The government should make building standards greener and offer tax breaks for companies taking the lead in more environmentally friendly construction
It is hard to find anyone in construction who does not agree the industry needs to be greener. According to the Royal Academy of Engineering, the industry is responsible for 11% of global CO2 emissions and, in the UK, the built environment for 40% of emissions.
Construction knows it needs to change. The question is, how? At the heart of the challenge is a series of governments that have made policy promises to deliver new homes, such as Boris Johnson pledging 300,000 new homes each year. With little more than a half of that figure completed in 2021, it is a challenge for the government to insist on greener standards without impacting supply and affordability.
This is likely to be the reason why a previous Labour policy of making all new homes net zero from 2016 was scrapped by the Conservative government in 2015. The policy has now been watered down to requiring new homes to be “net zero-ready” from 2025. Instead of being net zero when released to market, houses will simply need to demonstrate they are capable of becoming net zero.
Richard Sterling is head of land and development at Willmott Dixon. He sums up the problem as simple economics and is not confident of a solution anytime soon without government intervention.
“Commercial viability is a key consideration,” he says. “Building greener comes with a premium, but it is difficult to capture any uplift in revenue to offset it. The industry is relying on someone in the supply or value chain to take a greener view on a long-term investment. That is all well and good, but it will never ramp up to see industry-wide delivery of greener buildings.”
For Sterling, the only solution is for the government to offer better incentives for builders and buyers. These could include preferential interest rates for mortgages on environmentally friendly new-builds, and harmonised standards on what constitutes green building so that tenders can be compared like for like on their sustainability credentials.
Tax and regulation
Standards may sound like a small point but are the elephant in the room for an industry limited to a system focused on measuring the performance of a building once it is occupied. By measuring just the carbon released by a new home after it is sold, rather than including the embedded carbon produced in building it, the current system of Energy Performance Certificates is little more than a “green herring”, according to Chris Gardner, joint CEO of property finance firm Atelier.
He is calling for the government to switch to a certification regime that covers a project’s ‘embedded’ emissions, those incurred in the building process, so certification can reward good practice and encourage investment from funds dedicated to financing green building projects.
“If the government is serious about helping the construction industry get to net zero, we need a robust benchmark that takes into account operational and embodied carbon,” he says.
“Two of the most commonly used construction materials – concrete and steel – can be carbon-intensive. But a newly built, well-insulated home could feasibly be awarded an EPC ‘A’ rating because of its energy efficiency. This would be entirely misleading because the climate impact of the construction process would be overlooked.”
If the government were keen on making an immediate impact on greener house building, the most obvious tactic would be to reappraise stamp duty, according to Ian Pritchett, MD of Greencore Construction.
“The government needs to look at the economic drivers that would encourage builders and buyers to go green,” he says.
“If you didn’t have stamp duty on a zero carbon house, developers would automatically start building them because it would make them more attractive to sell. Plus, every new house has a Community Infrastructure Levy, or CIL. If you didn’t have CIL on zero carbon housing, builders would be encouraged to build greener homes. The government just has to go back to the basic economics of making the things they want people to do more attractive and, and the things that you don’t want people to do, less attractive.”
In the commercial building industry, the tax system could similarly be used in promoting the retrofitting of buildings, according to Madeleina Loughrey-Grant, group director, legal, tax, governance and sustainability at Laing O’Rourke. While new-builds get a break on VAT, retrofitting existing buildings does not, yet is far more environmentally friendly. Additionally, she believes the single biggest step the government could take is to use its considerable buying power, as a commissioner of buildings and infrastructure, to insist on better practice.
“The government needs to align procurement with its environmental aims,” she says. “I’ve spoken to ministers and know how they truly want to make construction greener – yet this isn’t built into the design stage of the buildings and infrastructure they commission. One part of government just needs to talk to the other. When that doesn’t happen, it means that if you’re trying to do the right thing – and be more environmentally friendly – you’re compared with bids that don’t match your potentially more expensive greener proposal.”
Such a move would see construction firms asked to bid on a like-for-like basis where the carbon footprint of an entire project is considered in awarding the contract. The same policy could be used by local councils when commissioning buildings and infrastructure, as well as approving planning proposals.
Without such a move, Loughrey-Grant fears green aspirations will continue to be an afterthought rather than an integral part of the design specification. Like many in the business, she firmly believes positive change is coming. While the industry waits for the government to align environmental ambitions with greener building standards, possibly with the addition of tax breaks, she believes the pace in adopting greener building standards will be led by investment firms.
With financial institutions awash with funds earmarked for green investments, a future is dawning where only construction businesses with green credentials or a clear transition plan to net zero building will be investible. The rest will just be “uninvestable”, she predicts, and ultimately unable to compete.