The private rental sector faces a significant challenge in meeting the government’s newly proposed energy efficiency target. At the current pace of improvement, it will take landlords until 2042 to bring all privately rented homes up to an Energy Performance Certificate (EPC) rating of A-C, well beyond the government's suggested 2030 target.
If landlords continue making energy efficiency improvements at the current rate, it will take 18 years for all rental properties in England and Wales to achieve an EPC A-C rating. However, this still represents an acceleration from the 89 years it would have taken at 2016 rates.
Successive changes to proposed energy efficiency rules have shifted the goalposts for landlords, and the forthcoming review of the EPC system may move them again. Despite this, many investors have continued to improve the energy efficiency of their rental homes. This means we are on track to see 100% of rental homes where an EPC A-C is viable, achieve this within a generation.
Progress so far
39% of EPCs carried out on rental homes this year saw the property move into a higher band, up from 34% a decade ago. However, this rate still falls below the level of upgrades seen in the years leading up to 2018, when the requirement for rental homes to achieve an EPC rating of at least E was introduced.
To meet the 2030 target, approximately 340,000 rental homes will need to make improvements to achieve at least an EPC C rating every year. This is a threefold increase on an annual basis from the 115,000 homes expected to make sufficient improvements in 2024. The same number of homes will need to see energy upgrades over the next five years as we’ve seen make improvements in the last 30 years.
While the previous government also announced plans to ban rentals of homes with a sub-EPC C rating by 2025, this ambition was scrapped in the Autumn of last year. However, many landlords have pre-empted the change. Given the increasing importance of an EPC C rating, rental homes moving EPC bands were most likely to move from a D rating up to a C rating. Half of homes that were previously rated D went on to achieve at least a C rating upon reassessment this year. Meanwhile, 29% of homes that had an EPC E rating went on to be reassessed as having a rating of C or above.
Costs for tenants
The financial benefits for tenants living in more energy-efficient homes are substantial, particularly in light of much higher energy prices. The average tenant could save £499 per year on utility bills if their home is upgraded from an EPC D to C rating, representing a 76% increase in savings since 2019. For tenants in EPC E rated homes, the potential savings rise to £1,248 per year, an 83% increase since 2019.
Rental market trends
Across Great Britain, the average rent on a newly let property rose to £1,354 per calendar month in July, a 5.7% increase from the previous year. This marks the twelfth consecutive month where the annual pace of growth hasn’t risen. Rents in Northern England are rising three times faster than in London, with a 10.3% annual increase compared to London's 3.0%.
Rental growth continues to outpace inflation, despite the pace of growth moderating over the last year. However, there are also signs that the annual increases in stock levels since 2023 are beginning to subside. In January, stock levels were up 34% year-on-year, a figure which is now 22%. A fall in stock levels may reignite the pace of rental growth.
