Comment: Decarbonising private sector housing in Wales

Wales’ 1.4 million homes account for 11 per cent of its overall carbon emissions. More than 90 per cent of these homes are predicted to remain in use by 2050. To meet Wales’ legally binding net zero target they will need to be retrofitted to improve energy efficiency and enable the switch to low-carbon heating.

Wales’ homes are some of the oldest and least thermally efficient in Europe, with high levels of fuel poverty, which makes decarbonisation a massive challenge – none more so than in the private housing sector.

Although 80 per cent of Wales’ homes are privately owned – around 1.1 million – the Welsh Government’s effort to decarbonise housing has focused almost exclusively on social homes through its Optimised Retrofit Programme (ORP). There is serious concern from housing professionals and others that the private housing sector is being overlooked and left behind. As the Chartered Institute of Housing Cymru so neatly put it, the sector is “the elephant in the room” when it comes to housing decarbonisation.

With no long-term strategy or plan for the sector, no firm policies to incentivise retrofit, particularly among owner-occupiers, and a gaping hole where financial solutions for the ‘able to pay’ should be, the Welsh Government has an inordinate amount of work to do. And, with less than 30 years to 2050, time is rapidly running out within which to do it.

Since the introduction of legally binding carbon emissions reduction targets over a decade ago, governments in Wales and Westminster have continued to grapple with the key question: ‘How do we encourage the take-up of retrofit measures?’ So far, they’ve not come up with the right answer. The array of government incentives thus far, though well-intentioned, have done little more than tinker around the edges and have failed, in some cases dismally, to encourage retrofit at the scale and pace intended, or required to meet the net zero.

Calls for a fiscal incentive that will act as a long-term structural driver to stimulate demand for retrofit have become practically deafening in recent years, with experts favouring an energy-adjusted Stamp Duty Land Tax (SDLT)/Land Transaction Tax (LTT).

How would an energy-adjusted SDLT/LTT work?

The energy demand of the home is calculated from its Energy Performance Certificate (EPC). The tax to be paid is adjusted up or down based on the home’s calculated energy demand – the better the energy performance, the lower the tax paid.

If the purchaser undertakes energy efficiency improvements within a specified period and obtains an updated EPC, a rebate would be paid as if the improvement had been made before purchase.

In 2017, a report by Frontier Economics found that if implemented across the UK, a variable Stamp Duty scheme could incentivise around 16 million homes to make energy efficiency improvements by 2035. The following year, the Green Finance Taskforce, commissioned by the UK Government, recommended piloting a Stamp Duty incentive for homes and commercial properties.

UKGBC’s 2021 report, A housing market catalyst to drive carbon emission reductions, makes a compelling argument for an energy-adjusted SDLT/LTT. It reels off an impressive list of attributes and benefits, including being straightforward to introduce, fair and simple, and revenue neutral – all win-wins for government, you’d think? Despite this, the Welsh Government appears to have ruled out an energy-saving LTT, opting instead, in its words for “more targeted grants and improved government communication” to encourage take-up of energy efficiency improvements. The consensus outside government is this approach just isn’t working.

An energy-saving LTT, combined with grant funding and appropriate financial solutions for the ‘able to pay’, such as Property Linked Finance, could be a real game-changer and see Wales’ homes well on the way to a low-carbon future. With the clock rapidly running down to 2050, the Welsh Government needs to seriously rethink its position.

Llyr Gruffydd is a member of the Welsh Senedd and Chair of its Climate Change, Environment and Infrastructure Committee