The UK has one of the oldest housing stocks in Europe. Around 21% of homes are more than 100 years old and more than half are more than 60 years old, according to the Home Builders Federation. It was only in the interwar years that cavity insulation began to be installed and many homes still do not have it, nor double-glazing. That’s why heating the UK’s 28m homes accounts for more than 20% of the country’s greenhouse gas emissions. There is, therefore, significant room for energy efficiency and decarbonisation in the residential home sector. Given that the new government appears keener to rekindle the green agenda than the previous one was, should we expect more green home improvements and decarbonisation of the housing stock in the next few years?
Is my home my money sink?
In 2023, nearly two-thirds of UK adults said they were worried about the impact of climate change, according to the Office for National Statistics. But do they really want to decarbonise their homes? If they don’t, decarbonisation in the UK – and the entire built-environment ecosystem of retrofitters, surveyors, architects, etc, that depends on it – is likely to fail.
A strong demand response, on the other hand, would breathe life into the ecosystem and help banks and building societies, among others, to decarbonise their Scope 3 emissions.
Green home improvements can be made in several ways: from fabric improvements – such as installing double or triple glazing – to the replacement of fossil fuel-based heating and power with heat pumps and solar panels. These, and many more, come at cost and need financing.
Santander’s report in April this year, ‘Tomorrow’s Homes: Facing up to the UK’s energy-efficient buildings challenge’, which looks at costs, is telling. Based on a survey of more than 4,000 people nationwide, it shows that costs are a key barrier and that there’s neither strong awareness nor broad-based demand for household decarbonisation yet. It seems households are not prepared to act on the climate emergency. The main reason for the hesitation is that combatting climate change is just one perceived benefit of an energy-efficient home. Saving money and reducing bills are deemed much more important. Of those surveyed, 79% of people selected that as their top priority, followed by wellbeing and comfort at 47%. The research found that households, given a meaningful sum of money to spend as they please on home improvements, would be more likely to spend it on refurbishments (eg, kitchen and bathroom upgrades) than specifically on green home improvements.
“The elderly and the young may feel they will not be in the upgraded home long enough to recoup the outlay for the work
The likely cost is not the only barrier to climate action: the practical difficulties of finding tradespeople who have the right skills, as well as the disruption from installation, also matter. Because cost is key, however, some form of innovative cost relief is needed. Homeowners know there are significant upfront costs and they would probably like to recoup these through an appreciation in property values or some form of tax relief.
The psychological burdens
What can be done to remove this inertia? Using a behavioural lens, we can point to a combination of incentives and nudges that could help reduce homeowner resistance to green home improvements.
Most of us discount future benefits in favour of current gratification (hyperbolic discounting), which is why wellbeing and comfort and cost reduction are commonly prioritised above climate action. But it’s not just that people are focused on short-term gratification. Many retrofitting options require homeowners to spend significantly now, with the promise that there’ll be savings down the road.
The reality is that the economic breakeven point – when the spend on home improvement can be recovered through lower energy efficiency costs – could range from six to ten years or longer. Although the ecological rewards (lower carbon emissions) arrive more quickly, which benefit society earlier, the cost is likely to result in a sense of regret for most prudent households. In particular, both the elderly and the young may feel that they will not be in the upgraded home long enough to recoup the outlay.
Householders are also likely to be loss averse. Green home improvements pose challenging commitments, especially as many owners have limited knowledge about the full range of green home-improvement options. They are expected to place their trust in retrofitting assessors, contractors and other intermediaries, where they may be oversold the energy savings, misled on the estimated costs or left with a project that is not competently delivered. That will weigh on householders.
Planning requirements are another barrier, particularly for listed homes or in conservation areas.
Reducing the barriers
Recognising these frustrations, and the underlying cognitive biases, could help reduce barriers to decarbonisation. It would arguably do more for the greater good than bold net-zero decarbonisation targets or huge marketing spends on green home improvements. But it would also require a collective effort from government, local authorities, financial institutions and the green home-improvements ecosystem.
The harsh reality is that unless market forces are made to work in the homeowner’s favour, decarbonisation efforts are unlikely to be successful. Financial institutions are slowly becoming aware of this. In September this year, the Institute of International Finance, which represents more than 400 financial institutions in more than 60 countries, called for a ‘reset’ in the debate on the role of private finance in the net-zero transition.
Recommendations
Can households be nudged to overcome their biases and go green? Given the varied nature of homeowner biases and reservations, several economic actors, in particular national and local government, would need to take on leadership roles.
“Homeowners spending significant sums, say upwards of £10,000, should be guaranteed a base return on their green investment
First, promoting awareness and education is key. Households are more likely to commit to serious climate action in the short term, and make the desired energy choices, if they understand the need for urgent action and the scale of the challenge. For example, replacing gas boilers with heat pumps provides far greater emissions reductions than other measures.
Households also need readily available benchmarks. What have other homeowners done at similar-sized properties, how quickly and at what cost? Benchmarking and training might help reduce the strong preference households place on current comforts as opposed to future climate security. Easily
Cost is by far the main barrier to action accessible local and nationwide comparisons would also help. If households had, for example, readily accessible, reliable and customised (but non-binding) quotes for green home improvements through local authority-backed digital marketplaces, that would narrow the trust gap and inject some reliability and price consistency into the market.
Second, where homeowners may be holding back because of aversion to future losses, local authorities have a dual role to play. In recognising the climate urgency, they can use digital solutions to speed up planning permissions and, where possible, remove red tape. Also, putting their weight behind a digital marketplace that brings together all the economic actors, where those with reliable certification (eg, TrustMark, other similar qualifications or independent reviews) are given clear ratings, could further eliminate some hurdles.
“Homeowners willing to share data on their carbon-reduction… could be offered some form of tax relief
Homeowners who have been mis-sold services by tradespeople in the past, or who have had bad experiences with green projects, may be hesitant to act. A digital marketplace that brings the different economic players together in a trusted manner should help with that.
Third, the government, with support from local authorities, can also work to reduce ‘regret bias’ around big upfront costs. Homeowners spending significant sums, say upwards of £10,000, should be guaranteed
base return on their green investment.
Life’s uncertainties may mean homeowners move houses within five to ten years of making significant investments in green home improvement. In that case, they are effectively generating something positive for their boroughs and society at large, without themselves reaping the full benefits of their decarbonisation investment. The government needs to recognise and reward that through some form of tax relief or tax deferral.
One option would be a promise of some form of future stamp duty relief for upgraded homes. The evidence suggests appreciation in property values does not fully correspond with the level of green spend. While a high energy performance certification (EPC) home, say A or B, will always be well regarded, anything lower may not necessarily see much benefit in the eventual sale price.
Local authorities may also want to step in with creative incentives. They could introduce their own nudges by (part-) sponsoring ‘digital logbooks’ that tag the cost of home improvements to the property, rather than to the owner, which is the case at present. Such logbooks could serve as independent verification of the investment made in green home improvements and plug the missing confidence gap at the point when property changes hands.
Homeowners willing to share selective data and have it documented – such as their property’s EPC rating, the nature and value of their retrofit spend and its typical operational emissions etc – could be offered some form of tax relief. This could either be through slightly lower council tax or a basis for future inheritance tax relief or stamp duty relief in collaboration with the government. This would provide the missing minimum return on their green investment.
It could benefit all the economic actors – from the service providers to the governmental authorities to the households – and so catalyse the green ecosystem, while also giving local authorities insight into the interim progress being made on decarbonising homes. It would also help the country move closer to net zero.
Conclusion
Surveys reveal that there remain barriers to green home improvements, with homeowners appearing to be holding back. Certain cognitive biases may be creeping in. Excessive discounting of the future and a sense of regret or loss aversion may be central to these.
Recognising these and taking creative steps that blend finance and technology could unlock the latent demand for decarbonisation in an otherwise climate-conscious country. Incentive-based nudges led by the government and local authorities, with support from financial institutions, could help accelerate the decarbonisation of homes.
