After Team GB’s gold rush, brokers must go for green
Two years have passed since the government made its commitment to achieve net zero emissions by 2050. But already the talk among brokers and developers is about whether the revolution might be losing momentum.
Weaning the UK’s housing stock off gas boilers is proving harder than Boris Johnson ever envisaged, and the new normal could be farther off than he pretends. Persuading voters to foot the bill was never going to be easy, and although the hope is that human ingenuity will eventually bring costs down, few agree on where the money should come from in the meantime.
PM still unsure of way forward
The news that a proposed ban on the sale of new gas boilers may now be pushed back five years to 2040 was interpreted by many brokers I spoke to this week as a harbinger of things to come.
Whatever the setbacks, however, it is clear that fundamental change will come eventually. And it will only be a matter of time before government climate targets impact the housing market – and by extension how residential developers and their brokers fund projects. The broker community will be only too aware that the financial challenges of going green come against a backdrop of already surging input costs.
In its half-term report earlier this week, Travis Perkins complained loudly of price hikes and material shortages, with bagged cement expected to jump 15% in the coming year. The ONS predicts that construction material costs as a whole will rise by 7% to 8% during 2021. Now imagine for a moment how build costs might look in years to come when you factor in a “green premium”.
While the construction industry has been wrestling with skills shortages for years, the combination of expensive new green technology and a dearth of people able to fit it may well end up rippling through the supply chain, impacting both developers and lenders.
SME developers are vulnerable
The most commonly used alternative to gas boilers are air-source heat pumps, which can cost up to £8,000 more than a conventional boiler.
For brokers, this “green premium” will undoubtedly mean that developers’ projected build costs require additional scrutiny, and due diligence will involve drilling down into the numbers to see if a scheme can be delivered on budget to a Future Homes Standard.
In this brave new world, SME developers may find themselves particularly vulnerable to longer lead-times and delays. Accurate cost estimates and reasonable contingencies will become more important than ever, as will a detailed assessment of the programme both before and during procurement.
Just as challenging for developers will be establishing a reliable chain of green tech suppliers, and securing prices that remain valid for the length of time necessary.
Fluctuations in price are likely to impact developer cash flow and should therefore be factored into the facility agreement.
Of course the risks don’t just go away once construction begins, and responsible lenders like Atelier will use expert project monitors to ensure not just that the Standard is being met, but also that costs are being managed appropriately.
Evolve and prosper
Clearly, the road ahead will not be easy for either developers or their brokers as they try to adapt to radical new ways of building.
Though one big consolation for developers looking to go green is that demographics may well be on their side. Energy efficiency is climbing ever higher on a list of considerations for buyers at the moment. And with the government consulting on setting energy efficiency targets for lenders, the direction of travel is only going one way.
Those brokers who grasp this concept earliest may also be quick to prosper.