This document is a summary of existing research and conversations to inform a future prototyping week around energy efficiency and the private rental sector.
mySociety's climate prototyping weeks are ways of exploring possible ways we could accomplish the goals of our climate programme, working with experts in the different areas we are investigating.
Any feedback on errors is appreciated, this document may change: alex.parsons@mysociety.org
Summary
- The current incentives for landlords to improve energy efficiency in their property are inadequate.
- Higher minimum standards are needed; these are coming into effect over the next few years, with the goal of improving the minimum to an EPC ‘C' rating by 2030.
- A lack of viable enforcement is an obstacle to achieving this.
- While resourcing is an immediate problem, the big issue is that local authorities have no good way of contacting landlords for enforcement purposes.
- This requires some form of data collection or landlord registry (which can also fix some resource problems).
- The faster pace of change in Scotland means it is a good place to explore potential options in a way that is directly helpful to renters in Scotland, and can lay the groundwork for a subsequent more effective change in England and Wales.
- Engage more with renters' rights organisations or legal NGOs about the potential for useful collaboration on helping tenants understand and make use of their rights
- Clarify whether an EPC fraud detection tool would actually be useful for enforcement, or if fraud is not in fact a significant blocker to enforcement.
- Send a pilot set of FOI requests to a few councils asking questions about the scale of MEES (Minimum Energy Efficiency Standards) and HHSRS (Housing Health and Safety Rating System) enforcement
- A 'nearest neighbour' analysis based on EPC data for the rented housing stock might help identify similar councils for networking and training in enforcement as the legal picture changes (it is likely that obvious comparisons are already known, however).
- We could support calls for a landlord registry made by aligned organisations from the climate angle detailed below.
- We could ask more questions of Scottish Local Authorities to clarify any obstacles to using the registry for contacting landlords. Our experience with GDPR may mean that there's a lightweight way we could unblock action.
Why this issue is worth focusing on
We want to decrease UK carbon emissions that are either directly controlled or influenced by local government (see the Climate Change Committee report on the role of local authorities).
The CCC's 2019 report on housing highlighted that 14% of emissions come from energy use in homes. Energy efficiency in housing is a big early issue for net zero, and local authorities have direct and indirect influence over large amounts of the building stock. They own a stock of council housing, regulate many aspects of the social and private rental sector, and make planning decisions that impact the general stock of future housing. Most of the housing stock that will exist in 2050 already exists, and energy efficiency standards and enforcement need to make serious progress in the next decade to decarbonise homes.
The importance of intervention increases as energy prices rise. As is not the case for owner-occupiers, the incentives for improving energy efficiency in the private rented sector are unaligned with this growth, as renters pay energy costs without the ability to make investments in insulation or new boilers. One solution to this problem is to raise the standard of energy efficiency required in private rented sector property; however, this approach may run into practical problems with enforcement.
As explored in the UK100 Power Shift report, sometimes relevant powers are split between different tiers of council, and in general local governments' enforcement powers are underfunded, and inconsistent because they are split between many authorities. Approaches that overcome collective action problems where councils are all individually under-resourced, but there are efficiencies of scale, are worth investigating.
Data analysis and citizen science may be especially useful where councils are responsible for enforcement, but have low sources of information about things they're supposed to be investigating. There is no comprehensive dataset at the national or most local levels of private rented homes. A national landlord register has long been a goal of renting advocacy groups and the Centre for Public Data has a report on the practicalities of this. The government's levelling up white paper says the possibility will be explored, which is not a full commitment.
This was an area in which we were considering commissioning new research. However, in 2019, RMS UK Consulting were commissioned by the Committee on Fuel Poverty to investigate and make recommendations. While the picture has changed a little in the last few years (mainly in the availability of EPC data), generally the problems described by this report are a good guide to the current obstacles, and give some hints as to where we might be able to make interventions. The rest of this document is mostly based on insights from this report where there isn't an obvious citation.
RMS Recommendations
The RMS report highlights four broad ways of improving enforcement of Minimum Energy Efficiency Standards (MEES):
- Landlord registration and licensing - this offers the most practical means of identifying landlords who currently lack an EPC on a proactive basis, rather than waiting for tenants to raise complaints.
- Big data - linking up data from different sources is a task that would need to happen in order to create a landlord register. It would also offer an alternative means of helping to identify private rented properties that may lack an EPC, though challenges remain in moving from such a list to having contact details for landlords needed to enforce the MEES [Minimum Energy Efficiency Standards]. Updating the EPC lodgement database [database of all energy performance certificates] would play a key role in facilitating this kind of approach to enforcement.
- Empowering tenants - if tenants could be compensated financially from landlords' failure to comply with the MEES, it might incentivise tenants to take action
- Building capacity in local authorities - training and resources within local authorities would increase capacity to enforce the MEES. Improving confidence in the quality of the EPCs would also incentivise enforcement of the MEES.
The latter two points are those where we have most potential for impact that also aligns with our overall programme goals.
Current picture
In England and Wales, energy efficiency in rented homes is set through the Minimum Energy Efficiency Standards (MEES). Since 2008 these have required a minimum of EPC band E (or an exemption) to rent out a property.
The Government has a target of rented properties meeting a standard of EPC bandC by 2030. There is not currently a timetable laying out any intermediate steps. In Scotland, there is a requirement for change of tenancy to have a C standard by 2025, and for all private rented properties to meet C by 2028.
This change is large because most EPC certificates for private rented properties currently have an E or a D certificate. 60% of the current private rented stock will need some kind of improvement to meet a C grade.
The vast majority of improvements will need to be made without compulsion from enforcement. However, a working enforcement mechanism encourages this along, and ensures that law-abiding landlords are not at a disadvantage to those that do not invest in improving their properties. (Notes)
Potential next step: The faster pace of change in Scotland means it is a good place to explore our potential options, in a way that is directly helpful there, and can lay the groundwork for a more effective later change in England and Wales. We should explore our contacts in Scotland for further context.
Why this can't be left to the market
There is a basic problem that the incentives to pay for home improvements are not as clear as in owner-occupied housing. Landlords pay for improvement; tenants pay for energy bills. There is not the same trade-off as for owner-occupiers where energy efficiency costs will be repaid over the longer term.
There is still the general incentive of landlords to improve their property to be able to charge higher rents (at least some of the cost savings to tenants can be captured by landlords through higher rent). However, this doesn't work if tenants cannot pay more rent. At the lower end of the rental market, rents are constrained (if not completely capped) by the Local Housing Allowance.
Where people are already not using heating because of a lack of money, and the Local Housing Allowance is not going to increase, the rent charged cannot increase to cover the improvement to the home. This means that either energy efficiency improvements aren't made, or they are, but price people out of housing at the poorest end of the market. More generally, councils found that sitting tenants are sometimes uncooperative with the process of getting an EPC or making improvement works because of fears that their rent might increase as a result. There is a section of the market that will need relatively few improvements, but this also means the benefit to tenants of reduced bills is less (because the difference isn't that big), and so the prospect of increased rent is smaller.
The report does suggest that there is still some benefit to landlords in the long run through increased property prices, but this is why the thinking is generally that regulation is required to raise the minimum standards and force landlords to make improvements.
A practical obstacle is that landlords (despite offering a service that must meet a certain legal standard) often do not have sufficient capital to make improvements to properties. This presents a policy problem to be addressed when grants to improve properties may be required, but also the landlord would, in all likelihood, financially benefit from this in the long run.
Separate challenges of fuel poverty
Improving the most inefficient rented properties is a different challenge to improving the majority of housing. The households and areas with the worst problems in energy efficiency in the urban private rented stock are also likely to have problems that are far worse than energy inefficiency. While as a society we have an interest in stamping out all energy inefficient housing to control climate emissions, asking understaffed and underfunded local authority enforcement in these areas to prioritise energy efficiency does not make sense locally. The RMS report highlighted that issues around criminal landlords such as "severe overcrowding of migrants, brothels and anti-social behaviour" were seen as more pressing issues by local authorities.
While the most inefficient properties may appear to be low-hanging fruit that should be dealt with early, they are likely to represent an intersection of several entirely different problems. The kind of solutions that work for these homes (and generally the clearest solution is large public investment) are likely to be different to those for the majority of rented housing.
What are the obstacles to better enforcement?
There is a fairly well understood problem that local authorities do not have the staff and resources to properly enforce MEES regulations. Self-funding through fines doesn't work when the fines are relatively small, or in the (ideally common) scenario where intervention by the council leads to improvement work happening without needing to escalate to fines.
There are also structural issues in enforcing MEES. It can be dealt with by environmental health or trading standards, and in two tier authorities these might be in different organisations. Currently any enforcement action that is happening starts as a result of an investigation or complaint about something else, for instance housing health and safety system requirements (HHSRS), or lack of licence (in an area where this is required).
Local authorities are currently more familiar with HHSRS (2004 Housing Act), and see it as giving them more power and discretion. It can require improvements to houses that are currently deficient under HHSRS but not under MEES (homes with an E EPC might still have ‘excessive cold' by HHSRS definition). However, as the MEES standard rises from E to C, this dynamic will reverse, and MEES will cover far more homes. This means that there is going to be a slow change in practice and training required as the legal powers change in significance over this period. (Notes)
Potential next step: 'Nearest neighbour' analysis based on EPC data for the rented housing stock might help identify similar councils for networking and training (it is likely that obvious comparisons are already known, however).
The big (and key) problem is that even if there were good resources available, councils do not have a way to contact landlords for enforcement purposes.
The RMS report argues that the best solution is a national landlord register. This has long been a goal of renting advocacy groups and the Centre for Public Data has a report on how to make a landlord registry for England work.
Without an accurate register of landlords, local authorities have no good way to contact landlords, except via details (if known) supplied through tenants.
For instance, local authorities have no special access to the land registry, which makes mass lookups of data expensive. Even if they did, the land registry is not always useful because it can point back to the rented property as a point of contact, rather than the landlord.
Some registries are in operation across parts of the UK:
- In England, selective schemes operate in a small number of areas, and in general for HMOs.
- Wales has a register of landlords with high coverage of the private rented sector. However, local authorities do not have access to landlord contact details.
- Scotland has a landlord register on a local authority level, and so do hold contact details; however there is apparently some reluctance to use it for contact because of GDPR concerns.
- Northern Ireland's landlord registry is light touch - and is not currently used (or intended) to be used for enforcement.
This is not information that really exists in any other form. The RMS report identifies alternate sources of information that might identify rented properties or tenants (for example a high turnover of the individuals responsible for paying council tax, or housing benefit recipients attached to the address), but not many datasets that might identify landlords. Apart from formalising the collection of landlord details as part of the tenant complaints process, the only other possibilities were using inland revenue data on people paying tax as part of residential properties (which does not necessarily make it easy to link back to the property, but might help with name matching), or data held by mortgage lenders (with no record of local authorities ever getting this information out of them). To have better enforcement, there is not a clever shortcut — the contact data simply needs to be collected.
One a landlord register has been established, there are additional benefits for the council. For example, it makes it easier to charge fees which can be used to pay for the costs of enforcement (Newham Council is one example of where this system is working). Take Climate Action explicitly makes the climate point in a write up of the register scheme in Liverpool.
There is potential good news on the national picture, the Levelling Up white paper was supportive of investigating a landlord register, and the future Renters Reform Bill has a trailed element of: "Introducing a new property portal to help landlords understand their obligations, give tenants performance information to hold their landlord to account as well as aiding local authorities." (Notes)
Potential next step: Support calls for a landlord registry made by aligned organisations from this climate angle.
]][[ Potential next step: Ask more questions of Scottish Local Authorities and validate any obstacles to using the registry for contacting landlords. Our knowledge of GDPR might mean there's a lightweight way we could unblock action.
In principle, if EPC data was accurate, it would give a very clear list to local authorities of where the problem houses were in their area. However, it was clear through the RMS report that local authorities did not think EPC data was reliable. There was some sense that EPCs were improving over time, but at this point in time there's generally a baked-in scepticism of them by local authority officers.
The CCC report on UK Housing had "serious concerns over both the accuracy and reliability of EPCs". This view pulls on several pieces of research: "Mystery shopper research for DECCfound the range of EPC ratings spanned at least two EPC bands for almost two-thirds of the dwellings analysed" and that "CREDS (2018)estimated the error in EPC reliability to be equivalent to 10 EPC points on average (which is enough to move many properties into a different EPC band)". Through analysis of the public data, A Hardy and D Glew found that "at least 27% of all EPCs lodged between 2008 and 2016 have a discrepancy which indicates an error has been made". While few of these areas had a noticeable impact on energy efficiency score, these errors were only detectable through exploring discrepancies between multiple reports, and different sets of errors would not be detectable through this approach.
For local authorities there are two classes of problem:
False positives - property is listed as below standard, when actually there are no enforceable problems:
- Tenure data can be incorrect; it may not be a rented property (or vice versa)
- Noncompliant property may have been updated since the last EPC.
- Proactive investigations of 'bad' properties may therefore be a waste of time.
False negatives - EPC standards may pass tests, but the house may not in reality be efficient:
- EPC methodology is seen as simplistic.
- Letting agents using in-house EPC assessors creates a conflict of interest.
- Lack of a minimum price for assessment led to a race to the bottom, producing poor quality EPCs.
- Strong incentives to just make the cutoff - "Some authorities reported a large percentage of properties scraping in at a low E for reasons they could not otherwise explain"
One recommendation the RMS report made was "improving training for frontline housing officers so that they can challenge EPCs that appear to be incorrect". Potentially a data tool could score individual EPCs using similar approaches to fraud detection to give some support to these challenges. (Notes)
Potential next step: Discover whether a fraud detection tool would actually be useful for enforcement, or if it is not really a significant blocker to enforcement.
Increase tenant awareness
Tenants' awareness of energy efficiency rights are low and could be improved. This runs into the general problem of improving rented housing in that there is a significant legal (and illegal) space for landlords to retaliate against tenants who complain and report through section 21 notices.
There is a legal path for tenant action that can lead to improvements.
The tenant can make a complaint to the council about any issues under HHSRS or MEES. This can lead to an inspection by the council, which can lead to an improvement notice (or landlord fixing issues informally). The improvement notice gives six months' protection from ‘no fault' (section 21) evictions. The process may lead to improvements, and if it does not, it is possible for the tenants to get a rent repayment order issued to the landlord for ignoring a formal order to improve the property.
In general this path is a bit complicated, but it's possible that aspects of it could be simplified through online services:
- Tenant inputs postcode and a form allows them to complain to the relevant local council (this can be easily implemented with mySociety's MapIt software)
- Reporting flow with checklist of requirements to report problem (similar to fixmyblock or WhatDoTheyKnow refusal advice)
- Better online version of forms for making complaints, or applying for rent repayment orders (currently this is a word document on gov.uk).
There is potential to partner with renters' rights organisations (Generation Rent are already doing some work about making EPC data more accessible to renters) or legal NGOs in this space. This also is interesting because HHSRS mechanisms mean that there is some useful work to be done in advance of the tightening MEES requirements. (Notes)
Potential next step: Engage more with renters' rights organisations or legal NGOs about the potential for useful collaboration on helping tenants understand and make use of their rights.
Improved data on enforcement
One recommendation from the RMS report that can be tackled by third parties is "improving data on enforcement":
Improving data collection on enforcement action would not in itself increase enforcement action, but it could act to incentivise local authorities to do more, and to enable weaker authorities to identify those who are doing more enforcement to learn from them.
There is currently very little information and few statistics about the extent to which enforcement powers are used in this area. The Freedom of Information Act means that external third parties can work to join this up across different areas. (Notes)
Potential next step: A pilot set of FOI requests to a few councils, asking questions about the scale of MEES and HHSRS enforcement, could validate this approach.