Upfront cost of increasing household energy efficiency could hold back UK from achieving net zero goals - PwC UK Economic Outlook

04/06/21

  • Improving all homes in the UK to EPC band C could save households £9.5bn each year in energy costs and achieve 16% of CO2 reductions (52 million tonnes annually) necessary to meet UK net zero by 2050 target
  • Upfront costs would take homeowners on average 10 years to claw back which, combined with the  size of private rental sector, presents major barriers to households upgrading EPC rating of homes
  • Households in London, South East and North West could benefit most from upgrades
  • UK house price growth at March 2021 highest since April 2007

The UK government’s Clean Growth Strategy (CGS) to improve energy efficiency of existing pre-2018 housing stock could deliver substantial savings to households and make a significant contribution to reducing CO2 emissions. Yet achieving the goal could be delayed by homeowners’ reluctance to pay upfront costs and the size of the UK’s private rental market, according to new PwC analysis released ahead of UN World Environment Day (05 June).

The latest UK Economic Outlook has calculated that the CGS goal of improving all homes in the UK  to EPC band C by 2035 could save households £9.5bn each year in total in energy costs and achieve 16% of CO2 reductions (52 million tonnes annually) necessary to meet UK net zero by 2050 target.

Yet in a survey of 1,000 UK adults, the report found that over a third (35%) of households cited concerns over the costs of such upgrades, with 26% directly stating it was ‘too expensive.’ While 55% of households reported taking measures to improve their energy efficiency in the past five years, and 46% have plans to in the future, nearly a third do not intend to make any upgrades.

On average, household costs are £374 a year lower for those living in new build properties built after 2018 at EPC band C standards (at 2020 prices). Households can expect to save around one quarter of their energy bill each year, or £178, by upgrading to their potential EPC rating. Yet PwC’s analysis confirms that from energy bill savings alone it can take, on average, at least 10 years for the upfront costs to be fully clawed back.   

In addition, over a fifth (22%) reported that they were private renters who lacked the ability to make changes to the home. While increased energy efficiency is also linked to improved house prices, landlords often do not share the cost of energy bills so may lack incentive or awareness of the benefits of upgrading.

Jonathan Gilham, Chief Economist at PwC UK, says,

‘With more than half of UK households currently at EPC band D or lower, the Clean Growth Strategy can make a significant contribution to achieving net zero targets whilst reducing the cost of living for households. 

‘Yet while the willingness is there from the public, there are clear barriers in terms of costs and awareness. There is a real risk where policies aimed at protecting the environment are seen to disproportionately benefit wealthier homeowners, whilst leaving renters and those without the means to pay out in the cold.

‘To deliver on the Clean Growth Strategy’s goals, policy-makers should consider ways to boost public awareness of the benefits and solutions to improving home energy efficiency. They may also consider providing long-term financial incentives for households and landlords to upgrade.’

Differences across regions

Domestic emissions account for a greater share of total emissions in more urban and populated regions like London (37% of total emissions), compared to regions like Yorkshire and the Humber (23%) and Wales (21%).

London could potentially avoid 5 million tonnes of carbon emission a year, compared to just 3 million tonnes per year in Wales (equivalent to about £331 million and £208 million, respectively, in 2020 prices).

‘Households such as London, the South East and the North West would stand to make the biggest savings in terms of energy bills, due to the nature of older housing stock in those regions. Similarly, upgrading properties in regions with higher proportion of houses and bungalows compared to flats, such as the East Midlands, will make a bigger impact on emissions than the North East, for example,’ Gilham added.

Using the Data explorer on the PwC UK Economic Outlook website, households in England and Wales can find out the potential savings from different upgrade options for their specific properties. This includes options of upgrading to their EPC potential and upgrading to a new build standard by property type, age and location.This will also reveal the estimated energy bill reduction as a percentage of their average household disposable income over different time periods.

Strong growth in UK house prices

The UK Economic Outlook also highlights the strong performance of the UK housing market. UK house prices have grown markedly in recent months, with annual growth reaching 10.2% in March 2021, a level not seen since August 2007. By contrast, private rental prices have grown much more steadily, in line with their pre-pandemic trend.

House price transactions have recovered strongly from a dip during the first months of the COVID-19 pandemic, reaching their highest volume on record in March 2021. This partly reflects a catch-up of market activity, but transaction volumes have also been buoyed by the temporary Stamp Duty holiday, which is being phased out over 2021.

Since mid-2020, all UK regions have experienced strong house price inflation. The fastest growing regions (North West and Yorkshire and The Humber) have seen average price growth of over 7.5%. London has seen the slowest growth (3.9%), but it remains the most expensive region by far with average house prices now at £500,000.

Hoa Duong, economist at PwC says,

‘The outlook for the UK economy continues to face uncertainties, but prospects have improved in recent months, buoyed by the successful vaccine rollout and the gradual reopening of the economy. Many of the factors that have been driving UK house price growth over recent months, combined with a stronger economy and continued monetary and fiscal support, are likely to sustain house price growth. 

‘Despite this there are risks to the housing market, including the upcoming end to the Stamp Duty holiday and the end of the Job Support Scheme in September. In addition there is the risk that new COVID-19 variants could lead to further restrictions as well as the possibility of inflationary pressure causing the Bank of England to raise interest rates.’

PwC has developed two scenarios to project UK house prices to 2025. The quick recovery scenario expects house prices to grow at around 7% in 2021, which is the fastest rate in 5 years. The slow rebound scenario expects UK house prices to grow by around 5% this year.

Notes to editors

  1. Household attitudes based on a nationally representative survey of 1,000 UK adults. The survey ran in the week commencing 7th May 2021. 

  2. The Energy Performance of Building data published by the Ministry of Housing, Communities and Local Government (MHCLG) provides energy efficiency information for more than ⅔ of the properties in England and Wales

  3. To arrange an interview with PwC economists please contact David Bowden (david.bowden@pwc.com / +44 (0)7483365049)

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