2030 EPC Deadline: A turning point for the private rented sector

The Government has confirmed that all homes in the private rented sector (PRS) must have an Energy Performance Certificate (EPC) rating of C or above by 2030. The aim of these standards is to improve the energy efficiency and quality of rental homes, in line with the UK’s targets for decarbonisation.

England’s homes emitted an estimated 100 million tonnes of cabon dioxide (CO²) in 2022, accounting for over 20% of the UK’s total carbon emissions. That’s approximately the equivalant of driving around the world 18 million times. The Climate Change Committee emphasised that the UK will not achieve its net zero target “without near complete decarbonisation of the housing stock”.

According to the English Housing Survey, the average PRS dwelling emits 3.4 tonnes of CO² anually. However, the least efficient homes, rated EPC D to G, produce significantly more at between five and eight tonnes a year. Midway through 2024, DULHC estimated around 2.6 million homes, or 60% of PRS homes were inefficient, with an EPC rating of D or below. Clearly, upgrading these homes is a crucial step to help the UK meet it energy targets.

The average gas and electricity bill across all tenures is now almost 30% higher compared with Winter 2021/2022, and the price cap rose again in October 2024 by 10%. Improving the energy efficiency of homes will help to significantly reduce energy bills. For example, fuel costs for homes in bands F and G were more than two times higher than those in bands A-C in 2023. According to the English Housing Survey, the average energy bill saving for PRS homes improved to EPC C is £284 a year.

However, there may be challenges when implementing this regulation. Firstly, some of the housing stock will not have the potential to achieve an EPC rating of C. Estimates suggest approximately 230,000 homes that require improvement will not be able to reach the required lettable standards. Still, the major challenge will be the level of homes that require upgrading and reassessing.  Excluding the 230,000 that can’t be upgraded, and the 100,000 additional homes we expect will be upgraded in the second half of 2024, there remains around 2.27 million inefficient homes. These will need to be upgraded and reassessed in the next five years to be compliant before the start of 2030. This translates to approximately 454,000 EPCs being issued at A-C each year from 2025 to 2029. This is over twice the current issuance rate.

Between 2018 and 2023, the issuance rate of A-C EPCs has doubled, with an average annual growth rate of 13.5% in the last three years. Still, the total annual issuances remain under 200,000. If the rate of issuances continued to grow at 13.5%, around 1.48 million properties could meet the regulatory level by 2030. While this is closer to the target, it would still leave a shortfall of 780,000 properties. This, added to the 230,000 properties unable to upgrade, could lead to over 1 million properties exiting the rental market. Removing this stock will reduce the already low supply of these homes. However, the actual number could be much higher. Not least because to expect the rate of EPC issuance to continue at a 13.5% growth rate would be a significant ask, particularly from resourcing standpoint.

Figure 1: Likely rate of PRS home upgrades, compared with required rate

The cost of upgrading is likely to be a constraint for some landlords. According to the English Housing Survey, the average cost to upgrade homes from an EPC E-G to a C is £13,500, while for D rated dwellings, it is £6,200. Considering a 10% exemption rate, and accounting for homes that cannot be improved, the total expenditure needed to upgrade the PRS stock in England and Wales could be in the region of £17bn.

The costs of upgrades, combined with higher interest rates and no mortgage-cost relief, will affect the viability of operating a profitable buy-to-let home. Consequently, some landlords could sell their properties and exit the rental market if they consider the short-term investment too financially demanding. This will compound an already established trend, with an estimated 480,000 buy-to-let loans redeemed since 2016. This would further contribute to the supply shortage in the rental market. Some of the overall loss of stock will be replaced by new build to rent stock, however, with only 172,000 Build-to-Rent homes in the pipeline across the UK, there could remain a net loss of around 840,000 rental homes.

Moreover, the effects will not be felt proportionally across the country, as the financial viability for landlords will vary across the regions. For example, in the North East and Wales, the cost of upgrading to an EPC C accounts for 80% of annual rent; this compares with 26% in London. In addition, the housing stock quality varies across regions. London has the lowest proportion of inefficient homes, at 52%, while nearly two-thirds of homes in Wales, and Yorkshire and The Humber are classed as inefficient. As such, the rental market in the North of England and Wales may be affected more by this new legislation.

For landlords who wish to stay in the PRS, the upgrades could yield long-term benefits. According to our recent movers’ survey, 66% of respondents looked at the EPC rating of their new rental property, and of those, 77% said that it influenced their decision when moving home. Energy efficiency is clearly high on the agenda for tenants, with strong demand for properties with high EPC ratings.

The net zero target is a high priority and this legislation is a crucial step in both meeting that target and improving the quality of the PRS. On a national scale, the impact will be significant. For each home upgraded to a C from a D will remove one tonne of CO² emissions per year. This increases to four tonnes for a home currently between EPC E-G. If all PRS homes are upgraded, it would lead to an overall reduction of 4.5 million tonnes of CO² emissions per year from England and Wales, and is the equivalent of taking over three million cars off the road.

Still, its practical success hinges on several factors, including the specific characteristics of the PRS stock, landlords’ financial ability to invest in upgrades, and adequate government support. Labour has pointed to the Boiler Upgrade Scheme and the Great British Insulation Scheme to aid landlords in enhancing energy efficiency. However, greater transparency about this support is needed. Balancing the immediate costs with the long-term benefits will be essential for the successful implementation of this policy.

And of course, the rental market is only the first step. Owner Occupation makes up 65% of households in the country and has a greater proportion (64%) of homes with an EPC rating of D or below compared with the PRS (58%). So, while this is a step in the right direction, further legislation might well be in the pipeline for owner-occupiers.