Sustainable new homes and the growing price premium

min read time
2023-01-10 08:58:16

The need for sustainable homes has reached a tipping point and successful developers need to act. Government leadership and regulations are defining a sustainability path that consumers fully support. Alongside the regulatory push to increase sustainability, there’s now a growing movement of buyers willing to pay a premium for eco-friendly, new-build housing. Developers need to move beyond minimum standards and provide new housing stock that offers future-proofed sustainability – or risk alienating a growing percentage of their market.

The drive to reduce carbon emissions from housing

The UK government’s target to reach Net Zero by 2050 is ambitious, but indicative of the urgency around cutting carbon emissions. According to the Committee on Climate Change, 40% of UK emissions come from households, which underlines the important role the housing sector has in meeting emission reduction targets.

There has already been considerable progress in reducing emissions from homes, with overall total emissions falling by about a fifth since 1990, despite there now being approximately a quarter more homes in the UK. Action is continuing with the introduction of the Future Homes and Buildings Standard that seeks to ensure that all homes built from 2025 will produce 75-80% fewer carbon emissions than homes delivered under current regulations. Its focus is to radically improve the energy performance of new houses, delivering energy-efficient and sustainable homes with low-carbon heating.

Buyers are willing to pay more for sustainable homes

Eco-savvy consumers are translating into buyers willing to pay a premium for a new build house with strong sustainability credentials. There’s been a great deal of research into this area recently and the findings all point to developers being able to charge a premium for houses they can prove are energy efficient and as ready as possible for a Net Zero future.

An Energy Performance Certificate (EPC) is becoming more widely known amongst buyers as an easy-to-understand, transparent energy efficiency rating tool that assesses the sustainability of a home. June 2022 research by the ONS found that three-quarters of the public have heard of an EPC. A separate study found that in 2022 71% of buyers consider EPC ratings to be important in their decision making and a third of buyers think EPC ratings are more important now than they were a year ago.

In 2021, the government department for Business, Energy and Industrial Strategy found that properties with an EPC C rating were worth around 5% more than those at EPC D rating, after controlling for other factors such as property size and archetype. This is a good sign for new build developers since in the year to September 2021, 84% of new build properties received an A or B EPC rating for energy efficiency.

New house buyers are increasingly valuing energy efficiency above other factors that influence their decision-making. A desire for a bigger garden and more living space have traditionally been the prime motivators for buyers, but more efficient heating and environmental factors (such as a good EPC rating) are the next two most sought-after features – 80% of people see energy efficiency as an important part of their choice.

December 2021 research revealed that 70% of respondents nationwide would like their property to be more eco-friendly, and 35% would pay up to 10% more for a property with eco-friendly features. Developers need to note that for new build homes in particular, expectations are high, with 80% of respondents valuing sustainability. Interestingly, as younger generations are expected to be the most eco-conscious, this expectation increased with age, with 87% of those aged 65+ valuing greener homes.

Being able to assign a monetary value to sustainability in housing is even spreading to the mortgage market, with green mortgages springing up. High street lenders are starting to offer products that give cashback and/or a better interest rate on a mortgage taken out on an energy-efficient property. As mortgage interest rates go up, buyers will increasingly look for ways to get the most competitive rate, driving interest in sustainable housing that can unlock savings across both energy bills and mortgages.

Stewart Baseley, executive chairman of the Home Builders Federation speaking in March 2022 sums up the current situation for developers: “‘Location, location, location’ has been the driving mantra of UK home-movers for as long as we’ve known, but… now we’re entering the era of ‘location, location, insulation’, with energy efficiency becoming an ever more crucial factor in how we select our next home.”

External view of beauty single family home

How can developers achieve premium prices?

As buyers’ understanding of sustainability in housing increases, so will the complexity of their questions to developers - this is both an opportunity and a risk.

There are significant opportunities to educate and explain how today’s new housing stock is rising to the Net Zero challenge and, potentially, to create a strong point of differentiation in a competitive market. Being known as a green developer is an effective marketing tool.

However, the risk lies in overclaiming green credentials. European research found that 42% of green claims were exaggerated, false, or deceptive. And consumers are becoming increasingly wary of this tendency towards ‘greenwashing’, where sustainability promises don’t translate into reality. The bottom line is that any sustainability messaging shared by developers must be grounded in fact and backed up by credible reporting.

This all points to the importance of investing in an effective, holistic approach to future-proofed sustainable homes – centred on energy-efficient heating, cooling and ventilation systems. It really is a case of speculating to accumulate.

house at dusk

How to deliver the future-proofed sustainable housing buyers want

Building an energy-efficient house starts with a fabric-first approach, focusing on installing high-quality, high-spec measures to ensure the house is effectively insulated.

Insulation is a critical part of the eco equation, particularly when a heat pump is going to be used. The better the insulation, the lower the flow temperature from the heat pump can be, and the less energy it uses, resulting in lower carbon emissions. Inadequate insulation not only means the heat pump will cost more to run and produce higher emissions but may mean that it can’t keep the house at a comfortable temperature for inhabitants. Developers should consider a range of insulation strategies, including cavity wall insulation, loft insulation, high-specification double glazing and underfloor insulation.

Heat pumps are another vital part of the equation, shifting heating systems away from fossil fuels and towards renewable energy. An air source heat pump can cut average carbon emissions by 44% per year, but it needs to be combined with an appropriately large heat emitting surface to achieve comfortable room temperatures and low heat pump flow temperatures. Increasingly knowledgeable buyers will understand that attaching a heat pump to conventional radiators won’t deliver the results they want. It’s also likely they’ll be aware that huge, bulky radiators that take up significant wall space aren’t as effective as underfloor heating. Underfloor heating offers the greatest heat emitting surface, so can run at very low temperatures and is more aesthetically pleasing to home buyers.

The final, crucial piece of the holistic solution is a Mechanical Ventilation with Heat Recovery (MVHR) system, also known as a ‘whole house ventilation’ system. This is an effective way to ventilate a well-insulated, airtight house at the same time as moving heat from warmer rooms to cooler ones. It also reduces the pollutant levels brought in from outside and protects against dampness. Plus, in a changing climate, the heat recovery function of MVHR can be turned off, helping to keep the house cool in summer. Most importantly, heat recovery systems add to the heat in the house, so that not everything depends on the heat pump, and it can run more efficiently at a lower temperature.

Developers have the opportunity to charge a premium for low-energy, sustainable housing – but must remember that buyers will be reluctant to buy if they can’t prove they’ve included the most energy efficient choices.

Indoor Climate Solutions at Wavin

At Wavin, our purpose is to build healthy sustainable environments. Our tailored indoor climate solutions feature our market-leading systems and products including underfloor heating, heat interface units, MVHR and single controls (interfacing with all of these technologies). They provide the following benefits:

  • Improved energy efficiency
  • Low maintenance
  • More space and design freedom
  • Compatible with all floor types and coverings
  • Comfortable environments with even heat and less dust
  • Full zone control
  • Flexible solutions including installation or design and supply
  • Design and system selection support
  • Wavin’s extensive experience in residential projects as the market leader in Europe