Wednesday 18 April 2018

Housebuilding Rates Unaffected by Higher Energy Efficiency

So Where's the Cliff Edge?

When faced with  potential legislation that would require them to build homes that use less energy, emit less carbon dioxide and reduce energy bills for their customers, housing developers have often expressed concerns that this would increase their costs and reduce the number of homes that get built.  Westminster politicians, concerned themselves about the 'housing crisis', seem to have bought into this argument and there has been no meaningful tightening of the building regulations for energy efficiency in England and Wales since 2010.  In 2015, plans to have regulated that all new homes would be net zero carbon emissions were dropped and as yet there is no sign of any interest from government in making new homes more energy efficient.  Instead of being zero carbon, a new home in England built today still emits 71% of the carbon of a new home built in 2005.

By contrast in Scotland, ministers pushed on with improvements to energy efficiency in new homes and new regulations introduced in 2015 mean that carbon emissions from newly built homes in Scotland emit significantly less CO2 than similar homes in the rest of the UK (around three quarters).

So now it is possible to test this assertion that building more efficient homes would reduce the numbers by comparing what happened in Scotland after the rules changed to what happened in England.

The graph shows the number of homes built by private developers in Scotland as a percentage of the number of homes built in England by private developers for each quarter between 2010 and Q3 2017 (the latest quarter for which data for both regions is available).

The rate of housebuilding in Scotland remains within historical norms despite significantly tougher energy regulations
With a population of 5.4m compared to England's 55.2m, the ratio might be expected to have a long term average around 10%, and indeed this is the case.

What is also clear is that since Q3 2015 when the new regulations came into force, the rate of housebuilding in Scotland has remained within its long-term range.  Where is the cliff edge of which we were warned?  Why don't the higher costs in Scotland put off house builders from building?  The answer is called the residual valuation model for land pricing.  Given clear guidance on direction of travel of policy, builders will adjust the amount that they are willing to pay for land.  The houses still get built, the builders still make money.  All that happens is that the windfall to the landowner when land achieves planning permission gets a tiny bit smaller.

So those local authorities that are lining up to fill the gap left by Westminster inaction by using their local plans to require higher that building regulations performance should take heart from the evidence and press on with their plans.

This article is an update of an earlier blog.