Who Pays?

GOVERNMENT:  A significant but effective loss A legal action and discussion with local authorities as to how this is carried out.  When first considered the idea worked well, but assuming that everyone heated their house and so would save large amounts  if the house was better energy efficient.   Now we know just how poorly heated the cheaper housing  has become and owners just cant afford to pay the bill.  This gives rise to a need for 2 grants.  One simply stops 5 years after the regulations start, the other is a grant that is given as a single payment to people that simply must insulate within 4 years of buying  a poorly insulated house but only had the money from their previously poor house to pay.  The difference has a maximum of around £12,000 and is much lower for people selling better insulated houses.  This is fully explained in page Biggest Cost

TREASURY:  A minimal loss.  Current predictions of how to insulate UK housing vary widely between over £150bi to over £400bi over the next 30 years.  This is the elephant in the room for funding Net Zero for the whole economy.   However, under the proposal shown here, the Treasury will take in a gain from the buying of equipment and items for insulation through VAT.  An initial problem is that some people who recently (within the last 3-5 years) may see their property drop in value suddenly and they find they may have to take out a further ‘Green Deal’ type mortgage to pay for the house insulation.  This will take its ‘value’ up to the price that the buyer had originally bought it at (as advised by the ‘valuer’ prior to the Government action).    This may actually have political problems so please see that section.  Economic models would be needed for housing of different types and areas. See Examples 2 page. This will be a case for ‘oiling the wheels’ , avoiding these problems, and not lose votes.  The Treasury can avoid all costs to kickstart this project easily

LOCAL AUTHORITIES:  Minimal loss.  They would demand the assessments of the insulation that would be needed.  It should be carried out commercially at the payment of the seller or buyer.  This is similar to other things organised by the LA e.g. design acceptance, sound insulation, fire standards, engineering.  The council keeps a copy of the final document stating that the work has been done to a good standard.

LOCAL ASSESSMENT COMPANY:  Gain. These are the commercial companies that will advise the house buyer what exactly must be done to the house to fulfil insulation regulations.  The Government may decide that, like the EPC, this must be paid by the seller before being put on the market.

FIRST TIME BUYER:  Major gain.   A house is bought much cheaper when taking into account the added cost of insulation but needing a mortgage that pays for insulation and energy efficiency.  The gain is continuous income from lower utility bills compared to buying the house at the higher price and have no money left to insulate.  The value of the house will rise to that of a fully insulated house.  See Examples 1 and 2.  They are one of the major groups actually paying for the insulation to housing in that they borrow the money needed  and are paying off that debt that will be fully paid off when the house is sold. Between buying and selling they see no personal loss from their income.

SELLER OF OLDER HOUSES WITH POOR INSULATION.  Minor loss gradually fading.  This is because they can buy another poorly insulated house for the same price, get a mortgage that will pay for the insulation, live in a warm house, and find that if they want to sell again the value of the house will to an increasing degree repay the insulation mortgage capital debt. As time goes by a larger and larger part of the original debt  has been paid.  See Examples 1 and 2. They are one of the major groups actually paying for the insulation to housing in that they borrow the money needed  and are paying off that debt. However they see no personal loss from their income if the savings from utility bills are adequate.

MORTGAGE Co: Minimal change.  Even though many people will not need a mortgage, those that do for the insulation may balance that out.  Risks must be considered.  See Political section.

FINANCIAL COMPANIES. Gain. This is mainly because risks are taken and insurance needed, plus investment required in the development of SMEs  that will be able to carry out much of the work.  Developers of land that they already own (called ‘sitting on’) into domestic housing will have to include many of the demands in the Government Action (e.g. PV cells, heat pumps, triple glazing) or they will be offered a lower bid by potential buyers.  Landowners that sell housing land (or are demanded to do so) will be offered lower amounts by  developers, because these will have higher building costs and so will bid less for it.  So there is a loss by land owners if Government action demands higher quality property.  Because of this effect there are large numbers of mortgaged houses that will fall in value such that a risk will appear to the mortgage company (e.g. banks).   These houses, if the mortgagee stops  paying  the mortgage, under default would need to be sold off under the rights of the mortgage company and hence a loss potentially appear in their finances.  Some kind of guarantee from a finance company or a separate guarantee from the Treasury would be needed in order to avoid this risk.

PROFESSIONAL VALUERS: Minor gain.  They would be paid to find out the costs and gains of insulation.  This is  information needed by the Mortgage Company in order to consider whether to give a mortgage as they ultimate value of the property must be high enough.

RETROFITTERS: Major gain.  With 300,000 buyers annually the retrofitters will do well.  Work takes 2-3 weeks for wall insulation (but a lot of dust).  Also buyers may ask for other work (roof, electrics) to be carried out at the same time.  We will probably see SMEs (Small and Medium Enterprises) start up to organise work from a wide distances.  Often PV panels and MHRV may be demanded by the LA advisor and can be done separately.  ASHPs (heat pumps) are of little ongoing economic value in a poorly insulated house. however they cause low local CO2 emissions and may become required by regulations if practical, and lower cost electricity becomes available.

SUPPLIERS: Major gain.  Insulated plasterboard, wood, glass fibre insulation. Also the technical items of ASHPs, MVHR  and PV

TECHNICAL  COLLEGES. Gain. Currently most of the methods needed by the people taking on the work is well described but students passing through the colleges turn down the courses in retrofitting as if there was nothing in it for them.  This would change e.g. see the Retrofitting Academy (retrofitacademy.com).

COST OF WORK PAID TO THE TRAINED COMPANY: Major gain. For a terraced or semi- property getting wall insulation, PV panels, ASHP, insulation and MVHR would come to around £20,000.  Good loft insulation and lightbulb changing a good idea.  Detached properties would cost more for the procedure to be carried out, with more air ducting and plumbing needed.   Partly due to inadequate numbers of new builds and rising demographic changes, inflation of house prices has been around 5% pa for several years but with large rises and falls.    During some periods we have seen this almost wipe out house price mortgage debts (late 1970s) but usually acting slowly.  This means that mortgage interests being often less than inflation rates they also ‘inflate away’ the personal cost of the mortgage.  Similarly people willing to take out a mortgage debt for insulation will see the house market price rise on the full value of the house and so the small insulation seeming to ‘inflate away’ if inflation is higher than the mortgage interest rate.   So past inflation and oncoming inflation may act to apparently decrease the debt of the mortgage with respect to ongoing family income. So the cost of work paid to the trained retrofit company would initially be by their invoices, but as time passes it will seem to be a progressively lower debt to the mortgage company.  New home owners commonly are not sure how much they (or the world) may gain so the process may kickstarting with Government Grants or low interest loans.

BUILDERS OF NEW HOUSES. Possible loss.  There is a major tendency for builders to buy potential building land well in advance of planning permission but simply paying the price of agricultural land for the property.  They then can work out if simply renting out the land to local farmers might save any borrowed costs and waiting for house prices to rise adequately.   Generally the cost of a newly built house is made up of about 60% land price, 25% cost of building, 5% profit to the builder, and 10% extras (including original agricultural land price).  So you can see that ‘sitting’ on this land the landowner  makes a very large profit.  This is one of the factors that made the huge post war housing boom when local councils could buy the land at demanded agricultural prices using Compulsory Purchase.   This was stopped in the 1980s when councils had to pay the full market price for what was to become housing land.  The possibility that Councils or Government could buy ‘sitting on’ or ‘not yet building’ land has been considered by the current Government.  This threat  along with major demands for high building standards might really get house building moving in the UK from landowners/building companies.