A new quality standard for social housing is being introduced in Wales. The consultation on the new standard came to a close on 3rd August, but senior voices within the sector have already expressed grave concerns about its potentially disastrous implications for an already challenging environment.
What changes does the new standard make?
RSLs and Welsh local authority landlords are already required to ensure a greater level of quality of their housing stock, compared to other home nations. The Welsh Housing Quality Standard (WHQS) planned to be introduced in 2023, will set the bar in Wales even higher.
Notable changes include the need for social housing providers to consider the following:
- energy efficiency to minimise energy bills for tenants and boost decarbonisation ambitions
- increased minimum floor space requirements
- biodiversity and water poverty
Why do we need a new standard?
The current standard has been in place for over two decades and a review was clearly overdue. The changes support the Welsh Government’s ambitions for all new homes to be net carbon zero by 2025 and aligns to the goals of the majority of social housing providers to decrease their carbon footprints. This is also consistent with the UK ambition to limit global warming to no more than 1.5 degrees by 2050.
The focus on energy efficiency and reducing bills could not be timelier. The cost-of-living crisis means tenants are under a lot of pressure and urgently need help in this area.
Why are people concerned?
The new standard was designed in very different pre-Covid times. There are significant concerns that these ambitions are simply not deliverable. In Wales compared to other parts of the UK there is a far shorter timeframe to reach the higher EPC standards required and the funding position is not clear. In an already challenging environment, the uncertainty of the actual cost of implementing these energy efficiency and decarbonisation measures are significant risks for RSL’s and local authorities.
At the Manchester housing conference earlier in the year finance directors from a number of large English RSLS were pointing out that the cost of decarbonisation measures will not translate into a proportionate increase in the capital value of their stock, and it was clear there was a funding gap that was not sustainable.
The New Economics Foundation estimate that the amount needed to decarbonise and improve the quality of Welsh homes is £14.75bn. Of this, 64% of total investment will need to come from private finance, energy companies or be self-funded.
What can be done about it?
Social housing providers will need to find new and innovative ways of leveraging other sources of funding and investment. Already the Development Bank of Wales is seeking to develop a new Wales Energy Service Company to coordinate and support funding decarbonisation.
The need for new sources of funding for the decarbonisation agenda will inevitably mean looking at more ‘ESG’ or ‘Green’ forms of funding. RSLs are increasingly being encouraged to enter into funding deals on an ESG basis, in which preferential terms are given due to the borrower’s high standards in relation to environmental, social or governance issues. These may take different forms, typically either limiting the uses for which the funds may be used or needing specific goals to be achieved to qualify for a reduced interest rate. However, there is a risk that the costs of complying with these requirements may outweigh the benefits in terms of reduced interest costs. A degree of caution and circumspection is key to ensure ESG criteria align with what a RSL is able to achieve and what it knows works well on the ground.
Stuart Ropke, Chief Executive of Community Housing Cymru, has called for an alternative approach prioritising initial investment to support fuel-poor households and further investment over a deliverable (slower) time period that will allow the supply chain in Wales to scale up alongside demand. This will require a collaborative approach to structure funding and a Wales based skills strategy.
For providers to achieve lower energy costs and efficiencies to satisfy the requirements of the WHQS, they will also increasingly need to incorporate innovative technologies into their developments. One example is this biophilic living project in Swansea, which uses fish waste as fertiliser to help produce 4.5 tonnes of fruit and vegetables a year, which our energy infrastructure specialists advised on. Other schemes such as Gwynfaen Farm and Parc Eirin focus on batteries, solar panels and ground source heat pumps.
Have you thought about how the WHQS is going to impact your organisation? Would you be interested in helping to develop a collaborative sector-wide approach? We will be looking at wider issue of low carbon approaches in a variety of case studies in our seminar in November.
To get in touch with our social housing team, or to take a look at some of the projects that they’ve been involved in, visit the dedicated social housing page.
HJ Housing Week 2022
With the largest social housing team in Wales, we’re continuing to bring our legal experts together every year in a week dedicated to everything housing. ‘HJ Housing Week’ strives to cover the full spectrum of housing issues using our 40 years of experience advising the sector.
Whether you are looking for a deep dive into a particular issue with a masterclass, an introduction to a new practice area that impacts your work or opinion on the commercial and policy decisions of the future, our blend of webinars, in-person events, articles and videos throughout HJ Housing Week will deliver the information you need at a time that suits your schedule.