Response to the Climate Change, Environment, Sustainability and rural affairs committee consultation on their priorities for the seventh Senedd

The current context

Homes in the UK are the oldest in Europe and Welsh homes are the oldest in the UK. Of Wales' 1.5 million homes, 23% (334,000) were built before 1900, while only 14% (214,000) have been built since 2000.

According to the ONS, a home's age is the biggest factor affecting energy efficiency. Almost all homes built since 2012 are highly energy efficient, compared with just 8% of homes built before 1900. Overall, only 37% of assessed homes in Wales have an EPC rating of C or above.

Social landlords are committed to improving energy efficiency through the Welsh Housing Quality Standard, aiming for all homes to reach EPC C by March 2030 and eventually EPC A. However, rising costs and high interest rates mean additional funding is needed to deliver both decarbonisation and new housing supply. Decarbonising social housing alone will not be enough to meet net zero targets. 

While private rented homes must achieve EPC C by 2030, there is no equivalent requirement for the 70% of homes in Wales that are owner occupied. ONS research found many homeowners are not considering energy efficiency improvements because they believe their homes are already efficient enough or upgrades are too expensive.

Improving energy efficiency can help reduce fuel poverty, which affects 25% of Welsh households, with a further 16% at risk. However, as heatwaves become more common, homes must provide affordable thermal comfort year round. Future housing design should enable homes to be heated efficiently in winter and kept cool in summer in the most cost-effective way.

A fair funding model for decarbonisation

The Welsh Government allocated £96.9 million in 2026/27 to decarbonise existing social homes. Whilst this level of investment is welcomed, these finance levels are unlikely to deliver the scale of change required. 

Research by the New Economics Foundation published in 2021 estimated that decarbonising all homes in Wales would require £14.75 billion over the next decade, including £5.5 billion for social housing. This would enable social homes to reach EPC A under the Welsh Housing Quality Standard (WHQS) while bringing other homes up to EPC C.

The research suggests government investment of £5.3 billion will be needed overall, with the remaining 64% coming from private finance, energy companies and property owners. For social housing alone, Welsh Government investment would need to reach around £2.25 billion over the decade in today's prices, equivalent to £225 million annually. Compared with the current allocation, this represents a substantial funding gap.

Key questions

1. What role should private finance, innovative funding models and partnerships play in supporting the decarbonisation of social housing, and what barriers need to be addressed to attract investment at scale?
2. How can the Welsh Government close the estimated £2.25 billion social housing decarbonisation funding gap over the next decade whilst balancing competing pressures on public spending?
3. How can progress towards decarbonisation targets be maintained if funding continues to fall significantly below estimated need?

Bridging the skills gap

Ensuring we can decarbonise our homes and build the net zero homes of the future will need a sufficiently sized workforce. Yet the construction workforce is ageing, with 24% of workers aged over 55, while too few younger people are entering the industry. CITB forecasts Wales will need more than 117,000 construction workers by 2029, requiring around 1,720 additional workers each year across all construction roles. 

We also know there is a shortage in skills for installing new energy-efficient technologies as part of making our existing homes more sustainable. The Welsh Government estimates a retrofit workforce gap of between 2,500 and 7,400 workers, with labour supply expected to decline without intervention. Even maintaining current delivery levels will become more challenging over time – with any scaling up of the work exacerbating the workforce pressures.

Key questions

1. How can government, industry and training providers work together to develop the skilled workforce needed to meet Wales's housing decarbonisation and net zero ambitions, particularly in areas facing acute retrofit and construction skills shortages?

Ensuring year-round cost-effective thermal comfort

Retrofitting homes helps reduce energy bills and fuel poverty by making homes cheaper to heat. However, as heatwaves become more frequent, we must also consider how households will keep their homes cool, particularly those already struggling with energy costs.

The Climate Change Committee highlights the need for both active cooling measures and low-cost passive solutions, such as shading and ventilation, to reduce overheating. As excessive heat can be as harmful as excessive cold, homes must be designed and adapted to provide affordable year-round comfort. Supporting low-income and vulnerable households to stay cool in summer will be as important as helping them stay warm in winter.

Key questions

1. What changes to building standards and energy efficiency policies are needed to ensure both existing and new homes can achieve affordable thermal comfort in a warming climate?
2. How can decarbonisation and energy efficiency investment be used to reduce both winter heating demand and summer overheating risks, particularly for low-income and vulnerable household?
3. What retrofit measures offer the greatest opportunities to deliver both energy efficiency gains and climate resilience, ensuring homes remain affordable, healthy and comfortable in a changing climate?

Current context

Welsh-speaking communities face particular housing challenges, especially around affordability and the concentration of second homes in rural areas. Data from the 2021 Census shows that second homes account for 5.2% of all housing across Wales. However, the proportion is significantly higher in some rural local authorities that also have large Welsh-speaking populations.

Ceredigion has the highest proportion of second homes in Wales, with 10.2% of properties used as second homes, while 45.3% of its population speaks Welsh. Gwynedd has the highest proportion of Welsh speakers, with 64.4% of residents able to speak Welsh, and second homes account for 7.5% of all homes there.

The impact on affordability is considerable. Across Gwynedd, 59.6% of local people in 2020 were priced out of the housing market. In some parts of the county, this rose to more than 80%, making home ownership unattainable for many local residents.

These pressures have wider implications for rural economies and communities. A survey conducted by the Campaign to Protect Rural England found that only 43% of young people expected to remain in their rural area, with housing costs identified as their primary concern. Further research carried out by English Rural highlighted the challenges faced by essential workers, finding that private rental accommodation is unaffordable in 86% of rural areas for farm workers. Even though this is English-based research we have anecdotal evidence that this data is being repeated across rural areas of Wales. 

The shortage of affordable housing in rural Wales is therefore not only affecting residents' ability to remain in their communities but is also creating recruitment and retention challenges for key workers who are essential to the sustainability of the rural economy.

The Welsh Government introduced a range of measures during the Sixth Senedd to address the impact of second homes on local housing markets. This included giving local authorities the power to apply discretionary council tax premiums of up to 300% on second homes.

In Gwynedd, the Dwyfor pilot has introduced additional planning controls, requiring homeowners to obtain planning permission before changing the use of a residential property to a second home or holiday let. Legislative changes have also established minimum occupancy requirements for holiday accommodation to prevent properties being classified as second homes. Holiday lets must now be rented out for at least 182 days each year, with operators who narrowly miss this threshold able to average their occupancy across a three-year period. In addition, all such properties must be registered by Autumn 2026, although this is currently out for further consultation.

While these interventions are welcome, a significant evidence gap remains. Current housing need assessments do not provide a clear breakdown of need, specifically within rural communities. Establishing a robust baseline of rural housing need is essential to ensure that the right homes are built in the right places. This will help ensure that rural communities across Wales have access to a sufficient supply of safe, suitable and affordable homes, both now and for future generations.

Key question

1. How can housing need assessments be strengthened to provide a clearer picture of the scale and distribution of housing need across rural Wales, particularly in communities experiencing high levels of second home ownership and affordability pressures?