CIH response to MHCLG and DESNZ consultation on Improving the Energy Efficiency of Socially Rented Homes in England

Overall, CIH welcomes the work the government has undertaken to date to stabilise the finances of the social housing sector and provide long-term policy certainty, especially on rents. In our response to the previous consultation on social rent policy in December 2024, CIH called for the introduction of rent convergence. We therefore welcome the government’s commitment to introducing this policy. We were also pleased to see the confirmation of the 10-year rent settlement at CPI plus one per cent announced at Spending Review, which provides the sector with clarity for the future, alongside wider housing announcements, such as the new Social and Affordable Homes Programme, access to building safety funding, and the Warm Homes Plan.

In the present consultations, two things – both crucial priorities for CIH – are at stake. The first is the potential benefits of rent convergence for building new social homes, balanced against the question of how much of these benefits should be invested in existing homes to meet the new DHS and MEES. Although this is an oversimplification, much of the building of new social homes will be funded from what is left from this process as providers prioritise meeting legal and regulatory requirements.

Analysis commissioned by CIH and partners, outlined in our response to the rent convergence consultation, highlights that additional rental income generated from convergence will need to be spent by both housing associations and local authorities on existing homes and asset management over the next ten years. While there is some uncertainty, particularly as the current MEES proposals are difficult to model, it is likely that the scale of changes and high costs associated with implementation will use up a significant proportion of surplus income, essentially through using more of the additional capacity created by rent convergence than initially expected to improve existing homes.

A compounding factor rests in the inherent uncertainty contained within the MEES proposals. As is well known, the majority of the social housing sector has been working towards EPC Band C (i.e. EER C) by 2030 for several years. Significant progress has been made, with substantial bill savings for residents. The present proposals withdraw this goal and replace it with a target that is not only different but is at least partially unknown. Until the sector has clarity on the final design of the Home Energy Model (HEM), the government’s reformed Energy Performance Certificate (EPC) framework, and where the minimum standard (i.e. ‘the target’) will be set on any of the new EPC metrics, it is difficult to provide an informed view on many of the individual MEES consultation questions.

Putting aside this uncertainty, our engagement has demonstrated that the government’s preferred design of the policy (i.e. Option 1, with a £10,000 cost cap, a transition and exemption regime, and a 2030 compliance target) risks the disruption of existing business plans, and may require an unanticipated increase in investment in energy efficiency works for many providers between now and 2030. If this investment is all required to take place before 2030, a possible consequence will be a reduction of resource available to build new social homes as providers reprofile business plans to meet MEES. The evidence we have gathered suggests this may be the case even when a 50 per cent grant contribution from government through a future wave of the Warm Homes: Social Housing Fund is assumed. Some providers have expressed a legitimate concern that the required investment may not be viable at all before 2030, and that they risk being downgraded by the Regulator of Social Housing.

The second thing at stake in these consultations is the urgency of tackling fuel poverty, and our 2030 statutory fuel poverty target, which CIH strongly supports. The core aim of MEES should be introducing regulations to deliver warmer, safer homes for social housing residents. The present proposals take a very welcome step towards this goal, while also introducing a secondary aim: the decarbonisation of social homes, in line with our statutory net zero target and carbon budgets. CIH is pleased to see the new MEES explicitly incorporating the urgency of decarbonising homes and buildings, and we generally support the introduction of a regulatory framework that prioritises the reduction of space heating demand while taking steps to accelerate the transition to net zero.

However, we do think that there are some important challenges that need to be identified and addressed before the policy is finalised. Based on published research and evidence from our members, we do not feel the proxy Fabric target is strong enough to significantly reduce space heating demand or make a home truly heat pump ready for social housing residents. We also believe that wider energy policies, especially the removal of levies from electricity bills, need to take place before heat pumps are rolled out at scale in social housing. In addition, the proposals should carefully consider how to treat heat networks in the social housing sector, given the very complex and challenging position they occupy, especially due to the Heat Network Technical Assurance Scheme (HNTAS), which could cost providers thousands per home on top of MEES. Finally, we also think more consideration is needed of how to ensure works undertaken to meet MEES do not inadvertently lead to increases in resident energy bills, for example in scenarios where direct electric heating could be installed to meet a Heating System target.  

Beyond this, there are other possible unintended consequences that will require careful mitigation when the policy is finalised. For instance, many housing associations now have agreements with lenders that link energy performance improvements, measured on EPCs, to better borrowing rates. Moving away from the old EPC framework could jeopardise the ability of housing associations to meet their EPC based targets, putting them at risk of exposure to higher borrowing rates that could negatively impact their retrofit and housebuilding capacity. In addition, there is a possibility that the proposals could drive an increase in homes subject to options appraisal and possible disposal, something individual providers always view as a last resort, but sometimes necessary to maintain financial viability. If these homes end up in the owner-occupied sector, there are even fewer policy levers in that tenure to effectively tackle fuel poverty. We also think more consideration of resident voice is required, specifically the importance of ensuring social housing residents have their say in what energy performance upgrades are installed in their homes.

We would therefore like to see further work take place to finalise the policy. We strongly believe that if government takes an open, collaborative approach to the finalisation of the policy, the challenges can largely be overcome. We share the government’s end goal: a MEES policy that is affordable and deliverable for the sector, achieves affordable warmth for residents, and enables progress towards wider priorities around carbon budgets, statutory fuel poverty targets, and housebuilding targets. CIH is fully committed to working with government, partners and members to achieve this, and we make our recommendations below in this spirit. 

Based on our analysis and engagement, we would make the following key points and recommendations for government, which fall into three groups: a) recommendations for next steps on MEES, b) detailed recommendations for how the policy should be finalised, and c) wider recommendations for essential enabling energy and housing policy.

Our main recommendations for next steps on the MEES policy are below.

• Immediately confirm an initial MEES target for 2030 to ensure that investment towards warmer homes and statutory fuel poverty targets this decade is maintained. Based on our engagement, we think this should take one of two forms: 
  
  • Retain the current EPC C by 1 April 2030 target on the EER/energy costs metric, with compliance able to be demonstrated through both SAP and HEM, and with the proposed cost cap and exemption regime. This would be most suitably achieved by extending the proposed transition regime to 2030. This option would ensure minimum disruption to current business plans and allow providers to continue investing in energy efficiency measures as they have been planning. It would also allow time between now and 2030 for the government and the social housing sector to develop a collaborative approach to meeting net zero by 2050, with appropriate metrics, milestones, and a transition regime.
  • Introduce Option 2 (Fabric only by 2030, defined as four years after the publication, in 2026, of the HEM, new EPC framework, and target metric), with a £10,000 cost cap, as well as the proposed exemption and transition regimes. Compliance should be able to be demonstrated through both SAP and HEM. This would align with the governments proposed shift to its new EPC framework, but could risk disrupting current investment towards EER C. To avoid incentivising approaches to retrofit in some archetypes that are not appropriate or cost-effective, it would also need to contain flexibilities for homes where alternative solutions are the most suitable routes for tackling fuel poverty.
• Undertake further engagement with the social housing sector, its residents, and wider health, housing, and fuel poverty stakeholders to work through the challenges associated with the two secondary metrics, their possible impact on sector finances, their relation to net zero, and where the statutory targets should be set on each. We think this could take place before the end of 2026. This could take place through one or both of two avenues:
  • The establishment of an expert working group – which could be an expansion of the existing Sounding Board – composed of technical experts (i.e. in retrofit, PAS, energy modelling, procurement), as well as sector and resident representatives.
  • The publication of a technical consultation.

Our detailed recommendations for how the policy should be finalised are below. These recommendations have been devised following close consultation with our members and partners regarding the challenges posed by the initial proposals. However, the recommendations are ours and ours alone, and we are aware of different views across our members and partners as to the best way forward. If taken forward for consideration, these recommendations must therefore be subjected to scrutiny by the wider social housing sector and by stakeholders in the fuel poverty space.

• Immediately confirm an initial MEES target for 2030 to ensure that investment towards warmer homes and statutory fuel poverty targets this decade is maintained. Based on our engagement, this could take one of two forms (below). There are advantages and disadvantages to both of these options, but we would note that the approach closest to what the sector is already working to will cause the least disruption.
  • Retain the current EPC C by 1 April 2030 target on the EER/energy costs metric, with compliance able to be demonstrated through both SAP and HEM, and with the proposed cost cap and exemption regime. This would be most suitably achieved by extending the proposed transition regime to 2030. This option would ensure minimum disruption to current business plans and allow providers to continue investing in energy efficiency measures as they have been planning. It would also allow time between now and 2030 for the government and the social housing sector to develop a collaborative approach to meeting net zero by 2050, with appropriate metrics, milestones, and a transition regime.  
  • Introduce Option 2 (Fabric only by 2030, defined as four years after the publication, in 2026, of the HEM, new EPC framework, and target metric), with a £10,000 cost cap, as well as the proposed exemption and transition regimes. Compliance should be able to be demonstrated through both SAP and HEM. This would align with the governments proposed approach in its new EPC framework, but could risk disrupting current investment towards EER C. To avoid incentivising approaches to retrofit in some archetypes that are not appropriate or cost-effective, it would also need to contain flexibilities for homes where alternative solutions are the most suitable routes for tackling fuel poverty.  
• Undertake further engagement with the social housing sector, its residents, and wider health, housing, and fuel poverty stakeholders to work through the challenges associated with the two secondary metrics, their possible impact on sector finances, their relation to net zero, and where the statutory targets should be set on each.
  • A reasonable timeline for this could be to undertake further work and consult by autumn 2026, with the aim of confirming the secondary metrics and the compliance date by the end of 2026. To encourage progress, Wave 4 of the Warm Homes: Social Housing Fund should begin in 2028 and continue to focus on smart technologies and low-carbon heating as well as fabric improvements.
• Ensure the final policy carefully addresses the possible unintended consequences of setting the Heating System target in certain ways, especially in relation to heat pump affordability, heat networks, direct electric heating, and prepayment meter use.
• If the government chooses our recommendation of Option 2, consider a slightly adjusted timeline for compliance to give the sector sufficient time to familiarise with the HEM, undertake energy modelling, reprofile retrofit programmes, secure investment, go through procurement, and carry out works, specifically by:
  • In legislation, setting the compliance date 4 years after the publication of the HEM, new EPC framework, and confirmed target metrics. If the government keeps to its timeline, this will still mean a Fabric compliance date of 2030, while giving the sector reassurance that there is a legislative mechanism to ensure that delays to HEM and its reduced data version will not affect compliance.
  • Allowing compliance to be demonstrated through SAP and RdSAP, as well as HEM, to ease the transition while ensuring upgrades can still take place. This would mirror the welcome transitional approach taken to the Future Homes Standard.
• Set the cost cap at £10,000, including grant funding.
• Clarify whether A&A works will be included in any cost cap, how it will operate in practice, and whether it will include VAT or be linked to inflation.
• Consider how to support the sector to develop the necessary technical expertise to model and deliver archetype-specific retrofit pathways to meet MEES. This could take the form of an open-source energy modelling tool, developed by industry experts with oversight from government.
• If the government chooses our recommendation of Option 2, introduce the transition regime as planned, allowing providers to continue improving homes to EER C before 2028. 

Our wider recommendations, without which we feel the MEES policy will be more unlikely to succeed, are:    

• Introduce rent convergence at £2 per week, in tandem with a renewed funding programme for improving existing homes.
  • As part of this programme, Wave 4 of the Warm Homes: Social Housing Fund should be significantly expanded, and designed to align with the finalised MEES target metrics and compliance timelines, to support the sector to deliver.
• Take further action to improve the financial capacity of local authorities, which will allow them to meet broader compliance spending requirements, such as MEES.
• Progress vital work to reduce the price of electricity by removing levies from electricity bills, accelerating work to pass on the lower costs of renewable energy generation to energy bills, and considering targeted energy bill support for clean heating.
• Consider how to target future energy bill support to social housing residents living in homes that are exempt from MEES to 2040 due to exemptions.
• Through the reforms to the EPC regime, make it clear that EPC renewals are only required in the social housing sector at specific trigger points, e.g. when energy efficiency measures are installed or as part of void relet work, not after a set number of years, to maximise the amount of money that can be spent on energy efficiency improvements and essential A&A. 

For more details on our response please contact Matthew Scott, policy manager, matthew.scott@cih.org.