International real estate investors shunning UK for nations with stronger green policies

Just 41% of homes in England are rated EPC 'C' or higher

This could total up to £31bn of private investment this decade.

These stark findings are drawn from new research published today (20 March) by the UK Sustainable Investment and Finance Association (UKSIF) – a collaborative initiative convening more than 300 financial institutions collectively managing almost £20trn of assets worldwide.

UKSIF surveyed 100 decision-makers at businesses with investments in the UK housing sector, including representatives of HSBC and Federated Hermes. The survey confirmed that delays, weakenings and U-turns relating to green policy from the national Government has hampered investment into low-carbon buildings and prompted many international investors to look elsewhere.

Almost two-thirds (63%) of those polled are primed to reduce investment in the UK and re-allocate it abroad, in markets which are more attractive for low-carbon new buildings and/or retrofitting existing homes.

Two in five said that accessing private capital for low-carbon projects remains challenging in the UK, particularly for retrofitting.

The survey found that a particularly harmful policy change was Prime Minister Rishi Sunak’s decision, taken last September, to scrap forthcoming requirements for the landlords of private rented homes to improve their energy efficiency. The requirements would have entailed landlords needing to upgrade properties to achieve an EPC ‘C’ rating by 2028.

UKSIF’s research found that re-instating this commitment, but delaying the deadline to 2035, could placate landlord concerns and allow adequate time for delivery while still sending the right messages to investors. The mandate should also stipulate that landlords upload energy consumption data for public access, at least every three years.

UKSIF’s chief executive James Alexander said: “Investors are in desperate need of clarity from the government on sustainability policy, and only then can opportunities be unlocked for the UK housing sector, with benefits realised for consumers, the environment and the wider economy.

“Our research shows that there is huge demand from real estate companies and investors alike to invest in the UK, but policy reform and government measures to close the skills gap are critical if the UK is to avoid falling behind other countries in the race for capital.“

Green mortgages

The survey also found that most investors believe the Government is not doing enough to make owner-occupied properties more sustainable.

Nine in ten said they would like to see more green mortgage products on the British market. It was acknowledged that a standardized definition for these mortgages, from the Financial Conduct Authority, would be a great help in growing the market.

The UK Government is notably developing a Green Finance Taxonomy at present. This will cement which investments can be badged as ‘green’ and which cannot. The launch of the Taxonomy has faced numerous delays due to challenges such as the two consecutive changes in Prime Minister in 2022, but is due this year.

The UKSIF survey also found that the Government could support the green mortgage market by providing an insurance programme, thus reducing premiums. Such an initiative is already in place in the US.

Accounting for 17% of UK emissions in 2022, the built environment is second only to surface transport when it comes to high-emitting sectors.

The UK Government’s climate advisors warned last summer that 77% of the emissions reductions in the sector required to align with the Sixth Carbon Budget are not supported by credible policy.