When landlords consider adding to their portfolios, there are all sorts of different factors which they take into consideration, from the price to the location.
One area of growing importance to these decisions, as well as how landlords manage their existing portfolio, looks likely to be energy efficiency.
There is no clearer demonstration of the growing cost of living crisis than energy bills. 2021 was a tumultuous year for the energy market, with rising wholesale costs leading to dozens of suppliers going bust. This has fed into the hikes to the energy price cap which took place in April, meaning the typical affected household will pay almost £700 a year more for their energy use.
These bill concerns ‒ and what can be done to mitigate the impact of them on tenants ‒ are front of mind for many landlords.
We carried out our own study in February, picking the brains of hundreds of landlords, to gauge their attitude towards how inflation will impact their investments. And it’s striking that so many landlords are looking to energy efficiency improvements as a way to help tenants protect themselves.
We found that four in five (82%) of landlords agree that making such improvements will provide tenants with valuable support, while two-thirds (69%) believe they have a responsibility to help their tenants mitigate the impact of the rising cost of living.
Evidently, landlords recognise that their tenants face financial challenges in the months ahead, and understand that in their position, they are able to provide some level of support to those tenants.
Moving ahead of schedule
It’s true that landlords are being steered towards improving the energy efficiency of their portfolios anyway. Rental properties must already have at least an E rating on their energy performance certificates (EPC), but those minimums are being hiked from 2025. At this point, all new tenancies are only permitted if the property has at least a C rating, while from 2028 this is being extended to cover existing tenancies.
Awareness of the new rules is somewhat variable. For example, research from Landbay found that only a little more than half of small landlords ‒ those who do not tend to be professional investors, owning up to three properties ‒ know about the incoming EPC rules, compared to 80% of landlords with portfolios of more than ten properties.
You might expect that landlords would be happy to wait until the last minute to make any necessary improvements, too, yet the reality appears to be very different.
Our own study identified that half of all landlords intend to make the required improvements to their portfolio properties within the next 12 months, while one in five intend to move more rapidly and carry out that work within six months. What’s more, less than one in ten (9%) said they don’t intend to make any improvements until inflation is under 5%.
The latest forecasts by economists suggest that inflation will hit 9% later this year and there is certainly no timescale for when inflation would drop below 5%, emphasising the fact that responsible landlords intend to move swiftly when it comes to raising the efficiency standards of their investments.
Tenants value efficient homes
Even with the incoming rule changes, it’s worth remembering that energy efficiency is becoming an ever more important consideration for tenants when determining where they want to live.
A study by the letting agency LettingAProperty.com last year found that 98% of tenants would prefer to live in a ‘green’ home, and were willing to put their money where their mouth is too. More than half would pay more for an energy efficient rental property, and of those 52% said they would stomach paying an additional 10% rent. A notable 8% said they would pay an extra 20% if it meant they could land a greener home.
Taken together, there is a clear message here for landlords. Acting swiftly to ensure that a portfolio meets higher energy efficiency standards is not only important in order to meet regulatory expectations, but it’s also an excellent way to stand out from the crowd and attract a wider range of tenants.
This opinion piece was first published by The Intermediary.