Lenders and investors start to value energy efficiency in housing – perhaps more so than owners and tenants do
As part of the REVALUE project, Maastricht University and the Massachusetts Institute of Technology brought together lenders, investors and researchers to discuss policies and trends in investments in green housing. A picture emerged of careful investors paying more attention to energy quality of their stock than the actual tenants do.
While practitioners confirm energy efficient homes are not yet valued by buyers or tenants, and no higher sales price or rents can be commanded, there is a strong belief this will change in the future. Regulation is a key driver. New homes already need to meet stringent quality requirements, and sooner or later, regulation will also apply to existing dwellings. This may lead to ´stranded assets´ which cannot be rented out by investors if dwellings do not meet minimum energy quality criteria. The United Kingdom is already moving in that direction, prohibiting lettings and lease renewals for dwellings labelled ´F´ and ´G´ by 2018, and extending that regulation to existing leases by 2023. In secondary markets, the slowly improving quality of the building stock is also likely to lead to ´brown discounts´ for outdated stock as better quality homes will become widely available.
Lenders take notice and are future proofing their portfolios. Major banks across Europe offer better conditions for financing the purchase of green homes or retrofits, including favourable loan durations and interest rate discounts of 20-50 basis points. Other lenders and investors go a step further and have started divesting units that can not be brought to future standards in a cost-effective way.
The findings of the event support the case for updating RICS guidance on valuation of sustainability in residential property, a process supported by Bax & Company. The trend also has a direct positive impact on the institutional home owners that Bax & Company support in developing their investment strategies. Lower interests rates and higher valuations not only enable financing of large scale retrofit programmes, it adds to the evidence that ambitious green renovation is not only the right thing to do, it also is a a sound investment strategy.