Developing the Case for Sustainable Buildings
Jonathan Fashanu is the Co-Founder and CEO of Dash House Group. In this article, he discusses the importance of sustainable development.
We all know the stats. Roughly 30% of the UK’s carbon emissions come from our existing residential buildings. We need around 300,000 new homes a year; most of these will have to comply with the Future Homes Standard which will come into effect in 2025, all this playing a role to slash our emissions by 78% by 2035 in line with a net-zero target by 2050. Regardless of whether we hit those targets or not, the direction of policy is clear.
Sustainable developments are no longer a fringe movement; they are the new normal, and they are here to stay. While climate change helped strengthen the environmental argument for sustainability, COVID brought many of the social issues around health and wellbeing to our doorstep. Personally, it has been great to see many of the developers we work with engage in the dialogue, but we should be past that discussion, and every development should already have sustainability metrics implemented.
The main reason for the slow adoption of sustainable developments was that there was no demand for them. This ‘vicious circle of blame’ was highlighted 20 years ago, but you will be surprised to hear still the same arguments today. In 2008, RICS published a report1 where they presented a ‘virtuous circle’ where the market adjusts its requirements. The five takeaway points were as follows:
1. Sustainable buildings are not any more expensive to build from the onset than conventional ones.
Many developers still share the view that a sustainable build is much more expensive than a traditional one. The BRE and the Cyril Sweett building consultancy carried out research to quantify how much it would cost to build to BREEAM sustainability standards. The report2 found out that the additional costs to achieve ‘Oustanding’ or ‘Excellent’ standards were typically less than 2% while incurring little or no additional costs below those standards. These costs could be paid back from the operational savings within two to five years.
The “Passivhaus” methodology was developed in the early 1990s and is one of the leading standards in energy-efficient design and construction. A study by Etude and Levitt Bernstein endorsed by The Passivhaus Trust3 debunked the myth that Passivhaus certified homes cost 25% more than conventional ones. The actual figure is around 3-8%. This can be achieved when sustainability is considered at the very early stages of the project and integrated into the design.
2. There is an immense savings potential embedded in the existing building stock.
Besides the savings in demolition and construction, the potential for refurbishment in the UK is significant due to the mix in the composition of building stock and our preference towards the older stock. The majority of the building stock, especially in London, will be around for years to come.
For example, homes existing in 2006 will make up 70% of the total housing stock in the UK in 20504. Refurbished buildings present an excellent opportunity to add value and improve their efficiency. There, however, needs to be better policy to incentivise developers to explore these options.
3. Unsustainable development, construction and investment lead to obsolete buildings and a loss in asset value in the long run.
There are changes being made to the current building regulations (Part L and Part F)5, [JF1] which will impact the requirements for energy efficiency from 2021. These have been driven by the need for regulations to align with low-carbon government commitments. The new Future Homes Standard will deliver homes that produce 75-80% less carbon emissions compared with current levels.
They will also need to be fitted with low-carbon forms of heating. This means there will be a huge requirement for homes that will have to be retrofitted in order to meet an increased standard of regulations in the future as we move towards a decarbonised grid without gas for heating.
4. A shift in focus to user satisfaction and comfort enhances the value of the building.
Consumers are now more informed than ever as to how their investments impact the wider environment and are willing to spend more on their homes. There is more demand for higher-quality building materials, robust building structures, lower-energy appliances and better indoor air quality. A CBRE Green Homes Sustainability Report6 in 2017 found 63% of home buyers want a green home, 82% would pay more for such a home, and 25% were willing to spend at least a 6% premium for a home with sustainable features.
Businesses are more prepared to accept environmental responsibility and encourage their workforce to be more productive through thoughtfully designed spaces as they improve their environmental, social and governance (ESG) credentials in their portfolios. JLL’s report7 unveiled that sustainable office buildings had a higher rental premium, had less financial risk and higher tenancy rates. Buildings with an ‘A’ or ‘B’ energy performance achieved a rental premium of 10% and had vacancy rates of 7%.
5. A truly sustainable property market needs to look beyond being green and economic considerations and embrace social aspects of sustainability.
When we consider the ‘virtuous circle’ again, it is clear to see that there is an emphasis towards the end user of a development. People are invested in their communities, and property developers play a role in creating these communities. Stakeholder engagement is critical between funders, developers, regulators and the end users for the successful delivery of sustainable development. More investors are committed to ensuring that sustainability credentials are assessed as part of their real estate portfolios. These credentials must be monitored throughout the life cycle of the asset to ensure that the investments provide long-term, robust returns with minimal environmental liability.
While some argue that in a time of economic uncertainty, there should be a focus on the bottom line, that the trends show that most investors no longer share the emphasis on growth at any cost, and, thankfully, even fewer condone the disregard for the environment or the wellbeing of future generations, a focus instead on the leadership in environmental protection, social equity and sustainability will set apart property investors and developers, and attract more investment.
In summary, it is no longer a debate around whether a sustainable development has a viable economic case. However, it is how it can be used as a driver for the acquisition, design and delivery of the development scheme. In commercial, mixed-use and owner-occupier schemes, the research stacks up as a no-brainer for a business case. With residential schemes where the units are sold, and the developers want to cash out earlier, attaining certain sustainability credentials that home buyers are happy to pay a premium for will create a win-win-win scenario for the investor/developer, customer, and the environment.
1 Breaking the Vicious Circle of Blame – Making the Business Case for Sustainable Buildings https://www.researchgate.net/publication/263782010_Breaking_the_Vicious_Circle_of_Blame_-_Making_the_Business_Case_for_Sustainable_Buildings
2 Delivering sustainable buildings: Savings and payback https://www.brebookshop.com/details.jsp?id=327411
3 Easi Guide Passivhaus Design: Medium density housing projects https://www.levittbernstein.co.uk/site/assets/files/3553/passivhaus-easi-guide_screen_portrait.pdf
4 Sustainability potential of housing refurbishments https://www.researchgate.net/publication/306205255_Sustainability_Potentials_of_Housing_Refurbishment
5 The Future Homes Standard: changes to Part L and Part F of the Building Regulations for new dwellings https://www.gov.uk/government/consultations/the-future-homes-standard-changes-to-part-l-and-part-f-of-the-building-regulations-for-new-dwellings
6 Sustainability: Simple steps to better homes https://www.cbreresidential.com/uk/sites/uk-residential/files/CBRE%20Green%20Homes%20Sustainability%20Report%20July%202017.pdf
7 The impact of sustainability on value: Developing the business case for net zero carbon buildings in central London https://www.jll.co.uk/en/trends-and-insights/research/the-impact-of-sustainability-on-value