The Desirability of Energy Efficient Buildings in the UK

Buildings are the most important economical sector in the world but also the major contributors of environmental damage, from the sourcing of raw materials through to the energy used for their functioning and to the disposal of their elements once their life cycle comes to an end. Almost half of the UK’s carbon emissions come from the use of buildings, and houses alone account for more than 30% of all primary energy demand. In an attempt to reduce this impact, the British Government is pushing towards the development of energy efficient and zero carbon buildings, both in new construction and in the existing stock. But how is the market receiving such buildings? Are energy efficient buildings gaining a competitive advantage in the current marketplace? In some countries such as the Netherlands, energy efficient houses reach values 2.8% higher than normal houses on average. In the UK the Sustainability Property Index (ISPI) reveals that, for the properties examined in 2010, regular properties delivered a cumulative total return of -10.8%, compared with - 14.9% for more energy efficient ones. This is bad news considering the higher capital investment usually needed to achieve zero carbon buildings. The current reality in the UK market seems to be that people may not (yet) be willing to pay more rent for energy efficient buildings. As rent and capital value are inexorably linked, whether or not a building is zero carbon does not yet seem to be affecting property value. This paper does not present definitive answers but discusses possible reasons for that through 2 case studies and suggests that the situation may change as energy prices increase and buildings acquire a potential ‘earning capacity’ through the use of renewable energy technologies and feed-in tariffs. The introduction of Energy Performance Certificates has also started to impact on the market. Could energy efficient buildings become a property sector in their own right in the near future, with premium priced accordingly? Or is simply that we don’t yet have an ability to identify from the data whether the market is differentiating?