Good for the Earth, good for business

We know we need to do more to battle climate change. We also know Government isn’t afraid to legislate to force businesses to become greener.

Large, complex sites will see many changes to regulations between now and when residents start moving in. Going above and beyond current requirements isn’t just good for the environment. It also helps mitigate the risk of disruption to developers’ businesses later.

There are other benefits too. Lenders and investors are already piling pressure onto developers to go green. Taking schemes beyond minimum sustainability standards could unlock access to better finance terms and more attractive pricing.

Build for the future

A survey by London Councils showed that 82% of Londoners are concerned about climate action. This rises to 86% for 25–34-year-olds. The survey also highlights that climate change is affecting the day-to-day decisions of 59% of Londoners, and 57% agree their concern is increasing.

Developers, therefore, need to act now to ensure they are meeting the demands of the occupiers of the future. They’ll need to take a view on how far ahead of current regulation they need to target to meet evolving buyer demand while keeping costs at manageable levels.

What changes do we know are coming?

Many industry bodies such as RIBA and LETI have been pushing for stricter sustainability standards for new development, and the UK Government has begun to act. We’ve had sustainability disclosure requirements (TCFD), net zero targets and tightened planning and building regulations in response to the climate challenge.

The Future Homes Standard will require a 75–80% reduction in emissions in new build homes by 2025 compared to current regulations, including a ban on gas boilers in new homes. Even sooner, we’ll see an interim uplift in building regulations taking effect from June 2022. Developers are already factoring the resulting higher build costs into land bids. We predict these additional costs to meet the Future Homes Standard will be in the range of 1% to 2.5% per house, according to our analysis of figures published by some of the major housebuilders.

London already leads the way within the UK, with new homes here relying far less on gas heating than elsewhere in England. But almost a quarter of new homes built in London in 2019 (24.4%) still had a gas boiler, according to MHCLG data. Developers are having to factor in the cost of installing community heating systems or heat-pumps to meet stricter building regulations. In the case of smaller sites, local authorities will have to establish infrastructure plans to share these systems between schemes.

The Environment Bill focuses on biodiversity, tree-planting, recycling and water preservation. With its devolved regional powers, London has taken this a step further. The London Mayor has pledged to deliver a Green New Deal for the city with a target for London to be carbon-neutral by 2030, to help tackle the climate emergency. He has also been hugely ambitious in his new London Plan, meaning that London developers will have to commit to higher levels of scrutiny.

We know stricter rules work

In Australia, the National Australian Built Environment Rating System (NABERS) is widely regarded as world-leading. It’s been compulsory since 2010 and created a marked change within real estate development, slashing CO2 emissions from buildings by 7 million tonnes and saving NABERS users AU$1 billion from their energy bills (£540m). NABERS recently launched in the UK for office buildings, providing a star rating which considers the performance of a building at an operational level, including all sources of energy use within a building.

In New York, since 2019, every new roof has to be environmentally friendly. This doesn’t have to mean a green roof, which is typically covered in vegetation. It could be blue (to help harvest rainwater), brown (typically biodiverse), or white (reflecting sunlight and helping to keep the building cool). Other American cities have also adopted this approach, and the results are emerging. This Canadian study showed that green roofs peaked at 38°C in the summer, compared to 66°C for asphalt roofs.

This success could inspire a similar scheme here in the UK. It isn’t possible to anticipate every possible scenario. But developers can take the first step making their plans more sustainable to avoid getting caught on the back foot later.

The viability squeeze

How likely is it that developers will just start delivering more sustainable homes ahead of policy requirements, given the cost implications, and there is no proven price premium on the sale price? This is alongside many other policy challenges, such as 35–50% affordable housing requirements, often high infrastructure and remediation costs and high build costs.

There needs to be an adjustment. That’s unlikely to be in the form of reducing Affordable Housing requirements, given the current Mayor’s ambitions in this area. It is also unlikely to be in lower land values, since non-residential land uses are already looking increasingly competitive in some parts of London.

Government needs to plug this gap to help focus developers on delivering more energy-efficient buildings. This could be in the form of a Green Development Fund, or reduced capital gains tax (see Does London see a green premium?).

What comes next?

There’s more to ESG than just the 'E'.

Developers will have to consider the impact their schemes have on local neighbourhoods as well as the environment. This is another area where a proactive approach can reduce policy risk down the line. Measuring a development’s effect on local communities, as Argent Related will do at Brent Cross Town with its new Flourishing Index, could be crucial evidence for government and lenders. This will track the health, wellbeing, happiness and productivity of the local community, and Argent Related will use the data to shape design and understand what they need at ground level in further phases.

We’ve previously written about loneliness in the workplace, but this also applies to the home. Loneliness can be addressed through design of buildings and public spaces, and this is something that Lendlease have paid particular attention to at their scheme in Elephant and Castle. They have designed the buildings in their phase, South Gardens, with plenty of shared spaces to encourage interaction amongst neighbours. This has proven very popular. The roof gardens have a grow space for residents to use, and a gardening club has emerged amongst keen gardeners, with regular social events to encourage all ages to use the garden.

The evolution of net zero

We have known for many years that we need to reduce the amount of carbon emitted through the construction and operations of buildings. Back in 2002, Bioregional and the housing association Peabody developed BedZED, the UK’s first net-zero development, which to this day supports residents to live more sustainably through a range of initiatives, and to enjoy far lower energy bills. The creation of BedZED was not without its challenges. It went over budget, due to rapid price inflation in the construction sector, and the district heating system boiler had to be replaced.

However, Bioregional’s approach should be lauded. The lessons learnt from BedZED informed the creation of One Planet Living®, a sustainability framework that has guided the development of more than $30bn of residential development across five continents.

Click to read – Bioregional: beyond BedZED

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