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.

The Merton Rule is Not Dead, Long Live the Merton Rule!

Can Local Authorities Still Require Energy Efficiency Higher Than Building Regulations?

The largest housing developers would very much prefer it if they were able to build the same house in Aberdeen that they build in Abingdon. If they can do this, then the cost of the architect and engineers to design their standard properties can be spread across more units, and their buying power can be increased by using the same component parts in every house they build. This is one of the ways they out-compete smaller, more local building companies.

For this reason they dislike local rules and regulations that affect the houses they build.

In 2008 UK government enacted the Planning and Energy Act, which among other things clarified that local planning authorities had the legal right to require energy efficiency standards in new homes that exceeded the national building regulations. This approach to pushing developers to build housing with an energy performance beyond the national minimum had become known as the 'Merton Rule' after the local authority in London that had pioneered the approach.

Here's what the Act says:

1  Energy policies

(1)A local planning authority in England may in their development plan documents, and a local planning authority in Wales may in their local development plan, include policies imposing reasonable requirements for—
(a) a proportion of energy used in development in their area to be energy from renewable sources in the locality of the development;
(b) a proportion of energy used in development in their area to be low carbon energy from sources in the locality of the development;
(c) development in their area to comply with energy efficiency standards that exceed the energy requirements of building regulations.

It has been estimated that around 50% of local authorities took advantage of the new clarity to build such requirements into their local plans.

National builders didn't like it. They didn't like it at all. Different local authorities chose to ask for 10% renewable energy on site, 20% renewable energy on site, Code for Sustainable homes level 4.

The national developers were faced with different requirements up and down the country, a situation further complicated for them by the fact that different local authorities enforced their planning requirements with different levels of enthusiasm and competence. In some areas, particularly those areas that combine both high housing need and low house prices, developers might find a planning requirement for renewable energy on new developments to be highly negotiable. Other local authorities, notably in the south, with high house prices that means developers are queuing up to build new homes there, have been far more successful at holding the line on the aspirations of their development plans.

It could be argued that this is exactly as it should be. The UK has very high geographical differences in house prices. Local authorities could set their local planning regulations to achieve the highest energy performance that was consistent with the economics of housing development in their area, specifically whether the value of development land is sufficient to cover the additional costs of more efficient homes.

However, in 2015 things swung back towards the large developers. The government of Cameron and Osborne announced a 'bonfire of regulations' to free business from costly red tape. The Housing Standards Review was formed to look at red tape afflicting the house builders. Developers successfully argued that this patchwork of local planning requirements was 'red tape' and the review concluded that it should be swept away.



The government chose to add the changes to the Deregulation Act 2015. Section 43 of this Act amends the Planning and Energy Act as shown below.

43 Amendment of Planning and Energy Act 2008
In the Planning and Energy Act 2008, in section 1 (energy policies), after subsection (1) insert—
“(1A)Subsection (1)(c) does not apply to development in England that consists of the construction or adaptation of buildings to provide dwellings or the carrying out of any work on dwellings.”

This amendment would remove the ability of local authorities (in England only) to require developers to exceed the building regulations for energy efficiency. Note that sections 1(a) and 1(b) remain, allowing local authorities to continue to require that a percentage of the energy consumption of a new development to be met with renewable or low carbon energy.

The passing of the Deregulation Act is, however, not the last word in this story. If you work in a local authority in England and a housing developer is telling you that you can't impose higher standards than building regulations on a development, they're wrong. The fact is that section 43 has not yet been brought into force, so the original Planning and Energy Act text still applies.

If you look at the Commencement Section of the Deregulation Act, you'll see how the various elements of the Act are to be brought into force.

Some sections come into force on the day the Act is passed in parliament, others some set number of months later. No special mention is made of section 43, so it falls under this provision:

(7)Except as provided by subsections (1) to (6), the provisions of this Act come into force on such day as the Secretary of State may by order made by statutory instrument appoint.

A check of statutory instruments shows that this has not yet happened for Section 43, fully two years after the Act itself was passed by Parliament.

In fact, during a Lords debate on the Neighbourhood Planning Bill, in response to a question by Baroness Parminter, Lord Bourn confirmed that it was the case that local authorities still have powers to require higher building standards:

"The noble Baroness asked specifically whether local authorities are able to set higher standards than the national ones, and I can confirm that they are able to do just that."

So there you have it, the Merton Rule lives on!

 Local authorities still have powers to drive low carbon development in England, and it's just as well because our central government seems to have lost the will to do so. It's down to the sustainability officers and planning officers to enforce their local plans and they have the power to do so.

Merton Rule Lives on

Housing Standards Review Steps Back from Brink

Image: Viridian Solar

The Department for Communities and Local Government (DCLG) has concluded its Housing Standards Review and contrary to expectations the so-called Merton Rule, whereby Local Authorities can specify that new homes generate a certain portion of their energy use from renewable sources is retained.

 Part of the government's 'Red Tape Challenge', the Housing Standards Review (HSR) was wide-ranging and covered issues from wheelchair access in new homes, their consumption of water and use of energy.  The starting point of the review was that there has been a proliferation of different standards and that this is costly for both housing developers comply with and for Local Authorities to police.  DCLG proposed a number of ways in which it might simplify matters.

The consultation published in the autumn contained a serious threat to the deployment of renewable energy in new homes.   (See my earlier blog and infographic). 

After a series of changes in which the energy efficiency of new homes improved rapidly, progress has completely stalled since the coalition government came into power.  As a result, current building regulations can easily be met without renewables.  The only driver to encourage developers to use renewables in new homes is that many Local Authorities require it as a planning condition (often called the ‘Merton Rule’ after the first Authority to pilot the idea).  They can do this because they were granted the power in the Planning and Energy Act 2008.

Many Local Authorities have adopted planning policies like this as part of their Local Plans with the goal of creating local skills and supply chains, mainstreaming renewables and encouraging their wider adoption.

The HSR consultation document proposed to remove this power, potentially leaving renewable energy in new homes out in the cold until the building regulations reach 'Zero Carbon' and this feeds through into actual projects – potentially as late as 2022.

The Impact Assessment that accompanied the HSR consultation gave a clear indication of what was influencing DCLG’s thinking.  The anticipated ‘savings to industry’ only counted the reduction in the costs of housing developers.  The business lost by the renewable energy industry was not considered, and nor were the savings on energy bills for the householders. 

 Housing developers were offering a narrative that was both simple and attractive to the politicians:

 "Free us from these unnecessary costs and we'll build a way out of this recession."

It was very clear who was in the driving seat.

As the civil servants at DCLG worked their way through the responses to the consultation and pondered their conclusions the country was gripped first by a debate on the affordability of energy bills and then by endless rain, flooding in Somerset and politicians in wellington boots trying to outdo one other on how serious they consider the threat of climate change.

Was it these events that influenced the outcome – the idea that DCLG could find itself ordering underwater Local Authorities in Somerset to tear up their climate change policies? 

Or perhaps the rash of record profit growth announcements by house-building companies undermined the argument that costs had to be cut to get Britain building again?

Or maybe it was the work done by the Solar Trade Association and Renewable Energy Association to present the arguments for including renewable energy as houses are built?  (Step forward Mike Landy and Leonie Greene).

 Who knows what the decisive factors were, but on Thursday 13th March, the decision was announced and the Merton Rule lives to fight another day.

Untangling the Announcement

The way the decision was announced has caused some confusion, especially because the Written Ministerial Statement said that there would be no optional additional local standards:

This caused a number of sources to wrongly report that the Merton Rule had gone.  A bit of digging shows that the opposite is true.  The new rules are to be enacted through the Deregulation Bill.  Here's the relevant section:

To understand the impact of the changes, you need to read it with the Planning and Energy Act 2008, shown below:

So it can be seen that the change only affects Section 1(1)(c), and prevents Local Authorities in England (only) from requiring energy efficiency standards higher than building regulations for houses (only).  Crucially for renewable energy sections (a) and (b) are left intact and Local Authorities can continue with planning conditions that require a proportion of energy from renewables providing a critical bridge to Zero Carbon Homes.

Attention now turns to the definition of Zero Carbon Homes, encouraging DCLG to deliver it on time and how much of the standard can be 'bought-in' rather than 'built in' through a process called 'Allowable Solutions'.