Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA

Page created by Mario Gonzales
 
CONTINUE READING
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
WorkingPaper
Ser
  ies#4:
Jul
  y2021
               GreenHomesGr
                          ants:
               Evidenc
                     eofi
                        mpact
               Ni
                ckCl
                   ay
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Working Paper Series

The NRLA’s Working Papers is an occasional series
   highlighting policy development, and research
               in the Private Rented Sector (PRS).

           The NRLA welcome contributions from
   policy makers, academics, and representatives
           of agencies with an interest in the PRS.
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Green Homes Grants: Evidence of impact

                                                                                  July 2021

                                   Executive summary

About this paper
This paper reports on a survey of landlords conducted by the NRLA in March & April 2021.
The survey looked at landlord investment in energy efficient measures, as well as the
Green Homes Grant (GHG). The paper focuses on whether the GHG could be considered a
success in encouraging landlords to invest in energy efficient measures. It also considers a
role for a potential future scheme and how that role can be maximised in terms of take up
and impact.
Impact of the Green Homes Grant scheme – output-based evidence
Whilst the long-term target of government is to enable more than 600,000 homes in
England to become more energy efficient, the GHG voucher scheme made only a modest
contribution to meeting that target.
From the information collected for this report, very few landlords had taken up the
opportunity of using a GHG voucher. Many landlords had only heard of the scheme
through completion of our survey. For those that had, the reasons for not taking up the
scheme included:
   •   Failings in the scheme’s operation (For example, application guidance & process;
       scheme marketing, need for a TrustMark qualified tradesperson).
   •   The eligibility criteria being inappropriate (included here is the distinction in
       defined primary vs secondary measures as well as complex eligibility rules).
   •   The practicalities landlords faced in taking up vouchers to deliver improvements
       (For example, having to move tenants out of the property to meet voucher
       timescales).
How a scheme could make a difference
Scheme failings and resultant low take-up does not negate the need for a scheme. A well-
designed scheme can make a significant contribution to meeting the government’s EPC
targets.
But is a voucher scheme needed for landlords? The evidence collected in this paper shows
that:
   1. For many landlords investing in energy efficient measures, altering a property’s
      EPC rating is not - thus far - the main motivation.
          a. However, there is a closer correlation between landlords more focused on
              addressing the EPC rating and use/potential use of a GHG voucher.
   2. Plus, evidence indicates users of GHG vouchers are finding the vouchers have value
      – they result in supporting activities which have high additionality: they would not
      have gone ahead without the existence of the voucher.

                                                                                           1
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Green Homes Grants: Evidence of impact

                                                                                   July 2021

   3. Finally, there is little evidence the grant crowds out alternative funding sources
      from the private sector (for example loan finance).
The conclusion from the evidence is that for those landlords who wished to address EPC
levels at their property, the GHG voucher was invaluable in supporting that investment.
The vouchers supporting landlord investment represents value for money for HM
Treasury.
Designing a better grant scheme
The research flags a core set of problems with the Green Homes Grant which has prevented
it being a success. These include:
   •   Project eligibility criteria.
   •   Restrictions on who can undertake work.
   •   A lack of awareness of the scheme's existence.
The report concludes the rules & regulations, marketing and the time-limited approach to
applications have all had a detrimental effect on the impact of the scheme.
Not having a scheme in place should there be a change in the minimum EPC requirements
could be detrimental to a successful Private Rented Sector. Put simply, many landlords
will either exit the market or reduce their portfolios to fund improvements elsewhere.
This means energy inefficient housing being sold to owner occupiers. Unless government
place the same energy rules on property owned by individual homeowners as on
landlords (which is politically problematic), it will be even more difficult for government to
meet energy targets. Meanwhile the immediate consequence would be a reduced supply
of housing available for private rent.

                                                                                            2
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Green Homes Grants: Evidence of impact

                                                                                                                            July 2021

                                                            Contents
1.     Introduction ...................................................................................................................... 5

     1.1     About this paper ......................................................................................................... 5

     1.2     This paper and other survey outputs ........................................................................ 6

2.     About the Green Homes Grant.......................................................................................... 7

     2.1     Introduction ................................................................................................................ 7

     2.2     Scale of the challenge ................................................................................................ 7

     2.3     The scheme’s operation ............................................................................................. 8

     2.4     GHG – activity and outputs ........................................................................................ 9

     2.5     GHG – Local authority scheme ................................................................................... 9

3.     About the survey ............................................................................................................. 11

     3.1     Aims and Objectives ................................................................................................. 11

     3.2     About the sample ..................................................................................................... 11

4.     Landlords & Energy Efficiency ........................................................................................ 12

     4.1     Investment in energy efficiency ............................................................................... 12

     4.2     Financing energy efficiency improvements ............................................................ 13

     4.3     Key questions ........................................................................................................... 14

5.     Take up of the GHG vouchers ......................................................................................... 16

     5.1     Landlords planning to use GHG Grants ................................................................... 17

     5.2     Landlords who could use a GHG grant ..................................................................... 17

6.     GHG take-up: landlords’ perspective ............................................................................. 19

     6.1     Were landlords aware of GHG opportunity?............................................................ 19

     6.2     Reasons for not being in the GHG programme ....................................................... 21

                                                                                                                                          3
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Green Homes Grants: Evidence of impact

                                                                                                                            July 2021

       6.2.1       Landlords who replied “Other” ........................................................................ 22

     6.3     Reasons for not investing in energy efficiency at all ............................................... 24

7.     The Impact of GHG vouchers .......................................................................................... 26

     7.1     The economics of not investing in energy efficiency .............................................. 26

     7.2     Changing the EPC rating: the impact on impact ..................................................... 27

     7.3     The aims and objectives of those who do invest in energy efficiency.................... 29

     7.4     The additionality of Green Homes Grant vouchers ................................................. 31

     7.5     Policy change and the impact on landlords ............................................................ 33

8.     Developing a future grants programme ......................................................................... 35

     8.1     Marketing to landlords ............................................................................................. 35

     8.2     Improving any successor scheme ............................................................................ 36

     8.3     Summary................................................................................................................... 37

9.     Conclusions ..................................................................................................................... 38

     9.1     Initial conclusions..................................................................................................... 38

     9.2     A closer examination of the evidence ...................................................................... 38

       9.2.1       The benefits of a grants programme ................................................................ 38

       9.2.2       The need for a grant scheme in the event of policy change ............................ 39

     9.3     The additionality of a grant support programme ................................................... 40

     9.4     A better designed scheme ........................................................................................ 41

                                                                                                                                         4
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Green Homes Grants: Evidence of impact

                                                                                                July 2021

    1.            Introduction
The Green Homes Grant scheme was introduced in September 2020, initially until the end
of March 2021. In November, the sector welcomed the announcement the scheme would
be extended for an additional 12 months until March 2022. This decision was then reversed
on 27 March 2021, when it was announced that the scheme would close a few days later -
on the original March deadline.

    1.1     About this paper1
This paper reports on a survey of landlords conducted by the NRLA in March & April 2021.
The survey was undertaken in partnership with Tenancy Deposit Scheme (TDS). The survey
looked at landlord investment in energy efficient measures, as well as the Green Homes
Grant.

The survey covered several topics of interest to policymakers, landlords and those with an
interest in the Private Rented Sector (PRS) and housing. Topics in the survey included:

    •    Current energy efficiency ratings of landlords’ portfolios.
    •    Recent and future planned investments in energy efficiency measures.
    •    Key motivations for those investments.
    •    Satisfaction with the impact of work on energy efficiency.
    •    Awareness, take-up and usage of Green Homes Grants.
    •    Views of landlords on developing future energy efficiency grant schemes.

1
  This paper has been improved as a result of comments from Aidan Crehan and James Wood of the NRLA.
Sarah Waddleton’s editorial expertise has also improved this report. The NRLA are grateful to TDS for their
support and input in facilitating the fieldwork. An anonymous NRLA landlord member also provided help in
framing the research and providing technical expertise.

                                                                                                              5
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Green Homes Grants: Evidence of impact

                                                                                    July 2021

   1.2     This paper and other survey outputs
This paper focuses on the role the Green Homes Grant (GHG) has played in supporting
landlords. It considers whether a role for such a grant exists and if so, how that role can be
maximised in terms of take up and impact.

Additional outputs from the survey can be found in the NRLAs ministerial briefing paper.
Note the survey findings have already informed NRLA lobbying and wider media activity.

   1.3     Tenancy Deposit Scheme
The NRLA would like to thank TDS for their assistance in supporting the fieldwork which
has been crucial to this report.

                              TDS have not contributed in any way to the analysis, data
                              interpretation or policy recommendations. They have not
                              been asked to comment on the report’s findings,
                              conclusions, or recommendations.

Nor have TDS been shown any advance copies of the report or participated in discussions
on draft versions. Analysis and policy recommendations are solely the work of the NRLA.

                                                                                             6
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Green Homes Grants: Evidence of impact

                                                                                               July 2021

    2.            About the Green Homes Grant
    2.1     Introduction
The government’s Energy White Paper2 set out the Government’s commitment to net zero
greenhouse gases by 2050. As part of that drive the white paper set a target of “as many
existing homes as possible to hit EPC Band C by 2035, where practical, cost-effective and
affordable.” (Emphasis added).

In July 2020 the Chancellor announced a £2 billion Green Homes Grant scheme3 to
upgrade homes across England. The scheme was integral to the EPC Band-C target – the
white paper highlighted the £2bn funding attached to the programme.

The scheme launched in September 2020 with the voucher scheme being given what the
white paper called an immediate £50m “kickstart”.

    2.2     Scale of the challenge
To meet more ambitious long-term targets of EPC-C, more expensive measures need to be
undertaken. Low-carbon heating and external wall insulation (EWI) are examples of such
measures.

These carry impractically high costs for many landlords. Installation also means
disruption to tenants’ enjoyment of their homes – as the works will need to be done when
the property is vacant.

2
 Powering our Net Zero Future, CP 337, BEIS (Dec 2020)
3
 £1.5bn of this was for the voucher scheme with a further £500m earmarked for a separate Local Authority-
led strand.

                                                                                                            7
Green Homes Grants: Evidence of impact - Nick Clay Working Paper Series #4: July 2021 - NRLA
Green Homes Grants: Evidence of impact

                                                                                           July 2021

Estimates put the average costs of retrofitting a property to meet the higher EPC-C target
at £18,000 per property. Multiplied up this would cost around £324 billion, based on the 19
million properties in the UK in need of some energy efficiency upgrade4.

    2.3     The scheme’s operation
The Green Homes Grant scheme operated on the basis of a voucher scheme. A voucher
covered up to two-thirds of the cost of improvements, with a maximum government
contribution of £5,000. An application for a voucher had to contribute towards the cost of
the installation of at least one “primary” measure:

    1. Insulation.
    2. Low carbon heating systems.

The applicant for the voucher could also use the grant for the installation of “secondary”
measures once vouchers for primary measures had been used.

These secondary measures included:

    1. Windows, doors, insulation, and draught proofing.
    2. Heating controls and insulation.

It was a further condition of the scheme that all work covered by the voucher must be
completed by a TrustMark-registered5 installer. Those meeting this standard also had to
apply to be on a separate register of approved traders to deliver work part-funded
through the Green Homes Grant scheme.

4
  Environmental Audit Committee Energy efficiency of existing homes: Government Response to the
Committee’s Fourth Report of Session 2019–21 https://committees.parliament.uk/work/309/energy-
efficiency-of-existing-homes/publications/
5
  See https://www.trustmark.org.uk/ for details of this BEIS-licensed standards body

                                                                                                  8
Green Homes Grants: Evidence of impact

                                                                                       July 2021

       2.4     GHG – activity and outputs
Though there was no target attached to the programme, the longer-term objective of
government was to “enable more than 600,000 homes in England to be more energy
efficient”.

Data published by BEIS (May 2020)6 indicated:

       •   The GHG voucher scheme received over 113,700 applications, 90,800 became live
           after an initial sifting process and/or withdrawal of applications.
       •   Of these 90,800 live applications, 70% were approved.
       •   Just over 61,300 applications were for one measure, with just over 20,100
           applications for two measures and over 9,300 applications for three or more
           measures.
       •   In total there were there were nearly 123,800 live voucher applications (one
           voucher per measure).
       •   By the end of March 2021, nearly 14,500 households had at least one measure
           installed.

       2.5     GHG – Local authority scheme
The GHG Local Authority Delivery scheme sought to improve the energy efficiency of
homes of low-income households and deliver progress towards the UK’s commitment to
net zero carbon emissions by 2050.

The scheme was based on the submitting of bids by local authorities and targeted fuel
poverty by focusing on housing with the lowest energy rating. Landlords in the PRS were
eligible to benefit from this Delivery Scheme but could not then apply for funding under
the larger voucher programme.

6
    See BEIS web site for GHG take up statistics

                                                                                              9
Green Homes Grants: Evidence of impact

                                                                               July 2021

This paper does not consider this £500m arm of the scheme. However, in a separate
exercise the NRLA contacted over 300 local authorities about the Green Homes Grant
scheme.

   •   Out of the 46 local authorities who responded, only 13 stated they had reached out
       to landlords in the PRS as part of their response to the scheme.

                                                                                       10
Green Homes Grants: Evidence of impact

                                                                                         July 2021

       3.            About the survey
       3.1     Aims and Objectives
The survey sought to:

       1. Understand motivations and behaviours underpinning landlord investment in
           energy efficiency (EE) measures.
       2. Find evidence to suggest whether the scheme has had an impact on investment.
       3. Suggest how any successor scheme to GHG could be more successful in
           progressing the Government’s energy efficiency objectives.

       3.2     About the sample
The fieldwork took place in March & April 2021. Research partners TDS contacted relevant
sections of its customer base through its usual communication channels. The study
focused on landlords whose portfolio of rental properties is based mostly in England.7

There were 1,212 landlords who answered at least one question in the survey. Further
information about the sample:

       •   Approximately 20% of respondents let property “mostly” in the South East region
           & a further 13% let in London.
       •   In contrast just 5% let property in the North East.
       •   Two-thirds of sample were aged 55yrs+ - 15% were aged under 45yrs.
       •   In terms of gender, 54% of respondents were male and 42% female.
       •   Whilst 33% of participants let a single property, a quarter (25%) had a portfolio of
           six or more properties.

7
    Fuel and energy efficiency is a devolved matter. GHG was eligible only in England.

                                                                                               11
Green Homes Grants: Evidence of impact

                                                                                   July 2021

   4.          Landlords & Energy Efficiency
This section profiles landlords’ recent and planned energy efficiency investments. It also
sets out how landlords fund such investments and what this tells us about the potential
role of a grants-based funding pot to accelerate investment in privately owned housing
units.

   4.1     Investment in energy efficiency
Landlords were asked whether they had made - and/or were planning to make -
investments in energy efficiency (EE) improvements in their property portfolios:

Chart 4.1: Landlords who have made/are planning to make investments in energy
         efficient measures

                                                                                          12
Green Homes Grants: Evidence of impact

                                                                                      July 2021

       •   Over 80% of landlords have either made or are planning to make energy efficiency
           investments.
       •   Around half of these landlords - 40% of the total number of landlords who
           responded - are planning to make EE investments in the future.
           o Just 16% stated they have had no improvements, nor plan to make future
               improvements8.

       4.2     Financing energy efficiency improvements
The table below highlights how landlords have funded energy efficiency improvements.
The respondents also included those who have not yet – but are planning to - make
energy efficiency investments:

Chart 4.2: Landlords typically fund improvements through savings and rental income
         - few seek to access external finance

8
    The reasons why are discussed later in this paper.

                                                                                            13
Green Homes Grants: Evidence of impact

                                                                                      July 2021

The results show landlords predominantly use savings and/or rental profits to fund their
investment:

       •   Almost 90% of respondents (89.3%) used either savings and/or profits from their
           rental income to fund investments.
       •   A deep dive into the responses to this question shows fewer than 20% of landlords
           (18.5%) used at least one of the other sources finance listed above – be that either
           in addition to, or instead of savings and profits.

In other words:

       1. Very few landlords opt to use a combination of funding sources.
       2. Also, very few seek finance from places other than their own reserves (be that
           savings or retained profit).

       4.3     Key questions
The whole concept of the Green Homes Grants is that it is a 'part funding' opportunity.
Therefore, why have landlords not opted to pay for their investment from a "basket" of
sources? Demand among landlords for energy efficiency improvements is clearly high –
five out of every six landlords9 are actively engaged in the investment process.

The rational approach would be to use a Green Homes Grant to maintain savings and
profits at a higher level whilst helping landlords avoid debt and debt costs.

9
    See Chart 4.1

                                                                                              14
Green Homes Grants: Evidence of impact

                                                                                July 2021

The achievements of the scheme (outlined in Section 2 above) indicate demand for the
programme was not high. The reasons landlords have not used a Green Homes Grant as
part of a funding mix may possibly be due to:

   •   A lack of awareness of the existence of GHG and its opportunities.
   •   Timing issues in terms of the application window.
   •   Barriers in the application process which prevents demand being fulfilled.

These reasons are all explored in the following sections.

                                                                                       15
Green Homes Grants: Evidence of impact

                                                                               July 2021

   5.         Take up of the GHG vouchers
Those landlords who are engaged in making energy efficiency improvements to their
properties were asked whether they had used a Green Homes Grant to help pay for those
improvements:

Chart 5.1: Landlords use of GHG vouchers

The results here are quite revealing:

   •   Out of the landlords in Chart 5.1 who have already made EE investments, just 3%
       stated they had used Green Homes Grants.
       •   This is fewer than 30 landlords within a sample of 1,000+ who had used a GHG
           voucher.

                                                                                         16
Green Homes Grants: Evidence of impact

                                                                                                    July 2021

       5.1      Landlords planning to use GHG Grants
Chart 5.1 above however also shows, there were more landlords who were planning to use
GHGs for future projects (9%). This is evidence to support the notion that larger numbers
of landlords were being drawn into the scheme as awareness was increasing.

       •   The profile of applications shows that after an initial rush on launch, the volume of
           applications had steadily increased month-on-month for the three months starting
           December 2020.

March however saw a final surge of household applications:

       •   In March nearly 31,000 applications were received: for the three months prior to
           March, total household applications were just 35,000.

Given the short notice for closing the scheme (see Section 2) it is impossible to know10 how
much of this increase in applications was in anticipation of the scheme closure and how
much was growth in scheme support.

       5.2      Landlords who could use a GHG grant
Chart 5.1 above also shows that one-third (33%) of landlords indicated they would take up
a GHG grant if they were eligible. Closer analysis of the "If I am eligible" responses shows
that:

       •   Almost one-third (31%) had only heard of the initiative through completing this
           survey.
       •   Around 40% of this group of landlords have undertaken energy efficiency
           improvements but had no plans to do so in the future.

10
     At least from the data the NRLA has access to. Formal evaluation should consider this issue.

                                                                                                          17
Green Homes Grants: Evidence of impact

                                                                                                  July 2021

Thus, it would be a mistake to think that all in this group had eligible investment projects
in the current pipeline: a proportion of those responding "If I am eligible" would probably
not at present be in a position to take interest any further.

However, strands of economic analysis11 suggests demand for grants programmes is part-
determined by the existence of the grant (or in this case the knowledge that a grant is
available)12.

This means that it is not unreasonable to include this group of landlords (in the absence of
further evidence), in the assessment of the scheme as potential future users. Were GHG to
have continued, a high proportion of this group would in time develop energy efficient
projects which would benefit both their tenants and the environment.

11
   Depending on the perspective of the economists undertaking the research this behaviour can be labelled
endogeneity bias or rent seeking activities (which is a concept completely unrelated to landlord activities!).
See https://www.sciencedirect.com/topics/economics-econometrics-and-finance/endogeneity-problem for
a good discussion of the topic.
12
   Another form of endogeneity would be self-selection, more commonly known as “grant chasing”. This is
less likely in the case of landlords where grants are rare, though repeat or multiple applications by a few
landlords is much the same thing.

                                                                                                           18
Green Homes Grants: Evidence of impact

                                                                                 July 2021

   6.         GHG take-up: landlords’ perspective
   6.1     Were landlords aware of GHG opportunity?
The survey asked those landlords investing in/considering investing in energy efficient
measures where they had first heard of the Green Homes Grant. Responses were as
follows:

Chart 6.1: How landlords making energy efficient investments first became aware of
         Green Homes Grants vouchers

                                                                                          19
Green Homes Grants: Evidence of impact

                                                                                        July 2021

A substantial portion of EE-investor landlords only heard about the GHG scheme through
this survey13.

       •   It is logical to conclude there were difficulties in getting the message about the
           opportunity out to key target groups.
       •   When aggregated, NRLA communications - including the survey itself - was the
           most common communication channel through which landlords learned about the
           scheme.

Those landlords NOT considering the use of a GHG voucher pointed to several reasons
which explained their disinterest in the voucher programme. These are outlined below:

13
     The GHG scheme was still running at the time of the fieldwork.

                                                                                                20
Green Homes Grants: Evidence of impact

                                                                                 July 2021

   6.2    Reasons for not being in the GHG programme
Note that in the following chart, respondents were able to give multiple reasons for
responding why they had chosen not to apply for a Green Homes Grant voucher.

Chart 6.2: Reasons for not taking up a Green Homes Grant voucher

From the chart above:

   •   One-in-five landlords who are or have been active investors in energy efficiency
       "chose" not to use a GHG grant because they had simply never heard of it.

                                                                                          21
Green Homes Grants: Evidence of impact

                                                                                   July 2021

The remaining responses all highlight failings in the GHG programme. Reasons for not
taking up the scheme encompassed:

   •   Failings in the scheme’s operation (For example, application guidance & process;
       scheme marketing, need for a TrustMark qualified tradesperson).
   •   The eligibility criteria being inappropriate (Included here would be the distinction
       in primary vs secondary measures, complex eligibility rules).
   •   The practicalities to landlords in taking up vouchers to deliver energy efficiency
       improvements (For example, having to move tenants out to meet timescales, as
       well aspects of project management – timing of vouchers and planning
       permissions are two instances).

   6.2.1 Landlords who replied “Other”
Of those who replied “Other” to this question:

   •   Many of the responses were mostly those which could be placed under one of the
       categories above: e.g., difficulties finding TrustMark qualified tradespersons, lack
       of awareness.
   •   Several landlords believed the scheme required tenants who were claiming
       benefits to be eligible.
   •   Many were concerned about the impact of improvements on tenant relationships.
   •   Landlords also cited a poor helpdesk and sales-heavy support mechanism.
   •   For many landlords there was a mismatch between what (they believed) was
       “voucher eligible” and the work they wished to undertake.

                                                                                            22
Green Homes Grants: Evidence of impact

                                                                                             July 2021

Those who replied “Other” also made comments about the scheme. The following are a
selection of quotes. These are all from landlords who have invested, or will invest in new
energy efficiency measures but have not use a GHG voucher to part fund those
improvements14:

 We do need options to provide higher levels of energy efficiency, but this
 scheme is so poorly designed and run it is purely an excuse to rack up
 administration costs for the so-called administrators of the system.

                                   High cost of tradesmen, even with a GHG, was more than the
                                                                         [voucher] would ever save.

 I tried to get loft insulation, but the recommended company told me the
 waiting list was very long and it was much cheaper to get it done by
 alternative trader.

                                    The building most able to be improved is Grade 2 listed. The
                                 staff administering the scheme didn't know enough to be able
                                                         to help within an acceptable time frame.

 It is impossible to decide whether a scheme is viable for the landlord
 without a site visit and the tenants being involved. This could result in a
 dissatisfied tenant if the work does not go ahead.

                     It’s set up in such a way to make eligibility difficult i.e. only certain major
                           improvements are classed as primary and without one of those you
                        cannot apply. Also trying to find tradespeople to do the work in time is
                                                                                        very difficult.

14
  These are comments from landlords as discussed. Minor corrections to spelling, grammar etc have been
inserted.

                                                                                                     23
Green Homes Grants: Evidence of impact

                                                                                July 2021

   6.3    Reasons for not investing in energy efficiency at all
Finally, the group of landlords who are not investing in energy efficiency measures were
asked why they had chosen not to do so.

Again, multiple responses to this question were allowed.

Chart 6.3: Reasons landlords gave for not investing in energy efficiency
improvements

                                                                                           24
Green Homes Grants: Evidence of impact

                                                                                  July 2021

The key driver here is the energy efficiency standard itself:

   •   Almost half of landlords (41%) made it clear that their properties met necessary
       EPC standards.
   •   Those landlords who gave this response typically did not identify any other factors.
           o So, for almost half of this non-investing group, the current EPC level of their
               properties was the only reason for not making further investments.

                                                                                          25
Green Homes Grants: Evidence of impact

                                                                                                    July 2021

          7.            The Impact of GHG vouchers
                                                   This section looks at evidence the survey collected
                Additionality                      on the impact of GHG vouchers. It is not an attempt
An impact arising from an intervention is
additional if it would not have occurred           to quantify impact but try and identify how useful
in the absence of the intervention.                an impact a voucher scheme could make.
Policymakers collect evidence and
calculate additionality using both simple          Although this section looks at the impact of
and complex modelling techniques.
                                                   vouchers on the energy efficiency agenda in the
Additionality requires assumptions
about would have happened had the                  PRS, it begins by looking at those landlords who do
intervention not taken place (the                  not intend investing.
reference case).

          7.1    The economics of not investing in energy efficiency
     This section begins with a review of those landlords not taking part in either the GHG
     programme or investing in energy efficiency at all.

     Consider Chart 6.4 in the previous section. When
                                                                                  Deadweight
     asked why they were not investing in energy
                                                                   Deadweight is simply what would have
     efficiency measures, 41% of landlords stated                  happened if an intervention did not take
                                                                   place. Were GHG grants all taken by
     they did not because their properties were
                                                                   landlords who were investing in energy
     meeting current EIC standards.                                efficiency improvements anyway,
                                                                   deadweight is 100%.
     Note, were any of this 41% take up a voucher15
                                                                   Policies should be targeted to minimise
     then their participation becomes, in economic                 deadweight. Leakage is one component of
                                                                   the deadweight calculation.
     terms, “leakage”16 – they benefit from the

     15
        It may be the case that some landlords have already used vouchers even though their properties are at
     the revised EPC standard. We did try to investigate this through the survey, but the numbers who have used
     a GHG voucher are too small to draw clear conclusions.
     16
        See Additionality Guide: Fourth Edition (2014), HCA

                                                                                                             26
Green Homes Grants: Evidence of impact

                                                                                      July 2021

scheme’s existence even though they are not in the voucher programme’s intended target
group.

Chart 6.4 also highlights that for the other 60% of the group of landlords not investing:

   •     The cost v return on investment (Cost-Benefit Ratio, or CBR) is a key factor for
         many landlords.

A closer look at landlords who cite cost and/or return on investment indicates:

   •     These concerns are most prominent among landlords who let older properties.
   •     Improvements to older properties are expensive and may only yield small
         improvements to the EPC-rating – the CBR is too low to justify investment.

A successful grants programme which attracts this group of landlords:

   •     Alters the cost-benefit analysis calculation to the benefit of investment.
   •     Could be viewed as being additional – the scheme engages landlords who may not
         otherwise invest.

   7.2      Changing the EPC rating: the impact on impact
A further consequence of the responses to the question reported in Chart 6.3 is the
implications to any grants programme developed alongside the introduction of the new
EPC target.

The evidence tabled in Chart 6.3 (see previous section) indicates the following:

   •     At least some of the 41% of landlords who meet the current standards would have
         to invest to meet new standards.

                                                                                            27
Green Homes Grants: Evidence of impact

                                                                                                      July 2021

                                                         •       Those that have different reasons not
              Multiplier effects
Multiplier effects are a product of                      to invest at present will have to undertake a
injections of activity feeding through the               new round of investment17 once new rules
economic system. Wages are spent in
stores, the revenues in those stores pay                 come into force.
wages and suppliers who also pay wages.
                                                         By broadening the target group for the grants
For this grant scheme the multiplier effects
are through the commissioning of the                     by changing the EPC rating, leakage is
energy improvements providing a stimulus                 reduced. The additional work also generates
to parts of construction and related
services sectors.                                        multiplier benefits.

  In other words, there is a clear case for a grants programme linked to changes to the
  EPC18.

  17
     It is not compulsory to meet the EPC standards but landlords have to show investment in improving
  energy efficiency up to an agreed investment cap. The proposals to raise EPC levels envisage a similar –
  albeit larger – investment cap.
  18
     These benefits are offset by possible substitution effects – the crowding out of private sector finance to
  support investment by taxpayer-funded grants. This will be considered in a subsequent section.

                                                                                                                  28
Green Homes Grants: Evidence of impact

                                                                                    July 2021

   7.3     The aims and objectives of those who do invest in energy
           efficiency
The chart below sets out the motivations of those who are presently investing/intending
to invest in energy efficient measures:

Chart 7.1: Investors in energy efficiency – main motivations

This is a crucial piece of data showing the chief motivation for investing in energy efficient
improvements:

   •   For almost half (45%) of this landlord group, raising the EPC was NOT the main
       motivation.

                                                                                            29
Green Homes Grants: Evidence of impact

                                                                                                  July 2021

BUT, when only those landlords using or considering using a GHG grant are included the
numbers do change:

     •   20% (c/w the overall 12% above) of landlords replied their project was to get a
         property TO the minimum EPC band
     •   33% (c/w 26%) stated their project was to raise their property ABOVE the minimum
         EPC band.
     •   Only 30% (c/w 44%) stated the EPC rating was not the main motivation for
         undertaking the works19.

In other words, for more than half of landlords who are at least considering Green Homes
Grants, EPC levels were the main motivation.

The key conclusion is that for most of those at least considering a Green Homes Grant, the
EPC band was a key motivator:

     •   Projects backed or potentially backed by GHG vouchers are more likely to address
         a property's EPC than non-GHG projects.
             o Note that there is evidence that this difference IS statistically valid.20
             o The evidence here seems to be that Green Homes Grants were a useful tool
                 for landlords who specifically want to raise the EPC rating of property in
                 their portfolio.

19
   Note that in both cases, landlords identified a “business case” as alternative key reasons. These included:
improving the property to make it easier and more comfortable to let; increasing rental and property values;
being able to market the property as having lower energy bills.
20
   A recode and a chi-squared test provided evidence of a statistical difference between these two groups.
Note however cell counts are low.

                                                                                                           30
Green Homes Grants: Evidence of impact

                                                                                  July 2021

   7.4     The additionality of Green Homes Grant vouchers
Where a project would not go ahead without an intervention, but with one does, then the
intervention which supports the investment has high additionality.

The converse is also true. Take an example of a landlord fitting new double glazing. If a
GHG was accessible and simply reduced the cost to the landlord, the GHG voucher has low
additionality and can be considered "deadweight".

The chart below reports on responses to a question designed to capture evidence of the
additionality and deadweight of a scheme:

Chart 7.2: Views on the additionality of the GHG vouchers among landlords investing
         in energy efficiency measures

                                                                                            31
Green Homes Grants: Evidence of impact

                                                                                      July 2021

All landlords who have either used or considering using a GHG grant were asked the
question about the additionality of the GHG voucher. From the responses in the chart
above:

       •   For around a quarter of landlords (23%), their decision to invest in EE measures
           can be considered pure "deadweight" – they would invest even without a GHG
           grant.
               o At least some of these however would have given this answer because their
                    investment would have predated the availability of the grants.
               o This is an upper estimate of deadweight.

The responses in the three left hand columns in the chart above means it is possible to
conclude:

       •   For around two-thirds (60%) of investing landlords, GHG was, to at least some
           extent, additional.

Among those landlords who had used GHG, the cell counts are too small to make a direct
comparison:

       •   BUT the evidence is that deadweight is lower 21- only 11% would have made the
           investment in the absence of GHG.
       •   In addition, 64% of this group gave responses in one of the two columns on the left
           of Chart 7.2 – these are the columns in which additionality is greatest.

21
     That is, the scheme has had a greater impact.

                                                                                              32
Green Homes Grants: Evidence of impact

                                                                                    July 2021

   7.5        Policy change and the impact on landlords
The final piece of this section looks at how landlords responded when posed with the
possibility of a change in government policy.

All landlords were asked “If the Government were to only allow property lets which were at
an EPC rating of "C" or above, would this have an impact on your current property
portfolio?”

   •   Almost two-thirds (65%) of landlords replied “Yes” when asked this question.
   •   Not surprisingly landlords with larger portfolios were more likely to respond “Yes”
       – over 80% (83%) said there would be an impact on their portfolios.
   •   More than half (51%) of single property landlords stated this policy would have an
       impact on their rental portfolios.

Those landlords who stated they would be impacted by such a policy were asked how
they would respond. The chart below sets out responses:

Chart 7.3: Landlords’ likely response to raising minimum EPC standards

                                                                                          33
Green Homes Grants: Evidence of impact

                                                                                            July 2021

Around a quarter of landlords (26%) stated they would invest in their properties in
response to the policy change with no impact on their portfolio size.

     •   However, for almost half of all landlords (49% aggregated above) – there would be
         some degree of property sales. Some or all properties below a “C” would be sold.
            o This would reduce the number of properties in the PRS.
            o In turn, this would reduce tenant choice.
     •   In addition to this 49%, it should be noted that many of those replying “other” see
         sale and/or exit being a logical response22.
     •   At least some of those responding “Don’t know” will also take a decision to reduce
         their holding or exit the market completely.

It is important to realise that these responses indicate that without a suitable grant
programme the sale of properties reduce tenant choice. The responses here also indicate
properties with low EPC ratings would be released (sold) to owner occupiers23.

Unless there is a commitment to compel owner-occupiers to meet EPC-C targets with the
same force as PRS landlords, it is not unreasonable to conclude the transfer of stock would
also reduce the ability to meet the government’s green targets.

22
  The “Other” option to this question invited a response from landlords.
23
  The economic and labour market impacts of any such reduction outweigh any negative substitution
effects which may arise from crowding-out (see footnote 17).

                                                                                                    34
Green Homes Grants: Evidence of impact

                                                                              July 2021

   8.         Developing a future grants programme
This section looks at landlord views on how any successor to the Green Homes Grants
could be improved and better marketed to landlords.

   8.1    Marketing to landlords
Landlords were asked about how successful the GHG scheme had been from a marketing
perspective. They were asked whether they agreed with the statement, “Do you agree the
government has been successful in promoting the Green Homes Grants to landlords?”

Responses are set out in the chart below:

Chart 8.1: Landlords’ views on the success of GHG marketing

                                                                                      35
Green Homes Grants: Evidence of impact

                                                                                               July 2021

The above chart shows the response of ALL landlords. The responses of the various groups
of landlords discussed in previous sections24 are near-identical. Thus, the chart shows:

     •   Just 6% of landlords agreed the scheme had been “successfully marketed”.

     8.2    Improving any successor scheme
Landlords were also asked how any successor project could improve upon the Green
Homes Grant:

Table 8.2: Views on enhancing an Energy Efficient Grants Programme

24
  For example, users/non-users of GHG grants; investors/non-investors in energy efficient measures – the
results are near identical.

                                                                                                           36
Green Homes Grants: Evidence of impact

                                                                                    July 2021

The key observation from the above chart is that any future scheme needs a markedly
different delivery architecture:

   •   More than half of all landlords (54%) stated they should be allowed to use their
       own choice of tradespeople.
   •   Almost half (44%) stated the eligibility rules for the grants should be widened.

A range of marketing enhancements are also needed:

   •   There is support for a range of ideas including better partnership working (14%).
   •   These however are secondary to simply "working harder" to communicate the
       opportunity to landlords (29%).

   8.3     Summary
It is notable that the options which had the greatest support - making the process easier;
widening eligibility and freeing up landlord choice on where they spend their GHG grant -
are common across different groups of landlords.

Irrespective of portfolio location, landlord age, gender or portfolio size, these are the key
areas which must be addressed in any project relaunch or redesign.

                                                                                            37
Green Homes Grants: Evidence of impact

                                                                                    July 2021

   9.         Conclusions
   9.1     Initial conclusions
At first glance the results contained in this analysis are quite damming for the Green
Homes Grant (GHG):

   •   Very few landlords had used a GHG (market penetration was low).
   •   A substantial proportion of landlords had only heard of the scheme as a result of
       completing this survey.
   •   Of those who would consider the scheme, only a proportion seemed likely at first
       glance to take this interest forward into energy saving investment projects.

   9.2     A closer examination of the evidence
   9.2.1 The benefits of a grants programme
Section 7 reflected on how programmes such as the GHG voucher scheme alters the
cost:benefit ratio (CBR) calculation of landlords considering energy saving investments.

However, it is noticeable that for most landlords, investments are typically paid for by
EITHER rental profits OR savings (at least some of which, one would anticipate, are
reserves from rents). There are obvious benefits to these entrepreneurs in taking
advantage of a well-designed, grant-based opportunity.

At the same time, for almost half of the larger group of landlords who have invested in
energy efficiency, the key motivation was not to address the EPC of their property.

For this group, though they invested in measures such as heating and hot water systems
and insulation; draught proofing and double/triple glazing, EPC regulations were not the
main motivator. Instead, this was a secondary benefit.

                                                                                           38
Green Homes Grants: Evidence of impact

                                                                                                       July 2021

However, those who have used or considering using a GHG voucher are much more likely
to be focused on EPC ratings. There is a clear correlation between use of the GHG vouchers
and the primary desire to raise a property’s EPC.

These observations should matter to policymakers:

       •    It provides evidence the grants were important among those reducing energy usage.
       •    When asked whether the investment would go ahead without the GHG, responses of
            this group indicated that for most landlords the grant supported investment which
            can be considered "additional".
                o By additional it is meant that this group of landlords would NOT have made
                    the investments they did without the grant25.

The conclusion from the evidence is that for those landlords who wished to address EPC
levels at their property, the GHG voucher was invaluable in supporting that investment26.

       9.2.2 The need for a grant scheme in the event of policy change
This research indicates that increasing the minimum EPC level would be detrimental to
PRS supply. Observations from this research exercise indicate:

       •    Many landlords will either exit the market or reduce their portfolios to fund
            improvements elsewhere.
       •    A well-designed grant programme can alter the cost-benefit ratio of investment
            (especially on older properties) to meet new standards.
                o This would retain properties in the PRS.

The alternative to a carefully crafted support programme is that the problem of energy
inefficient homes is simply transferred to owner-occupiers.

25
     There are varying degrees of certainty on this statement - to a greater or lesser degree of certainty.
26
     At least that is, to those who have used the scheme.

                                                                                                              39
Green Homes Grants: Evidence of impact

                                                                                 July 2021

At this point the wider green ambitions of the policy would become more difficult to
achieve - property ownership will become more diffuse. Enforcing similar changes on
owner occupiers to that being proposed on landlords is a politically sensitive challenge.

   9.3    The additionality of a grant support programme
The evidence here suggests that alterations to the EPC would result in a reduction in PRS
supply without a suitable grant support mechanism.

However, reintroducing an improved scheme alongside the altering of the EPC-floor target
WOULD have lower deadweight than that of the GHG:

   •   Put simply, more landlords would need to invest to specifically meet any new EPC
       rating (rather than it being a secondary benefit).
   •   The evidence in the survey suggests voucher deadweight is lower among landlords
       focused on increasing the EPC rating on property.
           o Raising the EPC levels would reduce leakage – a higher proportion of
              landlords taking up the programme would need to invest to meet legislative
              requirements.
   •   Chart 4.2 shows landlords rarely use alternative finance mechanisms to fund major
       improvements. This indicates a grant would not crowd out alternative sources of
       private sector finance (for example mortgage or bank finance).
   •   Additional demand for energy efficiency improvements also yields greater
       economic benefits via multiplier effects.

The research presented provides evidence that a better designed scheme sitting
ALONGSIDE any change in EPC targets would:

   •   Mitigate costs.
   •   Maintain the supply of homes in the PRS.
   •   Avoid political fallout from transferring the problem of energy emissions to owner-
       occupiers.
                                                                                            40
Green Homes Grants: Evidence of impact

                                                                                              July 2021

     •   Be better value for money for the wider taxpayer than the current (now defunct)
         GHG voucher scheme.

     9.4     A better designed scheme
The research flags a core set of problems with the Green Homes Grant which has prevented
it being a success. These include:

     •   Project eligibility criteria.
     •   Restrictions on who can undertake work (TustMark registration).
     •   [A lack of] Awareness of the scheme's existence.

It may well be, that in the desire to ensure this scheme does not suffer from the same fate
as other voucher schemes27 the rules & regulations, marketing and the time-limited
approach to applications have all had a detrimental effect on the impact of the scheme.

Were government to address these fundamental weaknesses a scheme could be devised
which would be in demand, address government's stated green objectives AND be value
for money for the taxpayer. It would also ensure a supply of homes in the PRS.

27
  See for example the National Audit Office report on Individual Learning Accounts (ILAs) -
https://www.nao.org.uk/report/individual-learning-accounts/

                                                                                                    41
You can also read