First published in the Winter edition of Society Matters, by Robin Fieth, BSA CEO

Saltford Manor House near Bath is thought to be the oldest continuously occupied private house in England. Built in 1148, it has survived over 870 years. Over the next 28 years Saltford Manor House will presumably be one of the 28 million homes in the UK that will require greater or lesser adaptation as part of our national legal commitment to achieving Zero Net Carbon by 2050. That equates to just over 2,500 homes a day between the start of 2022 and the end of 2050. At first sight that doesn’t sound too scary. The clock is ticking, for sure, but what’s all the fuss about? There’s plenty of time, no need to rush into decisions …….

At one level, that might be right.  What seemed very clear to me from the various debates at this year's party conferences is that the range of options and solutions for dealing with the UK's housing stock is far more complex than some would have us think. Let's be honest - the future is not all about heat pumps, no matter what the Government's Heat and Buildings Strategy says. They are undoubtedly part of the solution, but how big a part remains to be seen. 

So here is my current analysis, based on what I have learnt so far. Let's start with the 23 million homes that are connected to the natural gas grid. The Government has signalled that it will make a decision on the future of the grid by 2026; has already required boiler manufacturers to make new gas boilers readily convertible to hydrogen and has announced that the manufacture of gas boilers may end in 2035. For those 23 million households, the best course may be to hang on until at least 2026. As at domestic level, converting from natural gas to hydrogen should be straightforward and considerably less expensive than going down the heat pump route. For those of us old enough to remember the switch from coal gas to natural gas in the early 1970s, there is a readymade blueprint for working neighbourhood by neighbourhood, street by street. But - and this is a really big but - where is all the hydrogen going to come from? Domestic heating would have to compete with heavy industry, freight, aircraft and many other intensive energy users. There is much talk about blue (bad) and green (good) hydrogen, but previous little progress in developing capacity for either.

And what of heat pumps? The consensus seems to be that performance will improve, physical size shrink and prices will come down quite quickly (more reasons for households to delay). It seems that heat pumps may be best suited for homes built with cavity walls before the 1980s and after about 2000. Older homes present the known difficulties of achieving effective insulation; micro-bore central heating systems installed in the 1980s and 1990s may not allow sufficient flow to be effective with the lower latent heat associated with heat pump systems. At least we are moving forward in one respect - it is now feasible to combine heat pumps with conventional (if larger) radiators rather than requiring underfloor heating systems, providing possible solutions for all those homes with concrete floors.

That leaves our heritage housing stock – from the very old like Saltford Manor House, to the rows of Victorian and Edwardian terraces and villas that are such a great feature of our cities, towns and villages. Anyone who owns a listed home will know about the restrictions on seemingly basic heat loss reduction measures such as installing double glazing. Few would advocate that we should overcome the absence of cavity walls with internal or external cladding. In focusing on EPC ratings (a whole area of debate in itself), perhaps we are looking at the wrong sorts of measure. If energy inputs are green, does it matter so much if some houses are cold and drafty, leaking heat in all directions?

It also leaves us with the more than 1.5 million homes that are not connected to the natural gas grid, which are disproportionately older and larger. I recently came across a couple of articles (possibly placed or sponsored, so to be treated with some caution), suggesting that switching from heating oil to liquid biofuel could be achieved for as little as £500 and reduce carbon emissions by 80-90%. If true - and if biofuel can be readily available in sufficient volumes, my accountant's mind says this looks much more economical and less disruptive than far more expensive heat pump solutions.

And where does that leave the mortgage industry? Firstly, I think it goes a long way to explain the low take up rates for the range of green mortgage products that building societies are starting to offer. Secondly, a number of people are hearing the conduct alarm bells ringing. If lenders promote funding for solutions that subsequently prove sub-optimal or prematurely obsolete, will they face a new wave of mis-selling claims? Will following government policy statements be an adequate defence? In lending now, are we serving the best interests of our members? You can see the read across to the proposed FCA Consumer Duty.

Thirdly, how do we square all of this with prudential regulation and requirements? This seems to me to be a particularly delicate area. On the one hand, it is absolutely right that lenders are required to assess and re-assess the risks in their existing books and their appetite for taking on new risks. A thirty year mortgage today takes us past 2050, and there is reasonable evidence (even for the sceptics) that climate events are already becoming more extreme, with consequential risks to housing.

But, again but, on the other hand, quiet signals from regulators (such as increased emphasis on climate related stress tests and even suggestions of supervisory questions about risk appetite) may result in unfortunate responses from lenders. If the outcomes from regulation start getting ahead of the housing market, if lenders start to shun the houses below EPC C, there is a real risk that more and more homeowners become mortgage or home prisoners. Given the UK's obsession with the housing market, this could be a political hot potato that no one wants to be left holding!

We, like so many others, fully subscribe to the concept of a just transition. We are clearly not alone in recognising that the words are easy to say, and difficult to deliver. The solutions that we will need to achieve a good outcome are very complex, require real Government leadership on the big decisions, truly smart and sensitive regulation, and will test all our abilities to the limit.

You can follow Robin on Twitter: @bsaceo