The Future Homes Standard & Viability

The meaning of “Sustainability” is often described as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”[1]. This principle has an impact on not only environmental but social and economic factors, in many different sectors. The development industry is undoubtedly one sector which can make a significant difference in achieving “sustainability” resulting in reduced carbon emissions in both residential and commercial development. This has been acknowledged through the Government’s legally binding target to achieve net zero by 2050.

 

Focusing on residential development here, in 2019 the Government published the first consultation phase of developing a “Future Homes Standard” (FHS) which proposes to set new energy efficiency targets for all new-build housing, delivering homes that are “zero carbon ready”. The Government’s response to this consultation in January 2021, confirms this first phase will implement an interim uplift to Building Regulations (Parts L and F). This requires all new homes to be built to Option 2 ‘Fabric plus technology’ providing a 31% reduction in CO₂ compared to current standards through improvements to fabric and building services. At a high-level, the key elements will be:-

• Encouragement for the use of low carbon heating system with heat pumps to eventually become the primary heating system. Although only “encouraged” at this stage, we understand this is to become a key aspect of the forthcoming FHS with the exact specification to form part of the next consultation stages;
• Enhanced fabric efficiency including minimising heat loss from windows, walls, floor and roofs;
• Wastewater heat recovery system and photovoltaic (solar) panels.
• Future proofing – no further energy efficiency retrofit needed to enable future homes to be zero-carbon based on the electricity grid continuing to decarbonise;
• No reliance on carbon off-setting to achieve reduced CO₂

 

The next phase of progressing the FHS is planned for consultation in 2023 which we understand will set out the exact full technical specification leading to full implementation of the FHS in 2025. At this stage the Government’s response makes it clear the above interim uplift to Building Regulations is a key steppingstone towards the FHS.

 

Overall, the industry response to the FHS proposals has been broadly positive; the right steps are being taken to move further towards achieving zero carbon. However, there has been some criticism that the proposals do not go far enough, quickly enough, particularly alongside the challenges posed in retrofitting existing homes to help meet the carbon reduction targets. Currently it is estimated 90% of existing housing stock will still be in use in 2050.

 

Local Authorities are currently able include policies on sustainable development in Local Plans that exceed the minimum energy efficiency requirements of the Building Regulations. There has been much confusion in the sector as to whether the 2015 Amendment to the Planning and Energy Act 2008 and the subsequent Written Ministerial Statement (WMS) removed that capability. However, the above amendment was not enacted, and the WMS only set an “expectation” that Local Authorities should not set energy efficiency standards above the former Level 4 of the Code for Sustainable Homes (equivalent to a 19% improvement on Part L 2013 of the Building Regulations).

 

The Government’s response to the first phase of the FHS consultation tries to provide some clarity on the above stating “in the immediate term, the Government will not amend the Planning and Energy Act 2008, which means that local planning authorities will retain powers to set local energy efficiency standards for new homes [underline DSP emphasis]”. We understand the intention is that the interim uplift to Building Regulations will reduce the need for local authorities to set local energy efficiency standards as it will essentially already be a fixed requirement.

 

So, what does this mean for and what is the impact on development viability? At DSP we work exclusively with Local Authorities providing robust viability evidence and, in a Local Plan Viability context, the majority of our clients are already looking to implement or further enhance planning policies on sustainable development in line with the FHS interim uplift to Building Regulations. In our experience, some Local Authorities are already taking a more progressive approach and setting policy beyond the interim uplift to a zero carbon standard. With a number of competing policy priorities, e.g. affordable housing need, accessibility standards, biodiversity net gain (BNG) to name a few, the cost of achieving the FHS interim uplift inevitably comes with a need to consider the viability ‘balance’, ensuring that the cumulative impact of policy does not put future development at risk. The relative weight of these competing policy requirements is individual to each Local Authority and striking the right balance in viability terms is key in evidencing a robust Local Plan.

 

In our experience, early-stage matrix policy testing to understand relative cost impacts, combined with early consultation with Council Officers and Members, is a critical element in the viability testing process. This enables us to advise on the optimum combination of policy requirements (at an early stage of policy development) that would not unduly impact future planned development.

 

From our perspective we consider the draft FHS as a positive step for the industry in the journey to net zero carbon and this is going to continue to be a key aspect for consideration in viability assessment, particularly at strategic plan making stage. Looking to the future, at some point “sustainable development” will simply be “development” with sustainability coming as standard.

[1] Report of the World Commission on Environment and Development: Our Common Future (“The Brundtland Report”).