy usage, domestic homes will play a vital role in the UK’s efforts to reach net zero carbon emissions.
The UK, with a Net Zero target in law, has promoted the Future Homes Standard (FHS) as an important step in this process. Its aim is to ensure that new homes built from 2025 will produce 75-80% less carbon emissions than homes built under the current Building Regulations.
Impact on property owners and developers looking for finance
For small businesses that own property, buy to let landlords and property developers, the impact of Future Home Standard will not only influence build or conversion costs, but could potentially impact the future funding requirements for any projects.
Potential cost changes and delays for property owners and developers:
- Higher upfront costs: Meeting the FHS will likely require pricier materials and technologies for improved insulation, ventilation, and low-carbon heating systems. This can lead to higher development costs, potentially impacting property prices for buyers.
- Financing challenges: While traditional financing might be available, developers might face tighter loan terms or higher interest rates due to lower Energy Performance Certificate (EPC) ratings or tighter Gross Development Value (GDV) margins.
Potential benefits for property owners and developers:
- Increased property value: Homes that meet the FHS are expected to be more energy-efficient, leading to lower running costs for homeowners. This can translate to higher property value in the long run, potentially improving loan security for developers.
- Green loan opportunities: Several lenders are offering "green loans" with better interest rates for developments achieving high energy performance ratings. These loans incentivise sustainable construction and can help offset the initial cost increase.
- Future-proofing investment: Properties compliant with the FHS are likely to be more attractive to buyers in a future market which is increasingly focused on sustainability. This can improve the overall investment value for developers.
While the FHS might pose initial challenges with financing due to higher costs, the long-term benefits of energy efficiency and increased property value can be positive. Developers who can demonstrate a plan to achieve FHS compliance and secure green financing options are likely to be more attractive to lenders.
Here are some additional points to consider:
- The impact on property owners might vary depending on whether they’re buying a new build or existing property. New builds will inherently comply with the FHS, but existing properties might require renovations to meet future standards, potentially impacting owners.
- Government initiatives and grants to support sustainable construction can further ease the financial burden on developers.
Staying informed about these financing options and government incentives will be crucial for property owners and developers navigating the FHS landscape.
An opportunity or challenge for the construction industry?
The Future Home Standard (FHS) is creating a fundamental shift in how we think about both new and, more recently, converted buildings. From thermal models to insulation and heat sources, the new standard creates both challenges and opportunities for the construction industry.
Potential challenges for construction companies:
- Increased costs: Implementing new technologies and materials to meet the standard's energy efficiency targets will likely lead to higher upfront costs.
- Skills shortage: There might be a lack of skilled workers who can design and build homes according to the new regulations.
- Shifting supply chains: Construction companies may need to find new suppliers for sustainable materials, which could disrupt existing supply chains.
Potential opportunities for construction companies:
- Competitive advantage: Companies that embrace the FHS early and expand their expertise in sustainable construction will stand out from competitors.
- Innovation: The need to meet the standards can drive innovation in construction methods and materials.
- Future-proofing: By building homes that are energy-efficient and "zero-carbon ready," construction companies can ensure their projects are aligned with future regulations and consumer demand for sustainable housing.
Thinking about your next project?
Whether you’re in the construction industry and looking to invest in new training and staff, a property developer, or owner looking to start your next project, making sure you have the right development finance in place is essential.
