REVALUE Recognising Energy Efficiency Value in Residential - - PowerPoint PPT Presentation

REVALUE Recognising Energy Efficiency Value in Residential Buildings Roundtable in Brussels

Rolf Bastiaanssen and Maarja Meitern (Bax & Company), Juan Francisco Palacios Temprano (Maastricht University), Corne Koppelaar (Savills)

22.06.2018

REVALUE ׀ www.revalue-project.eu

Pu Purpose of the Wo Workshop

• To share with you key findings of the empirical research
• To discuss with you – as experts in the field – the inferences of the

work: does it chime with your ‘view of the world’? What findings are most likely to be useful to the stakeholders and policy makers?

• To discuss your views on some specific questions:
• What does the REVALUE project tell us in terms of the motivations
• f investment owners and their business case for retrofits?
• Is there a need to better understand the residential sector as a

series of different markets (owner-occupied; social rented; private rented)?

• Is the business case sufficiently strong to drive improvements at

the speed required to meet climate change goals?

• If not, what else can/should be done to facilitate faster change in

the rented sector?

• what do the REVALUE findings tell us about what works: coercion
• r grant?

Who is in the Team

Co-funded by the Intelligent Energy Europe Programme of the European Union

Who are the REVALUE participants?

ASSET OWNERS

Affordable and social housing providers in 4 European countries in ~200.000 dwellings

LENDERS

Banks and other institutional investors involved in specific case study projects and/or finance sector representatives

VALUERS

Valuation professional bodies who advise on the value of assets for various purposes including, investment, financial reporting and secured lending

REVALUE Methodology

LENDERS

Individual interviews and involvement in the individual investor case study on sustainability

VALUERS

Expert discussion groups and individual interviews with valuers in 4 different countries

ASSET OWNERS

Calculation of investment strategies and Regression Analysis on links between EE and Value~120,000 dwellings

A. Review of academic literature on the links between value and energy efficiency B. Quantitative study on the observed links between the energy efficiency

• f dwellings and their reported values

C. Examination of Building Typologies to establish cost/value effective renovation strategies D. Interviews and Round Table discussion groups with Registered Housing Providers, valuers, financial institutions to better understand how EE in buildings is impacting investment/lending decisions and market values E. Case studies with selected housing providers on sustainability planning

REVALUE Wo Work Streams

REVALUE Roundtable in Brussels

Energy Performance and Valuation of Social housing in Europe: a quantitative analysis

Juan Francisco Palacios Temprano (Maastricht University)

REVALUE ׀ www.revalue-project.eu

Is energy efficiency incorporated in expert

• pinions of value?

Our approa

• ach:

Re Regression covering 4 countries, 10 pr provide iders, ~120.000 unit units, mo mostly ly af affordable housing RI RICS ‘asset’ valuations, controlled fo for typical hedonic characteristics (a (and mod

• dernisation
• n)

Re Reported values of dwellings remain do domina minated d by tradit aditio ional nal value alue fa factors.

Energy Efficiency is not a dominant factor of value

64% 70% 77% 78% 67% 72% 73% 73% 76% 79% 98% 99% 34% 77% 88% 88% Location Location and Size Location, size, and hedonics Location, size, hedonic and energy efficiency NL Portfolio 2015 UK Portfolio <2013 North West England Portfolio 2015 London Portfolio 2016

% Explained of final valuation

In In some e locations, en ener ergy effici cien ency cy is is inc increas asing ing in in im impo portanc ance In In NL over er 5 yea ears, green een prem emium and and br brown n dis discoun unt inc increas ased

• 8%
• 6%
• 4%
• 2%

% 2% 4% 6% 8% La Label A La Label B La Label C La Label D La Label E La Label F La Label G 2010 2015

The good is getting better the bad is getting worse… Evidence from Amsterdam area * * *

Average Value Differentials in Dutch Market

Re Results suggest presence of brown dis discoun unt in in the he Eng nglis lish h mar market

• 0,5%
• 0,4%
• 0,3%
• 0,2%
• 0,1%

0,0% 0,1% 0,2% 0,3% Label A-B Label C Label D-E-F 2012 2015

Average Value Differentials in North West England

* … And in Evidence from North West England

Do Double glazing has a significant t ef effect on assessed valuations

Average Value Differentials England

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• 2%

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* What is the impact of energy components on assessed valuations? Evidence from England

REVALUE ׀ www.revalue-project.eu REVALUE Roundtable in Brussels

The impact of Energy Efficiency on residential real estate values: findings from Round Table discussions with Valuers

Sarah Sayce (RICS) Presented by Corne Koppelaar (Savills)

Th The v valuer’s r role i is t to r reflect t the ma market – no not to in influe luenc nce it it Bu But they may give strategic advice wh which influences investment and le lending nding de decis isio ions ns Th The RI RICS p provides gu guidance t to va valuers rs as to due diligence in relation to to sustainability; this has been en enhanced ced during the e per eriod of the e RE REVALUE UE project

• 6 workshops with (mainly) RICS registered valuers
• Semi-structured discussions over 2 hours using building

details as prompts

• Explored practice regarding EE and the relation to value

Th The n new M Minimum E Energy E gy Efficiency y St Standards (MEES) S) regulations in the UK ar are lik likely ly to im impac pact some in investment re returns and and in investor strategy Ho How it will ‘play out’ rem emains to be e se seen Ot Other er countries es also introduce ce similar re regulations EU EU policy remains linked to th the EP EPC

Key finding 1: EPCs

• Valuers have found little evidence that EPC-ratings impact on the

market value of residential assets

• Confidence in EPCs varies between countries. Nowhere do they

play a key role in market behaviours

• Values are driven by traditional factors
• Where demand outstrips supply EE gets pushed down the agenda

even further Key finding 2: But some EE factors are priced in

• The ‘normal’ specification continues to rise – double glazing in UK

(maybe triple in Germany) and effective heating systems are expected

• These are not specifically seen as EE
• A brown discount may apply if they are missing
• But some new/innovative technologies are not trusted or

understood

A A previou

• us survey for
• r RICS

ICS showed ed th that t most t valuers have never been ins instruc ucted d to cons nside ider sus ustainabilit ainability in in the heir ir repo ports Th The n new R Red B Book p k places a a st stronger requirement on valuers to in investig igate and and store da data. a. Th The ‘ ‘Lenders’ p project s suggested bank banks link link the heir ir ‘lif lifestyle le analy analyses’ to to energ rgy outgoings Th The Ee EeMAP pr project ma may le lead ad to ea easier er finance ce for EE re refurbishment

Key finding 3: The nature of the Instructions is critical

• Many clients still do not ask questions about EE – nor are they

prepared to pay for additional work

• It is easier to reflect EE in ‘investment worth’ but this needs rents

to adjust in response to investment – for SHP this often cannot be done.

• Banks are beginning to ask valuers for comment - and there is

evidence that this may increase Key finding 4: To build in EE needs greater knowledge of technologies – and more data

• A valuation is not a building survey or an energy audit
• In Spain many valuers are engineers by training – elsewhere they

are not

• A more ‘forensic’ examination of EE requires better data,

integrated professional services – and more fees

Ma Mark rkets s are often sl slow w to adapt and and value aluers canno annot move ahe ahead ad of th the market Va Valuers will continue to be ‘r ‘reflectors’ ’ but access to better, , mo more cons nsistent da data woul uld d ena nabl ble th them to undertake more forensic co comparisons

Inference:

• It is important to understand the role of the valuer and the

limitations of a valuation

• The

market expectations

• f

what is the ‘normal’ quality specification is changing: properties that fall short will face discounted values – a ‘brown’ discount’

• But new technologies that are not yet proven or have developed

reputational issues, may well not bring a value premium; they may even decrease a value

• It is unrealistic to suppose that simply changing guidance on

inspections/reporting carried out by valuers will be a strong force for change: market stimulus is needed

REVALUE ׀ www.revalue-project.eu

REVALUE Roundtable in Brussels

Long-term sustainable investment planning: Best practice found in HP case studies

Rolf Bastiaanssen (Bax & Company) & Corne Koppelaar (Savills)

Go Good a and c common pr practices es of ho hous using ng pr provider ders

Hou Housi sing p provider ers s an and fi financing

• Housing associations invest to give their clients a dwelling that
• ffers tenants comfort and well being. Investments are not only

initiated out of financial motives

• Rent caps influence the investment capacity seriously, while

many EE investment programmes are based on (temporary) grants.

• Usual investment planning cycles are 5 years. Out of cycle

investments could be prompted by e.g. Health and Safety concerns;

• Tenants´ costs of living

and comfort factors are increasingly considered important to HPs, but knowledge of tenants’ income and energy consumption patterns is limited;

• Some HPs are finding a link between EE and default rates

Hou Housi sing p provider ers s an and va valuers

• Most housing providers do not specifically instruct valuers to

focus on EE in relation to valuation reporting. Valuer’s knowledge of EE is cited as added value

• Institutional housing providers are becoming more cashflow-

driven and require investment value (worth) calculations. Over time EE might influence the discount rate (risk premium).

• The data that Housing associations hold on their stock is

incomplete in terms of EE factors and data collected differs from organization to organization which makes comparative studies of physical performance difficult – if not impossible;

• The term Building Passport is not used in the dictionary of

housing companies yet; Housing companies would welcome more qualified information on Energy Efficiency in valuation reports (EPC, SAP and technical and strategic advice);

Se Semi- st structured interviews with se selected banks s and financial ins instit itut utio ions ns in in UK and and German any we were undertaken to understand th their vi views. In Inter erviews took place ce in ea early 2017

• Banks confirmed that ‘green assets’ would be viewed as

lower risk – or perhaps: sub-standard properties as higher

• risk. It is however very rare that funding to housing

associations is provided on a project basis!

• Lenders are not specifically asking for energy data during

assessments - although some receive EPC data – Energy data do not yet influence loan conditions

• For specific energy upgrade schemes there is variation in the

detail required: some will lend against all technologies

• thers have reservations on some solutions;
• A lack of confidence on new technology was evident –

confirming fears of a ‘performance gap’

• Lenders serve the market. If clients have market incentives

to invest in EE, funders will develop financial products to fund the investments.

Key Observations from The case studies: Key Finding 1: Importance of data availability Key Finding 2: short/medium term sustainability target is compliance Key finding 3: Strategic visions and long/term investment plans are underdeveloped

Th The Discu cussion Se Sessio ion

• What does the REVALUE project tell us in terms of the

motivations of investment owners and their business case for retrofits?

• Is there a need to better understand the residential sector

as a series of different markets (geographical; owner-

• ccupied; social rented; private rented)?
• Is the business case sufficiently strong to drive

improvements at the speed required to meet climate change goals?

• If not, what else can/should be done to facilitate faster

change in the residential sector?

• what do the REVALUE findings tell us about what works:

coercion or grant?