Publication - Impact assessment

The Energy Efficiency (Private Rented Property) (Scotland) regulations 2020: BRIA

Business and regulatory impact assessment (BRIA) for the Energy Efficiency (Domestic Private Rented Property) (Scotland) regulations 2020.

47 page PDF

573.6 kB

47 page PDF

573.6 kB

Contents
The Energy Efficiency (Private Rented Property) (Scotland) regulations 2020: BRIA
1. Purpose and intended effect

47 page PDF

573.6 kB

1. Purpose and intended effect

This final Business and Regulatory Impact Assessment (BRIA) accompanies the Scottish Government regulations on minimum standards of energy efficiency in private rented sector housing.

Under these regulations, from 1 October 2020 a private rented property will need an EPC rating of at least E when a new tenancy starts, and by a backstop date of 31 March 2022, all private rented properties with an EPC will need to meet this standard.

From 1 April 2022, a private rented property will be need an EPC of at least band D when a new tenancy starts, and by a backstop date of 31 March 2025, all private rented properties with an EPC will need to meet this standard.

This document provides an assessment of the impact of the regulations on various parties and sectors within the Scottish economy.

1.1 Context

The Scottish Government is committed to ensuring that everyone in Scotland lives in a warm home that is affordable to heat. Minimum energy efficiency standards in the private rented sector support this goal, along with Government efforts to meet its climate change, and fuel poverty targets.

Furthermore, improvements in the energy efficiency in homes will help the Scottish Government to achieve broader objectives, which include supporting economic growth and jobs in the green construction industry and improving public health. In particular, it will support the following National Outcomes:[1]

  • We live in communities that are inclusive, empowered, resilient and safe.
  • We have a globally competitive, entrepreneurial, inclusive and sustainable economy.
  • We value, enjoy, protect and enhance our environment.

1.2 Climate change targets

The Climate Change (Scotland) Act 2009 set a target of an 80% reduction in greenhouse gas emissions on 1990 levels by 2050. At the time, this was one of the most ambitious reduction targets in the world.

In 2017, emissions from the residential sector were 6.0 MtCO2e, equivalent to 15% of total direct emissions.[2] This represents a fall of nearly a quarter (24%) on 1990 levels. The Scottish Government is committed to reducing emissions from the residential sector even further. In March 2018, we published our Climate Change Plan, which included policies and proposals to reduce residential emissions by 23% in 2032 compared to 2015 levels.[3]

Moreover, in May 2018 a new Climate Change Bill was put to the Scottish Parliament, which sought to amend the Climate Change (Scotland) Act 2009 by revising the 2050 target from an 80% cut to a 90% cut in emissions, relative to a 1990 baseline. In response to the global climate emergency, amendments were lodged to the Bill in May 2019 to further raise the level of ambition. A new target date of 2045 was set, by which Scotland will be a net-zero contributor to global emissions, whilst new, more ambitious interim targets of reducing emissions by 75% and 90% in 2030 and 2040 respectively were also agreed. The Bill received Royal Assent on 30th October 2019, and the Scottish Government has committed to laying an updated Climate Change Plan before the Scottish Parliament by 30th April 2020.

1.3 Energy efficiency targets

The Scottish Government published 'Conserve and Save: The Energy Efficiency Action Plan for Scotland', in October 2010[4], which set a target of a 12% reduction in final energy consumption across all sectors by 2020, as against a baseline averaged over the years 2005-2007. This target was achieved 6 years early, and final demand in 2015 was 15.4% lower than the baseline.

The Scottish Energy Strategy, published in December 2017, set out the Scottish Government's vision for the future energy system in Scotland, including targets that by 2030, the equivalent of 50% of the energy for Scotland's heat, transport and electricity consumption will be supplied from renewable sources and that the productivity of energy use across the Scottish economy will have increased by 30%.[5]

Our Climate Change Plan was published in 2018 with policies and proposals aimed at delivering near zero emissions from Scottish buildings by 2050. This included a target that by 2032, improvements to the building fabric of domestic and non-domestic buildings would result in a 15% reduction in domestic heat demand and a 20% reduction in non-domestic heat demand respectively. As set out above, we have committed to producing an updated Climate Change Plan by 30 April 2020, and this updated plan will include new, more ambitious targets for Scottish buildings proportionate to the challenge that climate change presents.

1.4 Fuel poverty targets

The Fuel Poverty (Target, Definition and Strategy) (Scotland) Act,[6] which received Royal Assent on 18 July 2019, provides a new definition of fuel poverty, more closely aligned to relative income poverty, and sets new targets such that by 2040 no more than 5% and 1% of all households in each local authority should suffer from fuel poverty and extreme fuel poverty respectively. The Act also includes interim targets of 15% and 5% for fuel and extreme fuel poverty rates in 2030, as well as a target for reducing the median fuel poverty gap, and places a statutory duty on Scottish Ministers to report on progress against the targets every three years.

Under the new definition, a household is defined as being in fuel poverty if the fuel costs necessary for a household to maintain a satisfactory heating regime are more than 10% of the household's adjusted net income (i.e. post-housing costs), and if after deducting fuel costs, benefits received for a care need or disability and childcare costs, the household's remaining adjusted net income is insufficient to maintain an acceptable standard of living for members of the household. The income must be at least 90% of the UK Minimum Income Standard with an additional amount added for households in remote rural, remote small town and island areas.[7] While being closely aligned, fuel poverty is distinct from income poverty in that while low income is an important driver, it is not a prerequisite of fuel poverty. As such, improving the energy efficiency of domestic properties helps address one of the key determinants behind fuel poverty.

While the first official measurement of fuel poverty under the new definition will not be possible until 2020 data is available, estimates of the fuel poverty rate as at Stage 2 of the Bill process indicate that the overall level of fuel poverty in 2017, at 23.7% (around 583,000 households), was similar to the level under the old definition, of 24.9%. However, the rate of extreme fuel poverty under the new definition is higher at 11.9% compared to 7.0%.[8]

Figure 1 shows the fuel poverty rate broken down by the energy efficiency of the dwelling. Around 45% of households living in EPC FG-rated properties (the worst two bands) were in fuel poverty in 2017, compared with 20% of households in BC-rated properties. Thus, improvements to energy efficiency as a result of the regulations will help reduce the likelihood that households face fuel poverty in the short term, and also mitigate the potential risk from rising fuel costs in the future.

Figure 1. Fuel poverty rate (new definition) in all tenures, broken down by EPC band of dwelling – 2017

Figure 1. Fuel poverty rate (new definition) in all tenures, broken down by EPC band of dwelling – 2017

Source: Scottish Government estimates, applying the new fuel poverty definition as at Stage 2 of the Bill process, to 2017 data from the Scottish House Condition Survey. Note that the first official measurement of fuel povery under the new definition will only be possible once 2020 data is available.

1.5 Energy Efficient Scotland

Energy efficiency has been a long-term priority for the Scottish Government. It was designated a National Infrastructure Priority and by the end of 2021, over £1 billion will have been allocated over the period from 2009 to tackling fuel poverty and improving energy efficiency. Energy Efficient Scotland is the primary delivery vehicle to deliver energy efficiency improvements across Scotland.

Launched in May 2018[9] Energy Efficient Scotland builds upon our existing, well-established and successful schemes in order to ensure that by 2040, all buildings in Scotland will be warmer, greener and more efficient. This programme is key in achieving the reduction of our carbon emissions as required by the Climate Change Act, and in removing poor energy efficiency as a driver of fuel poverty. To do so all homes will need to meet an Energy Performance Certificate of at least band C by 2040 and businesses and public sector buildings will need to be improved to the extent that is technically feasible and cost-effective. A wide range of support is available to help householders achieve energy efficiency in their homes: from free, impartial advice, to grants and loans to help home owners cover the costs of improving their homes.

During Summer 2018, we consulted on proposals for setting long-term domestic energy efficiency standards for homes in the private rented and owner-occupied sectors, along with standards for non-domestic buildings, and sought views on the use of Energy Performance Certificate (EPC) data.

We further consulted in March 2019 to gather evidence which might support a change to the proposed timeframe, from 2040 to 2030, to deliver standards for all properties across Scotland. We considered how possible uncertainties associated with an accelerated programme of target setting and implementation can be overcome, as well as setting out the suite of legislation that we will bring forward to support delivery of the Programme. We also sought views on the recommendations relating to skills and supply chain, and explored what additional incentives could be put in place to support growth of the district heating market. The responses to this consultation were published on 16 December 2019.

On 19 December, we published a consultation on proposals for accelerating the improvement of energy efficiency in owner-occupied housing. The consultation focuses on the mandatory standard for the owner-occupied housing sector and the support required to achieve the standard and will close on 26 March 2020.

1.6 Policy objectives

The private rented sector has grown significantly in recent years, rising as a share of the Scottish residential sector from 6 per cent in 2003 to 15 per cent in 2016, although it has since dropped slightly to 14 per cent in 2018.[10] It has become increasingly important as a housing option for people at different points in their lifetimes, and not just for young, single people: for example, around a fifth (20%) of privately renting households have children. By 2016, the share of all single parent households who live in the private rented sector had risen by over 20 percentage points from 1999, so that more than a quarter (27%) of single parents were renting privately. Although the share has since decreased to 16% in 2018, it is still well above the 6% of single parents who were renting privately in 1999. The share of all small family households (i.e. households of two adults and one or two children) living in the private rented sector has also risen, from 3% in 1999 to 14% in 2018.

It is crucial that tenants in the private rented sector have good-quality, energy-efficient homes and that landlords have a fair and workable market framework for them to be able to continue to maintain and expand the sector.

The Scottish Government's strategy for the private rented sector, 'A Place to Stay, A Place to Call Home',[11] sets out a vision for "a private rented sector that provides good-quality homes and high management standards, inspires consumer confidence, and encourages growth through attracting increased investment". Improving the energy efficiency of properties in the private rented sector will help to improve housing quality, which in turn will reduce the cost of heating these properties and improve tenant health and wellbeing.

In addition to improving the quality of the offer to tenants, improving energy efficiency in the private rented sector will help to achieve the climate change, energy efficiency and fuel poverty targets set out above.

1.7 Energy efficiency in the Scottish residential sector

Energy efficiency of dwellings is measured by the Energy Efficiency Rating (EER) calculated under the Standard Assessment Procedure (SAP). The EER is calibrated on a scale of 1 to 100, with a higher score reflecting greater energy efficiency. For the purposes of Energy Performance Certificates, EER scores are divided into seven bands, labelled A to G. Band A (EER 92 to 100) represents the highest energy performance, while band G (EER 1 to 20) denotes the lowest energy performance.

As Table 1 shows, the average (mean) EER in the residential sector, calculated using the latest version of SAP (SAP 2012), is 64.3, which falls into EPC band D. Table 1 also shows that average energy efficiency in the residential sector has also been increasing steadily in recent years.

Table 1. Average Energy Efficiency Rating, SAP 2009 and SAP 2012

  SAP 2009 SAP 2012
  Mean Median Mean Median
2010 59.9 62
2011 60.9 63
2012 61.8 64
2013 63.2 66
2014 64.1 67 62.2 65
2015 64.6 67 62.8 65
2016 65.1 67 63.7 66
2017 65.6 68 64.3 67

Source: Scottish House Condition Survey, 2017, Tables 15 and 17. SAP 2012 is the most recent version of SAP, but results are also shown under SAP 2009 because a longer time series is available.

The aggregate picture disguises different levels and trends in energy efficiency within various tenures. The average (mean) energy efficiency rating in the private rented sector is 61.6, as compared to 61.8 for owner-occupied households who own their house outright, 65.3 for those that own with a mortgage and 67.8 for the social rented sector.[12] There are also significant differences in the distribution of dwellings between EPC bands in the different tenures, as set out in Table 2 and illustrated in Figure 2.

Table 2. EPC band (SAP 2012) by tenure, 2017

EPC Band Owner occupied Private rented Social sector All Tenures
000s % 000s % 000s % 000s %
A (92-100) - - - - - - - -
B (81-91) 36 2% 10 3% 18 3% 65 3%
C (69-80) 525 35% 124 36% 328 52% 978 40%
D (55-68) 664 45% 128 37% 236 38% 1,028 42%
E (39-54) 194 13% 50 15% 36 6% 280 11%
F (21-38) 60 4% 28 8% 7 1% 95 4%
G (1-20) 13 1% 5 1% * * 18 1%
Total 1,491 100% 346 100% 626 100% 2,464 100%

Source: Scottish House Condition Survey, 2017, Table 19.

Figure 2. Share of dwellings in EPC bands (SAP 2012) by tenure, 2017

Figure 2. Share of dwellings in EPC bands (SAP 2012) by tenure, 2017

Source: Scottish House Condition Survey, 2017; Table 19.

In the private sector, the most common EPC band is D: 37% of private rented stock and 45% of owner-occupied stock fall into this band. In the social sector, however, band C has the largest share (52%). The relatively worse performance of the private rented sector is also reflected in the higher share of dwellings which fall into the lowest bands: 24% of private rented dwellings (83,000) fall into EPC bands E, F and G, as compared with 18% (267,000) in the owner-occupied and 7% (43,000) in the social rented sector, while for the two worst EPC bands – F and G – the share is 9% (33,000 dwellings) in the private rented sector as compared with 5% (73,000 dwellings) in the owner-occupied and 1% (7,000 dwellings) in the social rented sector.

Figure 3 shows the trend in the number of dwellings by EPC band. Since there has been a significant increase in the total number of dwellings in the private rented sector over this period, Figure 4 shows how the proportion of dwellings by EPC band has changed over time.

Figure 3. Number of privately rented dwellings by EPC band (SAP 2009), 2010-2017

Figure 3. Number of privately rented dwellings by EPC band (SAP 2009), 2010-2017

Source: Scottish Government analysis of Scottish House Condition Survey data, various years; SAP 2009 used to give a longer time series.

Figure 4. Proportion of private rented dwellings by EPC Band, 2010-2017, SAP 2009

Figure 4. Proportion of private rented dwellings by EPC Band, 2010-2017, SAP 2009

Source: Scottish Government analysis of Scottish House Condition Survey data, various years; SAP 2009 used to give a longer time series.

While there was a downward trend in both the number and share of FG-rated properties from 2010 to 2013, this has subsequently levelled off.

Figure 5 provides a similar breakdown in the trends by EPC band for the social rented sector, and illustrates the much smaller proportion of FG-rated properties in this sector. Within this, the number of properties in the worst band, G, is minimal (see Table 2).

Figure 5. Proportion of social rented dwellings by EPC band (SAP 2009), 2010-2017

Figure 5. Proportion of social rented dwellings by EPC band (SAP 2009), 2010-2017

Source: Scottish Government analysis of Scottish House Condition Survey data, various years; SAP 2009 used to give a longer time series.

Furthermore, Figure 5 shows that the proportion of E-rated properties in the social sector has fallen from 14% in 2010 to 4% in 2017 whilst the proportion of ABC-rated properties has almost doubled, increasing from 33% to 61%. In contrast, progress in achieving a higher standard of energy efficiency has been noticeably slower in the private rented sector; whilst the share of properties falling into EPC band E has decreased from 21% to 14%, the share of properties falling into the highest three bands has only increased from 29% to 40%.[13]

Key characteristics which determine the energy efficiency of a dwelling include how efficient its heating systems are as well as how efficient the dwelling is at retaining heat. The latter is in turn affected by the proportion of exposed surfaces, the construction form and material of its walls, windows, roof, etc. and the level of insulation that has been fitted to these surfaces. Since the EER measures the costs of heating a property, the type of fuel used will also have an impact due to the differences in fuel prices.

Differences in energy efficiency between and within sectors can therefore be partly due to the prevalence of different types of dwellings and fuel use. Figure 6 shows that the owner-occupied sector has a much larger proportion of detached houses than other sectors (which typically require more energy to heat) while the private rented sector has a higher proportion of tenements (which typically lose a greater share of heat through uninsulated, solid stone walls).

Figure 6. Share of dwellings by type of dwelling for broad tenure, 2017

Figure 6. Share of dwellings by type of dwelling for broad tenure, 2017

Source: Scottish Government analysis of 2017 Scottish House Condition Survey data.

Figure 7 shows that the private rented sector has a relatively smaller share of properties using gas as the primary fuel type, and a relatively larger share of dwellings using electricity than the other sectors. The owner-occupied and private rented sectors also have a small but significant component of oil-fuelled dwellings. The social sector has a greater proportion of gas fuelled and a smaller proportion of properties using electricity for heating than the private rented sector, as well as a negligible share of oil-fuelled dwellings.

Figure 7. Share of dwellings by fuel type, for broad tenure - 2017

Figure 7. Share of dwellings by fuel type, for broad tenure - 2017

Source: Scottish Government analysis of Scottish House Condition Survey data, combined 2015-2017 stock.

The effects of these dwelling characteristics can be better understood by looking within the private rented sector at dwellings where the EPC rating falls in the lower bands.

Figure 8 shows that a disproportionate share of older (pre-1919) private rented properties fall into the lowest EPC bands: 41% of all privately rented properties were built before 1919, yet 72% of privately rented dwellings with an EPC of FG, and 62% of EFG dwellings, were built before 1919. Conversely, only 3% of properties in EPC bands EFG were built after 1982.

Figure 8. Share of private rented dwellings by age groups, for EPC bands (SAP 2012), 2015‑17

Figure 8. Share of private rented dwellings by age groups, for EPC bands (SAP 2012), 2015‑17

Source: Scottish Government analysis of Scottish House Condition Survey data, combined 2015-2017 stock.

The correlation between older dwellings and a lower EPC score is largely explicable by wall type, since older, particularly pre-1919 dwellings, are typically constructed with solid stone walls. Solid walls are less effective at preventing heat transmittance between the inside and the outside of a building than properties built with modern construction materials; therefore, in the absence of insulation, they require more energy to maintain a satisfactory heating regime. Figure 9 shows a disproportionate number of the lower EPC bands in the PRS comprise properties built with stone walls: 69% of FG-rated dwellings, and 62% of EFG-rated properties have stone walls.

Figure 9. Share of private rented dwellings by wall type, for SAP bands (SAP 2012), 2015-17

Figure 9. Share of private rented dwellings by wall type, for SAP bands (SAP 2012), 2015-17

Source: Scottish Government analysis of Scottish House Condition Survey data, combined 2015-2017 data.

Figure 10 shows a higher proportion of private rented dwellings with low EPC ratings are situated in rural areas: 63% of all FG-rated dwellings are found in rural areas, while 93% of those rated ABCD are found in urban areas.

Figure 10. Share of private rented dwellings by EPC band (SAP 2012) for urban-rural location, 2015-17

Figure 10. Share of private rented dwellings by EPC band (SAP 2012) for urban-rural location, 2015-17

Source: Scottish Government analysis of Scottish House Condition Survey data, combined 2015-2017 data.

Lower EPC scores amongst rural properties are once again driven by certain characteristics of rural housing stock: rural housing tends to be large, detached properties built with solid stone walls, with a greater external surface area than that typically found in urban housing. Rural properties are also less likely to be connected to the gas grid and are therefore dependent on alternative heating fuels, many of which are more costly to run than burning natural gas.

This is illustrated in Figure 11: 81% of ABCD-rated dwellings have a mains gas connection, while only 5% of FG-rated properties use mains gas. Conversely, properties using heating oil comprise only 2% of ABCD-rated properties, yet account for 27% of EFG-rated, and 38% of FG-rated properties. Similarly, some form of electric heating is used by 15% of ABCD-rated properties, but by 35% of FG-rated properties.

Figure 11. Distribution of private rented dwellings by heating/fuel system for EPC bands (SAP 2012), 2015-17

Figure 11. Distribution of private rented dwellings by heating/fuel system for EPC bands (SAP 2012), 2015-17

Source: Scottish Government analysis of Scottish House Condition Survey data, combined 2015-2017 data.

However, it is important to note that it is not just the prevalence of different built forms and heating fuels that varies between sectors, but also the degree to which retrofit activity has been undertaken. Figure 12 shows that lofts in the social sector tend to be better insulated, with a larger proportion of social sector homes having 200mm or more of insulation. Only 19% of lofts in the private rented sector are insulated at 300mm or more, compared with 30% of owner occupied and 37% of social housing stock.

Figure 12. Insulation of loft spaces by tenure, 2017

Figure 12. Insulation of loft spaces by tenure, 2017

Source: Scottish House Condition Survey, 2017; Table 9.

Similarly, Figure 13 shows that 46% of cavity walls in the PRS remain uninsulated, whereas in the social sector, less than a third remain uninsulated.

Figure 13. Share of cavity walls insulated by tenure, 2017[14]

Figure 13. Share of cavity walls insulated by tenure, 2017

Source: Scottish Government analysis of Scottish House Condition Survey data, 2017.

The stronger regulatory framework applying to the social rented sector, with the energy efficiency elements of the Scottish Housing Quality Standard, which had to be met by 2015, now enhanced by the higher requirements of the Energy Efficiency Standard for Social Housing, which sets out minimum EPC ratings to be met by 2020, is likely to have played an important role in the higher degree of retrofit activity in this sector.


Contact

Email: denise.buchanan@gov.scot