Housing market impacts from heating and energy efficiency regulations in Scotland

The buildings sector in Scotland accounted for approximately 20% of the country’s greenhouse gas emissions in 2020. To help meet Scotland’s climate change emission reduction targets measures to decarbonise heating and deployment of energy efficiency measures will be required.

This study investigates potential impacts of the proposed Heat in Buildings Bill by considering four different scenarios against a policy-free baseline.

Findings

While implementing the proposals consulted on in the Heat in Buildings Bill ensures earlier compliance with the regulation, it may also result in a slowdown in activity of the Scottish housing market. In the rental market, tenants are likely to bear some of the upfront costs of energy efficiency retrofits in the form of higher rents. Following the introduction of the proposed Bill, landlords may decide to exit the market if they do not want to comply with the regulations.

Extending the grace periods following purchase to five years is not expected to affect compliance rates, compared to a two-year grace period. However, it could delay clean heating installation timings, as homeowners often defer action until the deadline.

If there were no early-action trigger points, compliance with the regulatory framework may be postponed, leading to delayed action in achieving emissions savings. This could result in a significant increase in demand for energy-efficient homes specifically around the backstop dates, potentially causing a shortage of energy efficient properties.

The market slowdown where an exemption for first-time buyers is introduced is relatively modest compared to having no exemptions.

Policy implications

The potential introduction of heating decarbonisation and energy efficiency regulation could decrease purchasing activity in the Scottish housing market. Deferring or setting varied deadlines for vulnerable segments of the market (i.e., first-time buyers, low-income households, small-scale private landlords etc.) could partially mitigate this downturn. Extending the grace periods could partially mitigate the adverse market effects induced by the proposed early action trigger points.

Pairing the regulatory framework with targeted financial support programmes could help lessen these impacts, particularly where they are designed to safeguard vulnerable individuals and help ensure they are able to adhere to the regulations.

First-time buyers might still encounter difficulties with the additional costs required to meet minimum energy efficiency standards when purchasing properties that are not energy efficient. Extending the deadlines for first-time buyers to meet energy efficiency standards, even when they are exempt from trigger points, could be explored as an option. Integrating these exemptions with support from help-to-buy schemes could maximise market activity.

If you require the report in an alternative format, such as a Word document, please contact info@climatexchange.org.uk or 0131 651 4783.