How will the Future Homes Standard impact developers?

Coming into force next year, The Future Homes Standard (FHS) is set to significantly impact developers, implementing strict regulations that promote sustainability and reduce carbon emissions.

In preparation for the new regime, Atelier’s Senior Development Monitor, Peter Messenger, sat down with Adam Alexander, Energy & Sustainability Director at Harniss, to find out how the Future Homes Standard is set to impact SME developers. 

Peter: Can you give us a brief overview of what the Future Homes Standard is and why this is coming into force?

Adam: The headline for developers is that the FHS is a new set of measures to regulate the energy efficiency of residential sites.  We don’t yet have the full publication of the regulations, and it is currently unclear if we’re looking at a 6 or 12-month period between publication and enforcement, however it is certain this change will happen.

The current method for assessing the energy performance of buildings is being replaced with a more comprehensive one that will have a particular focus on U values and building services solutions.

Regulations are evolving to reflect the fact that electricity is becoming less carbon intensive, and with electricity decarbonising at speed there are further changes on the horizon. In 2020, renewables contributed roughly 27% to the electrical infrastructure, and today, we are closer to 42%.

The FHS is bringing requirements for domestic assessments closer to those in the commercial sector. And, in reality, buildings are going to have to be 10-15% better than the standard to even be close to passing this new change to Part L of the Building Regulations, as the Notional Building models that the assessments are based on are already outperforming the standard set parameters.

Peter: Can you give us a bit more detail on the specific measures contained within the FHS, and what low-energy alternatives developers are going to need to incorporate into new sites to adhere to these standards?

Adam: Naturally, we will be moving away from gas boiler solutions to heat pumps; air source or ground source. Developers can also expect to see a much tighter specification on fabric, including windows and roof insulation. There will also be a requirement for LEDs to hit a specific lumens per circuit watt across the entire development. It is no longer sufficient to specify 100% LEDs, more detailed reporting will be needed. In terms of ventilation, some solutions will need mechanical ventilation and greater air tightness requirements, whilst for some sites we’ll see more solar panels required in order to meet the standards.

From our test models, a standard assessment with no PV and just a gas boiler will fail, so we expect to see air source heat pumps and solar panels becoming necessary for the majority of sites. Whilst properties with large roofs could look to install direct electric panels along with a large number of solar panels to avoid heat pumps, this will be confined to a small number of sites. As you can see, there is a potentially significant CapEx cost associated with such interventions.

Notably, new developments can adhere to the old regulations if application falls between the 6-12 month period of the FHS implementation date, which is likely to be June 2025.

Peter: There are evidently some significant cost considerations for developers embarking on new-build projects to ensure the measures are all accounted for. Given 80% of existing homes will still be in use in 2050, how does the FHS apply to refurbishing existing stock compared to new-builds?

Adam: This is a really important issue and one that’s yet to be stipulated for residential. For commercial buildings, the MEES deadline requires all sites to hit an EPC B rating by 2030. Time will tell whether Ed Miliband, our Secretary of State for Energy Security and Net Zero, will enforce equivalent for the domestic sector, or if he will settle for a C rating – with either likely to cause difficulties for developers and landlords alike.

For example, retrofitting an air source heat pump into a typical terrace house is no easy feat and so I’d expect to see electric heating growing as an attractive solution for existing sites. Whilst electric panels are possible, it’s most likely that solar panels will also need to be installed on existing residential properties, to tackle the lean towards an all electrical solution.

We can likely expect some exemption clauses for buildings such as flats with smaller roofs if they can demonstrate there is nothing more they can do to improve energy efficiency.

Obviously with all this talk of electrical solutions, this does raise another big question about network capacity, in particular local transformer upgrades to handle the increase in demand and stability. We are already seeing this on larger schemes, where the need for more transformer stations is greatest and where previously on a 200-plot scheme only one or two transformers were required – thus pushing up overall development costs, too.

Peter: Do you have any advice on where developers may be able to identify cost savings and are there any particular challenges you can predict ahead of the regulations coming into force?

Adam: In the domestic market, understandably, there’s resistance to involving M&E consultants on smaller developments of say 10-15 units due to the expected expense. However, engaging with consultants as early as possible is the main thing SME developers can do to prepare. Furthermore, engaging consultants in the design process alongside architects will save costs firefighting issues at the later stages. Given the extent of new technology and systems required to meet the regs, spatial planning conducted in tandem with M&E consultants, architects and developers will be critical. For example, developers will need to factor in condensers, panels, inverters and accompanying enclosures in the planning stage and ensure good access and structural allowance for the roof solar panels too.

Peter: Are we likely to see these interventions improve market value of properties? How much more will this cost developers and are there any economic benefits we can expect to see?

Adam: Developers can expect to pay £15,000 to £18,000 more per unit. Whilst the buyer’s market is evolving to become more environmentally minded, it is hard to say for certain that we will see a sales premium on more energy-efficient housing. It is, however, fair to say that sustainable homes will become the norm and buyers will tend to avoid homes that haven’t been brought up to standard, meaning longer sales periods and reduced pricing. Statistically speaking, 35% of prospective home buyers now are more likely to make an offer on a home with eco-friendly features over one without. Whilst price will likely remain the primary determinant, buyers are increasingly considering sustainability credentials, particularly with recent history of energy price hikes.

Peter: Thanks so much for your time, Adam.

If you have any questions regarding the upcoming regulations and what you can do to prepare, don’t hesitate to get in touch with Peter or Adam:

peter.messenger@atelierfinance.co.uk

aalexander@harniss.co.uk