Green homes command higher prices – but only in some cases

Although homebuyers value eco-friendliness, only the most affluent are prepared to pay more for greener homes, according to Savills research.

Some 49% of buyers last year said energy efficiency had become more important, Savills said, but that this translated to a ‘green premium’ only in larger homes.

Comparing Elmsbrook in Bicester, the UK’s first ‘eco-village’, to a traditional new build development in nearby Kingsmere, Savills found an 8% premium among sustainable houses between 1,500-2,000 sq ft.

Among homes between 800-1,000 sq ft, prices were just 1% higher in Elmsbrook.

In another example, Savills calculated a 19% premium for ‘highly sustainable’ houses measuring more than 1,500 sq ft at Seven Acres in Cambridge. By contrast, smaller sustainable houses and flats sold at an 8% discount compared to other similar sized homes (although this was partly because these homes offered larger but fewer rooms).

However, the findings did not establish green features as the sole cause of higher house prices. Lucy Greenwood, director in Savills’ residential research team, said: “We find there is typically only a ‘green’ premium for larger new homes, although these premiums are often achieved as part of a wider package of high-quality features.”

The challenge for measuring a possible premium is that just 1% of both new homes built since 2011 and homes sold in the last year in England and Wales were EPC A-rated. Almost all had a B rating.

Without enough demand for sustainable homes, the question for housebuilders, Savills said, is how to generate demand and cover the additional costs of building these homes.

The report added: “But changes to government policy and incentives such as stamp duty exceptions could be used to increase demand, support delivery and ensure we are on track to meet the zero-carbon target.”

One such suggestion from the UK Green Building Council is the introduction of a stamp duty adjustment, which would give buyers a discount for purchasing an energy efficient home.

Echoing Savills’ report, the UKGBC said the UK did not have the incentives it needed to nudge homeowners towards sustainable homes or retrofits.

Are housebuilders decarbonising?

A separate Savills report showed mounting pressure on housebuilders to take ESG seriously, roll out environmental strategies and report on their progress.

Some 30% of shareholders of major housebuilders have an ESG focus and the government plans to introduce mandatory reporting of climate-related financial information from 2025. Major investors such as BlackRock have said they will require companies to disclose climate plans aligned with the Paris Agreement.

While housebuilders are adopting greener measures, Savills said the sector needs to “significantly accelerate” its strategies to reach net zero emissions and retain their shareholders’ confidence.

The report showed that listed housebuilders’ Scope 1 and 2 emissions – direct carbon emissions and emissions from purchased energy – fell 11% per home in 2018-19 but increased 35% from 2019 to 2020.

“Fewer completions in 2020 due to Covid-19 disruptions has in many cases led to an increase in carbon intensity making it more challenging for housebuilders to reduce their carbon footprint,” the report said.

Meanwhile, reporting on Scope 3 emissions – a company’s indirect emissions – has been “much more limited and inconsistent” compared to Scope 1 and 2, which businesses are legally required to report.

But regardless of the challenges of reducing the sector’s carbon footprint, the pressure to meet net-zero targets will only grow in coming years.

And while a genuine ‘green premium’ might not yet exist among most buyers, if it does emerge through incentives, housebuilders will also need to factor that in. Doing so requires a concentrated focus on ESG strategies today.