Jenny Love, UCL Energy Institute
Privately rented housing is universally acknowledged to be pretty cold, leaky and difficult to treat. There are 4 million privately-rented dwellings in England, and they are on average older and contain a higher proportion of the lowest bands of energy efficiency of the above types of housing. (you can see the facts in the English Housing Survey here).
Once I rented a flat in London where we sat, with the windows closed, watching the Christmas decorations in the kitchen blow off the wall. At least we never had to worry about letting in enough fresh air…
Why is the private rented sector lagging behind other types of housing in some areas of energy efficiency? It’s often due to a phenomenon known as the ‘Split Incentive Problem’, which is as follows: the tenants aren’t going to pay for energy efficiency measures, since they won’t be there long enough to reap the benefits of all they have spent. However, the landlord won’t pay for the measures either, as he/she doesn’t pay the energy bills so isn’t losing out from the property using a lot of energy to keep warm.
This article will go through some of the ways that have been and are being proposed to get around the Split Incentive Problem. See what you think could work in your situation, or not, as the case may be.
2. What’s being done about minimum standards?
In terms of the worst housing, there is good news (in a few years’ time, anyway – hold on to your Christmas jumper for now…):
– From 2016, landlords will not be able to “unreasonably” refuse requests from their tenants to improve rented accommodation. I’m not sure what the definition of “reasonable” is and whether I could bring along my floored Christmas decorations to the negotiations, but it seems that such definitions are being worked out at the moment.
– From 2018, “the most inefficient properties, very likely those with an Energy
Performance Certificate (EPC) rating of F and G”, will become illegal to rent
(unless the landlord can show that all “reasonable” steps were
undertaken to improve a property but still no better than an F-rating was
I got the above from here, the group currently working on this on behalf of the government. It is welcome news that those housed in the worst conditions will not have to face extortionate bills any more, particularly those on low incomes, but on the other hand I also wanted to know what was being done to improve the rest of the stock – that which was not as dire but only mediocre in terms of energy efficiency.
3. What’s being done to bring houses up to better ratings than minimum?
– On the landlord side, they are able to claim £1500 of tax back under a scheme called the Landlords’ Energy Saving Allowance. To be honest, I’d never heard of this until researching it. Take-up by landlords has been rather low; I wonder if they haven’t heard about it either?
– On both the landlord and tenant side, a possibility to pursue is the Green Deal scheme. It’s worth spending a bit of time on this, to ponder its applicability as an option…
4. The Green Deal, as applied to private rented housing
Different readers will know different amounts about the government’s Green Deal scheme (you may have seen that my colleague and I wrote about it a year ago from a marketing perspective here). In a private rented context, the premise is that instead of either the landlord paying or the tenant paying for the energy efficiency works, the Split Incentive can be got around by no one paying. That is, no one pays up front. Tenants pay, as their bills will be reduced, so the cost of the works gets put onto their (electricity) bill, in a way that overall the tenants are paying the same or slightly less for their bills than they would have been had they not had the works at all.
Despite this being one of the topics we academics like to criticise over a cup of tea and a Penguin bar in the kitchen at work, and perhaps more seriously the fact that everyone left right and centre is criticising the way the Green Deal has been put into place, I wanted to hang on to it as a concept and think about how it would take shape in a private rented context. What follows is a thought experiment as to how the dialogue between a landlord and their tenants would go. It is telling that it is only a thought experiment – even though I am an Energy Freak I am still too scared to actually have the conversation with my landlord.
The first question is: who would approach the other: the landlord or the tenants? There are some fantastic energy-conscious and savvy landlords out there who want to install energy efficiency measures to make life better for their tenants and also to increase the value of their property, but in general I suspect it would be the tenants who had the most incentive to do a Green Deal since we’d be the ones living in the cold house.
What happens next in my imagination is that one or all of us in the house emails the landlord with a link to the Green Deal scheme, politely explaining that if we do it carefully, we can find a Green Deal Assessor who doesn’t charge to come and advise us what can be done to the house. My colleague Sofie has a great blog explaining what this bit of the process feels like for an owner-occupier here.
Probably, the next thing that happens is that the landlord says no. Nothing against landlords, but from scouting around on the internet as advised by this blog, it seems that currently the discourse between the government and landlords is not sufficient to convince the latter that it does not bring financial risk, such as being financially linked to one’s tenants if they default on payments, etc.
Then, in my mind, unfazed by this initial response, I email back and explain that everything will be fine. The landlord asks if I know any other tenants who have undergone this process.
At this point I look up some statistics, do a bit of maths, and calculate that there have been just over 700 Green Deal assessments on behalf of private rented landlords or tenants. To be honest, this is not bad at all – as I was commencing my thought experiment I imagined there may have been none.
What happens next? I don’t know, but what I do think is this: even though the Green Deal has been widely criticised, it is in theory a way to get round the Split Incentive Problem – and in fact, for the moment it is the Only Way, so in some ways we should do our best to make it work. I was encouraged that there had been assessments carried out in the private rented sector – meaning that the potentially awkward conversation between landlord and tenants has occurred to an extent that as agreement was made to let an assessor in (assuming that the properties were occupied when the GD assessment took place).
To sum up, it seems that currently, it is a choice between the Landlords’ Energy Saving Allowance or the Green Deal. One is unheard of and the other is problematic but should cover more expensive works than the former. The social dynamic of the landlord and tenants coming to a point where both agree that works will be carried out is currently difficult as the schemes are not mainstream to either party. In a few years, there will be relief for those in houses with very high heat loss, but for now, here’s what we did (all you need is a hairdryer, a local B&Q, and about £7…)