Green homes could fetch 13% rental premium for landlords

Green homes could fetch 13% rental premium for landlords

Property investors are increasingly finding that ‘green homes’ and new-builds are worth the initial outlay as tenants are willing to pay more to live in them.

Green homes, including both renovated or retrofitted properties and energy efficient new-builds, are increasing in popularity among not just buyers, but for private rented sector tenants looking for more from their homes.

The majority of new-build properties being constructed are of a superior standard when it comes to their energy efficiency and energy performance certificate (EPC) ratings. While this can come with a greater price tag for the buyer – unless you invest off-plan – it seems the cost pays off in the long run.

New research from Legal & General has revealed that tenants will pay an average 13% more rent for the benefit of living in a low carbon, green home. Meanwhile, prospective buyers said they would be happy to pay an additional 10.5% to ensure they were investing in an energy efficient property.

Big homes or green homes?

Interestingly, Legal & General’s research found that all consumers – both tenants and buyers – now rated a property’s energy-efficient, sustainable features as more important than the size of the home. As a side note, smaller properties, including flats, tend to be cheaper to heat and run, adding to this trend.

Searches for eco-friendly and green homes have increased by 34%, said the report, while 62% of people in the survey said they view green investment in housing as an attractive or very attractive way of addressing the current cost of living crisis.

But bills aside, it was actually the environmental element that made today’s consumers more likely to either invest in or rent sustainable, green homes as opposed to older, less energy efficient ones. This was the reason given by 65% of people surveyed, who said they wanted to reduce their carbon footprint.

Inevitably, though, bills was a major concern for 37% of respondents. With numerous reports pointing to the level of energy savings that can be made by living in a new-build or an eco-friendly home, it is an increasingly popular option for many households.

A new way of valuing a home

As all rental properties must now meet minimum energy efficiency standards in order to be let out, higher EPCs increasingly attract greater levels of interest. This is leading to a ‘green premium’, as well as a potential ‘brown discount’ for those wishing to retrofit older homes.

John Alker, head of sustainability at Legal & General, says there is now plenty of evidence pointing to the benefits of investing in and developing low carbon, green homes.

“Climate change and energy efficiency have risen right up the agenda for many people when choosing a home,” he says.

“With buyers and renters prepared to pay a 10.5% and 13% premium respectively, energy efficiency and sustainability in homes make a material difference to the consumer. This research helps cement the business case for investors and developers to invest in low carbon homes.

“It also shows that clarity is key when it comes to low carbon and energy efficiency. Energy Performance Certificates are not well understood – they need reforming to better reflect real world energy consumption and to help incentivise adoption of low-carbon technology.”

Energy ratings more key than ever

In separate research from Go.Compare Energy, it was revealed that millennials (generally accepted as those born between 1981 and 1996) are the group of people most likely to be drawn to a property with ‘green’ and eco features, with 60% saying they would be put off by a low-scoring EPC.

This compares with 51% of all Brits who would potentially shy away from a home with a low EPC rating. In Generation X (born between the mid-60s and the early 80s), 49% would be put off, while 45% of baby boomers (born between 1946 and 1964) wouldn’t want a low-eco home.

This is key information for landlords, whose properties are most widely inhabited by the millennial age group. Although the data looks at property purchase rather than rental, it is a good indication of priorities, both environmental and financial, and the benefits of considering investing in green homes or new-builds.

Source Buy Association

McDonald’s Comment: For years our opinion would be we have seen little value to EPC’s, with buyers prioritising other features like, location, condition, price, accommodation etc far above any estimated energy efficiency rating. We haven’t noticed any signs yet, but we can absolutely see why this may change.