In addition to the climate crisis and the UK’s net zero ambitions, soaring energy prices are further intensifying the need to build sustainably.

Octopus Real Estate looks carefully at the level of environmental performance when considering funding for the development of new homes. We will often work with developers to improve this. For example, we might suggest solar panels or going fully electric and cutting out gas altogether. As a result, while the building may cost more to build due to additional technology and efficiency solutions, both the ongoing cost and environmental impact for its future owners and occupants will be reduced. 

After all, in five years’ time, wouldn’t you rather own or rent a home that’s cheaper to run and has high environmental performance, with PV panels and an air source heat pump, than a building up the road that looks the same but that is still running off gas or oil?

Material impact

In 2022, it has become abundantly clear that many buildings are worth more purely due to their green credentials; sustainability is already having a material impact on capital values. Put simply, companies have a very real incentive to choose the greenest building possible.

Quite apart from it being the right thing to do, investing in greener properties is business critical. For example, changes to Government regulations mean that from 1^st April next year, landlords will be unable to lease buildings with an energy performance certificate (EPC) rating below E. Further tightening of the regime is expected in 2027 and then again in 2030, with rental properties requiring a B rating by that point.

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We want to go further by incentivising both landlords and developers to strive for increasingly environmentally sustainable buildings. Together with Homes England, we established the Greener Homes Alliance which provides development funding for SME housebuilders and offers meaningful discounts for building greener. So, if a developer delivers homes with an EPC A rating, we give them up to 2% discount on their fixed loan interest rate. For a loan of £15m or £20m, that represents hundreds of thousands of pounds that they can save – the idea is that it pays for the additional cost of the energy efficient solutions.

We also support regional housebuilders that are pushing the boundaries of sustainable development to deliver real change. Our recent deal with developer Citu is a great example of this. Citu’s Climate Innovation District in Leeds is a model of how to create greener, healthier, smarter, and better-connected cities. Their properties use the lowest carbon construction materials to minimise emissions during construction, have thermal insulation meaning homes need only the minimum amount of heating, are durable enough to last generations, and – thanks to their on-site state of the art manufacturing facility – are replicable on a mass scale, for widespread adoption.

Immense opportunity

It's been estimated that 40% of global carbon dioxide emissions come from the real estate sector, with construction and building operations the main offenders, so developers have a unique opportunity to play a meaningful role in tackling the climate crisis.

Funding the development of the greenest homes across the United Kingdom is vital if we’re to make progress towards net zero. Building more energy efficient homes - with lower running costs - will also pass on savings over the long-term to consumers.

Given the public are more in tune than ever before about how energy efficient their homes are, and in turn their own impact on the environment, the opportunity for developers building more sustainable homes has never been greater.