UK energy efficiency requirements driving surging BTR rental demand

Created: 19 Jul 2022

Britain’s buy-to-let market is well stocked with some of the oldest housing globally available. Legislative requirements for energy efficiency are imposing conversion costs on landlords that incentivise divestment of private lettings assets. This is forecast to boost demand for build-to-rent (BTR) products, reflected in the heightened investment levels for the sector. 


The UK government has set a nationwide target for all homes in England and Wales to reach a minimum “C” level of energy efficiency on the EPC scale by 2035. Currently, approximately 42 per cent of homes in England meet this standard. For landlords, however, the timeline is much more stringent. Rental homes are required to reach this level by 2025 for new or renewed tenancies, and all existing ones by 2028. 


A recent  government survey (May 2022) of private landlords revealed only 15 per cent met this threshold with the latest estimates suggesting an average cost of £4,700 per property to achieve the EPC level C, assuming a maximum cap of £10,000 on landlord expenses. 


This represents a significant challenge with 36 per cent of private rental real estate built before 1940, according to Financial Times reporting. An estimated third were built prior to 1919, escalating retrofitting costs substantially. Approximately 20 per cent of landlords, according to a report by Shawbrook Bank, are not sufficiently capitalised to deliver these requirements; and over a quarter (27 per cent) are unsure what their home EPC rating is. 


This is likely to induce greater selling pressure, as BTL landlords divest ahead of looming regulatory deadlines, reducing available lettings stock and driving BTR demand. Hamptons research is already demonstrating booming demand for such assets with a record 50 per cent of residential real estate this year purchased in the top three EPC categories, up from 33 per cent in 2020. 


UK BTR investment reached a record £4bn invested in 2021 with JLL data showing a 50 per cent jump in annual investment to £1.7bn for the first quarter of 2022. 


“Louise Emmott, head of regional residential agency and development at JLL, added: “As investors turn their attention to ‘safer’ sectors in the wake of the turbulence created by the pandemic, appetite for living assets is soaring and the regions offer opportunities for scale.”