New Future Homes and Building Standard starts to take effect

One of the first steps in a major new government initiative to cut carbon emissions - which will involve sweeping changes for the construction industry - was taken in June when various changes to building regulations were introduced ahead of the Future Homes and Building Standard.

The new Standard is set to come into full effect in 2025 with a goal of dramatically cutting carbon emissions in new homes by 75-80% on current levels.

Inevitably, this will mean new homes built by both private and public developers will have to meet more demanding and potentially costly standards. But the new Standard will also extend to existing homeowners who are undertaking extensions or renovations involving thermal upgrades.

The non-residential construction sector will also be impacted. Developers of new offices, retail premises and public authorities will be obliged to meet new standards with a target to cut emissions by 27% over coming years.

The timing and broad scope of the new Standard means it could have a significant influence on workloads in various sectors – particularly new private housing and commercial work – over coming years.

Already, there are signs that commercial developers have brought forward the start of some new schemes this spring to avoid some of the new regulations which came into force in June.

In the medium term, contractors working in the housing renovation and refurbishment sectors should see stronger demand for their services as clients are obliged to meet more exacting standards.

Suppliers of energy efficient building insulation materials and products - particularly for products such as heat pumps and window replacements units - will stand to benefit.

Yet in an era of rocketing fuel costs, the significant savings on energy bills enjoyed by buyers of new homes could give a boost to demand for private housebuilders.

The new standard could also bolster demand for newly built commercial and office space. The rise in fuel costs has moved energy efficiency increasingly onto the radar of both major private developers and landlords as well as occupiers of business space. It has been reflected in the growing number of new projects built using the sustainable BREEAM route and will be reinforced by the new Standard.

According to Allan Wilen, economics director at Glenigan, “This marks a major change as it means businesses are looking at a broader environmental platform. By moving energy efficiency up the agenda, it will help to reduce their footprint and will have a direct benefit on costs and on the bottom line.”

First impact on social housing

The first sector where the new Standard appears to be having an impact on tendering arrangements is social housing work for councils and housing associations. Glenigan data shows some significant new frameworks currently being let are including features such as ground and air sourced heat pumps and solar panels which will become part of the new Standard.

For example, a £1 billion renewables servicing & maintenance framework for Hastoe Housing Association in Kingston-on-Thames - where applications to tender are currently invited - involves firms providing various services which will be commonplace under the new Standard.

In this case they include - servicing and safety inspections of air source heat pumps, ground source heat pumps, unvented hot water cylinders, solar thermal panels, rainwater harvesting systems and mechanical ventilation with heat recovery. The framework starts next spring and runs for eight years (Project ID: 22142268).

Social housing frameworks also appear to be being designed to anticipate the new Standard. A £1 billion four-year housing improvement framework for Barnet Homes in North London, which is currently at the pre-tender stage, is focused on energy efficiency and insulation. It involves retrofit works, such as insulation, solar panel, heat pumps, and other energy efficiency items (Project ID: 22207618).

Work on energy efficiency for social housing linked to the new Standard - on both new and renovation schemes - should provide a useful support to the pipeline of work in the sector over coming years. As things stand, the latest Glenigan UK Construction Industry Forecast 2022-24 predicts a 1% increase in the value of new project starts in the sector next year with activity being maintained in 2024.

Private housebuilders get to grips with specifics

For private housebuilders, the new Part L of the Building Regulations introduced in July ahead of the full Standard means new homes in England now need to produce around 30% less carbon emissions. And there is evidence that some housebuilders brought forward the start of work on site ahead of the introduction of the new regulations. The latest Glenigan Index shows that private housing work starts on-site in July were particularly weak, down 8% compared to the month a year ago.

Allan Wilen says: “As many housebuilders get to grips with the specifics of this new regulation and futureproof their assets to comply with other aspects of the Future Homes Standard, a quieter July was inevitable and could carry into August.”

Receptive homes market

Yet in the medium and longer term, private housebuilders should find a receptive market for homes built to the new regulations. A recent survey by Knight Frank showed that energy efficiency of a home has become more important to 80% of buyers in the past year. Meanwhile, a third of survey respondents cited rising energy costs as the reason they will buy an energy efficient home and, encouragingly for private housebuilders, a fifth of respondents said they would pay more for an energy efficient home.

In the same vein, a House Builders Federation report published earlier this year – before the latest energy price rises – showed buyers of new homes save more than £400 per household and produce just a third of the carbon emissions, compared to older less well-insulated homes.

These details should help provide housebuilders with a compelling marketing case for new homes and will underpin the positive prospects in the sector, irrespective of the short-term outlook for the economy or interest rates. After a dip in the value of new project starts this year, the latest Glenigan UK Construction Industry forecast predicts a 14% increase in the value of underlying project starts next year and a further small rise in 2024.

The new standards should favour specialists and contractors with skills in the key areas expected to be covered in the new regulations, particularly energy-efficient insulation, and the installation of low-carbon heating such as air source heat pumps.

It could also give a further boost to the home renovation sector. Any homeowners planning on making thermal upgrades or undertaking an extension will be obliged to follow the new Standard from 2025. Building materials and products suppliers inevitably stand to benefit as home improvers are obliged to use energy-efficient options in areas such as window replacement, building services, cooling systems and fixed lighting, as well as heat pumps.

Private commercial and industrial impact

Ahead of the goal to cut emissions in non-residential new buildings, the introduction of the new building regulations in June appears to have impacted short-term activity in the private commercial and industrial sectors. The latest Glenigan Index shows that office project starts in the three months to July fell 42% compared to the previous three months and industrial starts were down 26% on the same basis.

Yet as with private housing, the introduction of the new Standard is likely to bolster the value of construction activity in the commercial and industrial sectors in the longer term as fuel bills become increasingly significant for occupiers. Major developers such as Landsec, the country’s largest commercial developer and Hammerson, the retail developer and landlord, have pledged to reach net zero on emissions across their estates by 2030.

A planning application by Peel Media for a major new 11-storey office building at MediaCity in Manchester - where Landsec owns a 75% stake - gives a pointer to the new emphasis on energy-efficiency in commercial buildings which is being partly driven by the new Standard.

The £69.9 million building features aluminium panelling which is less carbon-intensive in the design and construction phase and aims to achieve BREEAM Outstanding and Energy Performance Certificate A rating. It will also be Net Zero Carbon, using the UK Green Building Council Framework (Project ID: 22261646).

The significant investment needed to meet the new Standard should help support private office construction activity, a sector where Glenigan is forecasting a 10% rise in the value of new starts this year followed by a 7% rise next year and a further 16% increase in 2024.

Yet private commercial property owners particularly on smaller buildings may need some further government help to achieve the targets involved in the new Standard. Last month the British Property Federation urged the government to increase tax relief for capital expenditure on building projects to support its net zero ambitions with a new tax credit system along similar lines to the existing one for R &D spending.

Meanwhile, the new Standard is already starting to feature in wider publicly funded non-residential projects. A £10 million contract for a district heating interconnector at Honiton for East Devon Council which is currently at the pre-tender stage is one example. The council’s prior information notice specifies the “…delivery of a Future Homes Standard and Future Buildings Standard compliant energy solution”. The project involves connecting existing heat networks to a low carbon heat source at a nearby business park and supports the planned expansion of the Cranbrook new town to around 8,000 homes (Project ID: 22253979).