“If the Government has any hope of getting anywhere near that 1.5 million new homes target, we’ve got to start counting existing properties that are brought back into use. I think the argument people make about that is, well aren’t all of these things in Grimsby. Nothing against Grimsby but no they’re not right. The largest concentration within London is actually in Westminster or you look somewhere like Bath where we’ve got 4,000 or in Birmingham where we’ve got 60,000 empty homes. You know, those are places people want to live.”
Susan Freeman
Hi, I’m Susan Freeman. Welcome back to our PropertyShe podcast series brought to you by Mishcon de Reya in association with the London Real Estate Forum, where I get to interview some of the key influencers in the world of real estate and the built environment. Today, I am delighted to welcome, Anna Moore. Anna is the Founder and CEO of Domna, a housing asset management and retrofit platform helping social and private landlords keep homes safe, healthy and compliant. Domna combines data, strategy and delivery support using its proprietary stock assessment tool, Ara alongside end-to-end technical and project expertise. Today Domna serves over 10,000 homes a year. Anna holds senior board and advisory roles across housing and infrastructure including the Built Environment Trust, Rooftop Housing Association, The National Retrofit Hub and The City of London’s Skills for a Sustainable Skyline Taskforce. She is this year’s property week Proptech Leader of the Year. Previously Anna was a partner at McKinsey & Company where she lead the firm’s UK construction and materials practice, co-lead its European sustainability practice and set up its net zero built environment practice and sustainable materials hub.
So now I’m really looking forward to hearing from Anna on her vision for Domna and how we’re getting on with retrofitting our aging housing stock. Anna, good afternoon, it’s lovely to see you on this beautiful sunny day. Now you weren’t raised in, in the UK, I can tell, I can tell by your, by your accent and I’m not sure when you first came to, um, to London so I thought we’d just start a little bit about you, where you grew up and what brought you here?
Anna Moore
Yeah, thanks so much for having me, it’s really a pleasure. I grew up in Toronto, Ontario and then moved to the US for university, joined McKinsey there in DC, then New York, then went with the firm all over really; Nigeria, Saudi Arabia, Qatar, UAE and found myself in Ethiopia about 8 years ago or so and was loving it but decided it was time for a change and a friend created an opportunity for me to transfer to London. I thought I would be here for 6 months and somehow 8 years went by. I got elected partner in the McKinsey London office where I lead the firm’s UK construction and materials practice and co-lead its European sustainability strategy practice. Everything at that intersection had we decarbonised the built environment and the things that go into it and I got the itch about three years ago to really stop advising on that topic and really start doing it and left the firm to start Domna which is a retrofit and asset management platform for housing. I raised a 70 million pound fund developed thesis to acquire retrofit services businesses, consolidate them and then invest in tech upfront so that we can do clever planning but also execute and that’s where we are today.
Susan Freeman
So was there sort of any particular moment that made you realise that the retrofit market needed a different approach?
Anna Moore
I felt very strongly there was such a huge theoretical opportunity, you know, there’s 15 million homes in the UK below EPC C. We can debate about whether EPCs are the right metric but clearly we’ve got a heck of a job to do. We’ve got to spend about 500 billion pounds upgrading our existing stock and, you know, as a nation we waste about 9 billion pounds a year in excess fuel. So it’s a huge opportunity. But the supply chain is massively fragmented. Customers don’t trust contractors to give them good advice and tell them honestly what needs to be done to a home and then they’re not confident in the delivery. And so I felt, look we can do a better job by giving people good data lead smart insights. We do that today with a predicted stock assessment model Ara with about 4 billion data points. We’re now 98% accurate outside in predicting retrofit and asset management programmes but you know as well as I do, it’s great to have a plan you’ve also got to execute and so we’ve done the surveying, the assessment, brought in house design and now also bringing in house principle contracting. We’ll never be the installer because I think it’s really important to have independence and not to big up the size of a, of a work contract but, you know, giving clients delivery assurance as well. So that’s a bit where the thesis came from. We need good advice and we need trustworthy delivery.
Susan Freeman
And I think that data lead approach is pretty key to this. I mean, I am fascinated to hear about this because for the last few years we’ve all talked about, you know, net zero and then, and it’s been generally new builds, commercial real estate which is all shiny and wonderful and fantastic. And everybody said, but we’ve got this aging housing stock, you know, how, how an earth are we even going to start. So it’s, it’s great to hear and hear what you’re, what you’re doing. So clearly your, your experience, you know, to date and your sort of tech approach to it must really affect the way you are building Domna and your strategy for Domna going forward. I mean, has it been daunting starting a new company? For all the things that you’ve done in different parts of the world, this is the first time you’ve actually said, right I’m setting up my own, my own company?
Anna Moore
Yeah and I, of course anybody who runs their own business will know there are ups, there are downs and we’ve certainly seen both in our time and some of that is internal, some of that is external, you know, especially in our sector policy has an enormous impact on us. You know, we just heard the energy company obligation getting scrapped, quite abruptly in December, you know, there are 10,000 UK construction jobs that rely on that. We’re in a fortunate position where we’ve got a more diversified business, you know, we do about 10,000 homes a year, we can make our way through that but, you know, little shops that we work with are, are really under pressure. So there are ups and there are downs and I think you really live with the consequences of your decisions, right and you’ve also got to move so much faster. We’ve got to be able to act on 60% visibility of what the Government is going to do rather than wait and so, you know, clearly that’s something that’s quite different. What I would say, which is, you know, less about the strategy or even our model but something that for me has been really cool about running my own shop is being able to invest in people, you know, one of the businesses that we acquired, um, had a team of mostly women admins when we first bought the business. When I first met them, you know, people would introduce themselves to you as, I’m so and so, I do whatever I’m asked to do. And the first thing that was important to me when we did integration of that company was to say, no, this is the administrator track, then coordinator, then manager, you’re in sales, you’re in ops, this is how we’re investing in you, you know, and you can really have a big difference in somebody’s life in the way that I didn’t have that level of influence on what a business analyst at McKinsey’s career was going to look like, right. They’re already set but we can really do quite cool things within our business now and that’s something that I think is quite unique to run your own shop.
Susan Freeman
It must be so satisfying actually really seeing people blossom because they’ve been given responsibility and they know what they are meant to be doing?
Anna Moore
Yeah and just that people feel empowered and respected and I think by and large, people rise to your expectations, right.
Susan Freeman
And it’s interesting somebody made the point to me recently that there are not many female entrepreneurs in real estate. I thought about it and I think that’s probably right. I don’t know what you think?
Anna Moore
Yeah, I mean the, the famous stat writers that 2% of venture funding goes to women founders. We raised the largest first time fund raiser ever for a European team in our space and that’s women or men, we were really proud of that but there’s no way around it, I’d love to see more women doing what we’re doing. In our space specifically I think we are fortunate there are actually a few. There are a couple of other retrofit women CEOs who I’m really proud to be colleagues with but, you know, more the merrier on that count.
Susan Freeman
Absolutely. So, just drilling down a little bit into what you do at Domna, I mean, you talked a little bit about how you’ve integrated the various services but what type of houses or, or portfolios of houses are best suited to your approach?
Anna Moore
A bit part of our thesis was we need to cut through the complexity of, oh gosh, English housing stock is so heterogeneous and we’ve got Victorian terraces all the way through to 60s, 70s detached, semi-detached, all the way through to 80s tower blocks. Sure, but we’re also not splitting the atom here, right. And with good data collection and analysis we can actually be quite accurate outside and across the full range of architypes. And so a big thing for us was, we didn’t want to reinvent the wheel in collecting new data, we wanted to stitch together everything that was publicly available and a few proprietary data sets, 4 billion data points that we have Ara, our stock assessment tool and then we want to do machine learning modelling on top of that rather than try to define top down architypes as a lot of architectural practices often do that by the time you actually get to delivery are a little bit wrong and so the big thing for us was, okay let’s gather as much information as we can and then crunch the numbers in a clever way and that lets us actually be quite specific outside in on what’s needed at the unit level. And I think, you know, the big thing is this doesn’t have to be as complicated or as expensive as a lot of people think. You know, two big things that matter are, what’s the wall type and is it in a conservation area or not. And so as a rule of thumb, if you’ve got a cavity wall build and you’re not in a conservation area, that’s probably going to be 6 to 7 thousand pounds per unit to take you from an EPC E up to a C or a B and that’s because we’re doing pretty straight forward measures. If you’ve got a solid wall and you’re in a conservation area and you can’t do solar, we are looking at 25 grand before you know what you’ve done, right. On the same size of property that’s a data question we can tell that about a home outside in and get to quite a granular assessment quite quickly and so for me the importance of data in this problem is, cut through some of the noise and quickly get to a good answer.
Susan Freeman
And so assuming it’s a relatively basic, it’s not in a conservation area, is it all about insulation and solar panels? Are those the main things?
Anna Moore
That’s pretty well it and if you’ve got a home that’s still got an empty cavity, that is one of the cheapest, easiest measures you can do. The cost of solar has come down by 99.9% since the 70s, you know, that’s not a typo, the supply chain really worked and many homes that are also sitting at a high EPC D can often make the jump into a C and so achieve their compliance goals with you know, less than £1,500 worth of work. We’re supporting a client at the minute who’s got about 3000 homes that fall into that category and that’s putting in TRVs, room thermostats, switching out LED lights, little things that add up. So I would say that’s not true of every property, right, there are still some gorgeous Victorian terraces that we’ll need to sink 30 grand into to upgrade but there are often more low hanging fruit than people think.
Susan Freeman
Okay, that’s interesting. But there seems to have been a problem with the quality of, of some of the insulation work, particularly that’s been done and the National Audit Office, a report was pretty damning on I think, was external wall insulation. I mean why has the work been so shoddy?
Anna Moore
So, that report was about external wall insulation within the energy company obligation and I think as a starter, if you are looking at solid wall insulation it’s the hardest measure, it’s also the most expensive and if you cut corners you are going to pay for it. And I think that eco worked, a lot of contractors had built their businesses around saying, this is going to be free and therefore selling you a work package and having a huge incentive to cut corners. And there were some measures that weren’t included in the grant funding so specifically for example, ventilation works were not included. One of the single biggest failures in that NAO report is that contractors hadn’t installed ventilation when they had done the insulation works. No surprise, you end up with huge damp and mould problems. And that to me is a policy failure as much as anything else. Creating this incentive of trying to sell people free work packages, so the contractor has a huge incentive to cut corners and then excluding some pretty important measures. I would also say the NAO report was a little bit misleading because they flagged this 98% stat. Well of that 98% actually only 6% were serious failures so you could fail by not ticking the right boxes on grant application forms and that 6% of 3% of eco measures, right. So we’re talking about fewer than 1% of homes through the energy company obligation that had serious failures through the external wall insulation programme but we are where we are.
Susan Freeman
Yeah, and I mean is that why the grant scheme has been scrapped or is that completely coincidental?
Anna Moore
I don’t work for the Department for Energy, Security and Net Zero so I will just give you my own opinion which is, yeah I think that was part of it. I think also there was a preference to move from a market based scheme, which is what Eco was, toward Government administered schemes which is what the Warm Homes Social Housing Fund and Local Grant Fund are. That’s great but those programmes are 400 million pounds delayed and counting right now. We’re meant to be at the end of the first year of that grant programme and most projects haven’t started yet. And so I think if we are shifting from market based mechanisms like Eco which certainly needed tightening on compliance but had the advantage of being quite fast to deploy toward Government schemes, we’ve got to get quicker off the blocks on procurement because the person who suffers is a fuel poor tenant. Not to give too Dickensian of an example but we literally had a landlord client, private landlord who had a woman living in a flat in Central London, 90 years old about to receive first time central heating and about £30,000 worth of work fully funded through Eco. That projects not going to happen anymore, right. And you’ve got a net reduction of 5 billion pounds of fuel poverty grant that the Government hasn’t made up. They took out 6, they added 1.5, you know, its 222,000 fuel poor homes that are going to miss out on works so I hope we have a successor scheme soon.
Susan Freeman
It sounds as if somebody needs to step forward to join up the dots in a positive way. I know one of the things you said is that it’s so stop/start at the moment that it’s very difficult to, you know, plan and budget if you don’t know where the schemes are actually going to be ongoing?
Anna Moore
Yeah or we need to move to private funding because I think if there isn’t going to be a grant regime and Government isn’t providing as much carrot, then the sticks also need to be clearer of the EPC minimum of C by 2030 or whenever it ends up landing so that landlords both social and private can plan toward that, design their CAPEX programmes and, you know, get financing toward it. I think the industry has gotten really dependent on grant because there’s been so much grant funding but there are obviously financial upsides to investing into your stock and those create investible propositions for institutions and for landlords themselves and I think we focus less on that because everything has been dominated by this grant scheme. You know, there’s a 20% plus valuation differential on market transactions between properties at EPC B and those at EPC F and G. It’s because those are things falling below the minimum energy efficiency standard. You know, that’s a huge capital uplift on a property, um, and we are seeing some landlords doing that kind of capital flip but I think because we’ve stuck in this grant cycle, we’ve actually drawn a bit less on some of the more exciting privately funded opportunities and hopefully the silver lining is that we start to see a bit more of that.
Susan Freeman
And from the landlord’s point of view, obviously they have to comply with EPC regulations and, you know, the regulations which are going to require them to upgrade. Do you think that with the backlash against environment regulation which there seems to have been. Does it mean that retrofit is, is something people are doing because they have to because it’s a commercial necessity or is it, you know, because they want to comply and want, you know, want to contribute to net zero?
Anna Moore
Yeah, so we work across social housing and private rental. I think those markets work really differently and have different responses obviously to that question. In social housing where actually average energy efficiency is the highest of any tenure. There’s a really clear requirement toward improving thermal efficiency for tenants, making sure that homes are affordable, you know, I also sit on the board at Rooftop Housing and as a board we look at this question, right, of how affordable is it for tenants to be living in our homes. So I think that commitment is really clear. I think that in the private landlord world we all know how much discussion there has been of folks leaving the sector because of tax changes, because of additional regulation etcetera and so I do think that this feels like just another thing that a landlord has to grapple with. For me, the way to approach it correctly is, okay what are some of those low hanging fruit that I can do. There’s a fair bit of fear mongering I think in the press about £60,000 per home to upgrade, that’s rubbish. You can often do a lot, like we were speaking about earlier, with £1,500, with £3,000, with £5,000. So you can work incrementally and you can invest in a way that actually adds value to the stock. That’s clearest for homes that fail the minimum energy efficiency standard, you know, we talked about 20% plus valuation uplift. That’s nearly a trillion pounds of value across the private rental sector but, you know, you can also be focussing on things like solar panels that have a clear value both to the tenant as well as to the next buyer of that home and so I think there’s a lot that we can do by just defining those work packages, uh, in a clever way.
Susan Freeman
So I was looking at some, some stats and it seems that 20% of our carbon emissions come from our homes and most of that comes from, from heating which is, I mean pretty, pretty mega and I get the impression people want net zero, they want to do, you know, the right thing for the planet but they don’t necessarily want to pay for it so if you’re a private owner, what you’re saying is that there is a net saving that you’re not just investing money in, you know, making your house more sustainable but actually the costs will go down. But how long does it take to actually recover the cost?
Anna Moore
I think you see it faster in valuation uplift and to be fair that’s on the lower EPC bands where we see that behaviour. OPEC savings through running costs solar, you know, is one of the fastest and that would take you, you know, around about 7 years, right. If we’re talking about cheap and cheerful measures, LEDs pay back within a couple of months, right, no big deal. Some of the simple fabric measures like loft and cavity insulation also pay back within usually a couple of years’ time but there’s no question that today solid wall insulation which is the most expensive, most complicated and frankly riskiest measure can take, you know, 10, 20 years to pay back. Again I think this goes to having the data and looking at it properly to really understand what’s required for my property, how can I do it in an incremental way and what’s the payback going to be and obviously that calculations going to look really different for an owner occupier who’s thinking about it as bill savings. Well do simple fabric measures, do some of the really low hanging fruit, maybe think about solar especially as there are so many exciting financing options for solar right now. A private landlord, again going to have a bit less focus on the bill savings and a bit more on compliance. So let’s look at some of those low hanging fruit on reducing damp and mould risk which is the big thing there. That goes to simple fabric interventions, draught proofing, things like this, ventilation. And, you know, maybe considering solar if there’s approvable uplift in the capital value of the property. And then in socially rented obviously we’ve got a completely different set of metrics. I would say that from conversations with CBRE, they are starting to see meaningful valuation uplift even on socially rented properties under UVSH methodology from retrofit programmes and so I hope that that can also help create a bit more investment into the sector. Jason Hardman and team I think have been doing some really interesting work on that.
Susan Freeman
So how do we compare to other European countries for instance in terms of the, the state of our housing stock. I mean, are we behind or are we ahead?
Anna Moore
We are massively behind. We have the leakiest housing stock in Europe and that is a stat that gets trotted out quite a bit that we’ve got the least well insulated homes across Europe. Interestingly, I think where the UK Government seems to be shifting, if I read the tea leaves of the Warm Homes Plan and some of the announcements Ed Miliband has been making around that and obviously we are still waiting to have the Warm Homes Plan fully delivered but it sounds like the Government is focussing more on solar and less on fabric, um, which is aimed at getting bills down because it’s the fastest way to reduce bills. Parts of that make sense, you know, it’s quite pragmatic, it’s very cost effective. It does mean we’re not necessarily addressing damp and mould risk or comfort in the home and so that’s one that I’m interested to watch because by missing out a bit on the focus on insulation, we don’t solve that problem, right, our homes stay leaky. We just make it a little bit cheaper to fund all of that wasted energy.
Susan Freeman
Sounds like there’s something not quite right with that, I, I agree with you. And Anna you mentioned the private sector getting involved in funding some of this and actually taking it in hand. I mean what is the opportunity and how does it work and I’m sure that, um, you know, there are some private sector companies who are already involved and can see the opportunity but it would be really, really interesting to know how it should work ideally?
Anna Moore
And here I think there are really exciting models that have already been proven and we need to see frankly a little bit more ambition from some landlords to take those up because I think capital is ready and waiting. We know we’ve got to spend 500 billion pounds plus upgrading homes. We know there’s a valuation improvement from doing that across private and socially rented tenures so it’s no surprise that the likes of Legal & General, Pension Insurance Corporation, Lloyds Bank, NatWest, Barclays are keen to deploy capital into this area. I think we need to see a bit more ambition from landlords to take them up on that but to lay out some of those models and what, what do they look like and some of the real proof points, you know, one that we’ve seen a few times in the sector is acquisition and flip of stock on behalf of housing associations or local authorities. So PIC for example have done this, this is a public example with Bromley to acquire street properties, invest behind them, both retrofitting for ESG reasons but also improving the condition of that stock and then return it to council ownership over a given period of time. You know, similar models that others have been doing with housing associations directly as well. And so that kind of model I think can be really effective in putting capital, long-term patient capital into the socially rented sector in particular. Legal & General have been doing similar things, that’s really exciting. I think there’s also a huge opportunity for some of the privately owned housing associations that are entering the sector, again L&G affordable homes which isn’t the arm that’s investing into existing HA’s but its own housing association, you know, creates a vehicle that can be acquiring existing stock that other housing associations and local authorities maybe lack the funding to upgrade themselves and that means that we’re keeping those properties in the socially rented sector, investing behind them. Catherine Raynsford has been doing fabulous work on that and I think that’s another model that we’ll probably continue to see and then of course we have the National Wealth Fund, Lloyds, Barclays, NatWest with an 80% Government backed guarantee to invest into retrofit for social housing providers we’re starting to see some of those loans and funding packages get secured but I’d love to see that in, in great volume because that money is there and, uh, you know, at quite an attractive interest rate. So there are a few I think really interesting models there before we even get into things like solar financing where you actually have quite a few players now who are funding the cutbacks in exchange for a portion of the bill saving, that’s great for a cash strapped landlord, the tenant wins, the landlord wins, the investor wins.
Susan Freeman
And the schemes that you, you’ve mentioned, L&G and PIC and others, I mean is that just a sort of drop in the ocean compared to the number of homes that actually need to be brought up to standard?
Anna Moore
Yeah I mean, we’ve got to spend nearly 150 billion pounds upgrading social housing alone, you know, many of those deals have been in the order of 50 to 75 million each. Which is great but I’m sure everybody involved in those would wish to turn exit quite quickly. The returns profile makes sense. We need to see a little bit more pace and a little bit more movement in this sector.
Susan Freeman
Just thinking about the numbers of new homes that the Government has committed to build every year and, you know, knowing the problems of, you know, getting through planning and everything else, getting those new homes build. Would we be better focussing a little more on the houses that we have got and, you know, making sure that they are, you know, homes that people can live in?
Anna Moore
I think so Susan and part of that is, you know, we’ve talked a lot in the press and within the industry about Awaabs Law, damp and mould, doing the right thing by residents who live in our homes today. We’ve still got a heck of a lot of work to do to bring the remaining 10% of social rented properties that failed the decent home standard, up to that standard and then start to address the 20% of private rentals that are below minimum standard. That’s a lot of work to do, those are a lot of families who deserve to live in safe, comfortable homes. I thought there was a really excellent op-ed in Inside Housing a couple of months back by the Chief Exec at Sovereign Network Group saying, old towns and focussing on our existing communities rather than so much emphasis on new towns. Great that we’re developing, great that we’re building but let’s not forget about the people and the communities that we already have.
Susan Freeman
And the homes that aren’t deemed, um, a sufficient standard to live in, what happens to them? Are they just left empty?
Anna Moore
So this is an interesting one as well because there’s quite a bit of debate about what source you use, ONS, English Housing Survey, Census Data, whatever but by anybody’s count, we have about 300 to 400 thousand empty homes, long-term empty homes across England, Wales and Scotland that could be invested in and brought up to use and I think sometimes we forget that doing that is actually cheaper and faster than building new. You know, if you think it costs you about £250,000 and can take, you know, half a year plus to bring a new home online versus investing in the condition, retrofit, decent homes interventions in an existing empty property where we’re maybe spending £30 - £40,000 and you can turn that around inside of three months. You know, it’s a lot faster, it’s a lot cheaper. We could be saving quite a bit and I think if the Government has any hope of getting anywhere near that 1.5 million new homes target, we’ve got to start counting existing properties that are brought back into use. I think the argument people make about that is, well aren’t all of these things in Grimsby? Nothing against Grimsby but, no they’re not, right. The largest concentration within London is actually in Westminster. Or you look somewhere like Bath where we’ve got 4,000 or in Birmingham where we’ve got 60,000 empty homes. You know, those are places people want to live.
Susan Freeman
Those are crazy numbers aren’t they? I mean is it the local authorities that need to be instigating that and in that case, the local authorities are so cash struck, I mean how would they be able to add that to the list of things that they’ve got to do?
Anna Moore
I think the most straight forward route to this is to have an accelerated version of compulsory purchase for existing empty homes and then rather than requiring the council to own and upgrade and spend the money on it, to let investors do that. And so you could imagine a system where the councils says, okay we’ve put a notice out, we give you a six month period, nine month period to come and tell us that actually this is your great, great, great uncle’s that was lost through probate or intestate will, whatever. If you don’t come forward at that time we have an accelerated compulsory purchase process and we allow private bidders to bid on it at auction. You know, that kind of a system I think could work really well and the Government has had a few cracks at that. It actually started to take off under David Cameron’s, um, tenure and then that project was scrapped and then we’ve seen the number of empty homes coming back into use crater and so something like that I think could work quite well. And there’s a meaningful capital return to it as well, you know, we were talking about some of the valuation uplift from retrofit. If you think that you’re adding 20%, 30% plus to properties after doing that kind of full scale intervention, you know, then we’re looking at anywhere from £60,000, £70,000, £80,000 added to an average valuation of £300,000 across England. You know, if you’re putting in 20k-40k against that and it’s a three month’ish work package, it’s actually quite a quick and easy way to get quite a serious capital return and you’re already starting to see a lot of larger private landlords doing exactly that strategy. Um, we need a bit of Government mechanism to help push it more easily.
Susan Freeman
It sounds like a very good idea and do we have enough people with the right skill sets to actually do all this work if one could get some of these schemes off the ground?
Anna Moore
I don’t think we have a skills shortage. I think we have a demand gap and the market will respond to consistent demand. The problem is we haven’t had that and that’s been stop, start grant funding schemes, it’s also been a lot of grit in the gears of things like compulsory purchase that we were just talking about that’s stopped some of those private sector consolidation plays from really happening at scale. Everybody agrees it’s a great idea but it’s hard to get through conveyancing, CPO etcetera, right. And so I think those things combined have meant that people aren’t able to say this is a career that I can really invest in for 20 years. You know, we talked earlier about the eco scheme getting scrapped. There are 10,000 UK construction jobs that rely on eco. If I look at our supply chain, you know, we’ve got a fabulous little installer that we work with, 95% of their work was in eco, it’s not clear if they’re going to make it through, right. And so you start to say, before the Government invests 600 million pounds, as they have suggested, into construction skill development, they should invest that money into stabilising demand because the market will respond to that.
Susan Freeman
So they just, they’ve scrapped this ECO scheme but we don’t yet know Warm Homes scheme so this has been going on for a couple of months now?
Anna Moore
Yep. Exactly.
Susan Freeman
Okay. Difficult. Now we talked a little bit about energy performance certificates, EPCs and again, one of the things I was looking at, I mean obviously your, what you do is very data orientated and, you know, tech and efficient but is it right that, um, with EPCs people, you know, still just rely, they don’t rely on the data, they just go round with clipboards and inspect?
Anna Moore
I think there are some, there are still some large, I will not name names, bulk EPC and Condition Report providers who will clone their information and do a drive by and that is obviously not great. Yes you can be guided by the data but you also to firm up scope and specification, somebody needs to go into that property, you know, properly do a floor plan, properly assess what’s needed and then do a PAS 20/35 retrofit assessment. We never rely on EPCs to specify, it’s too inaccurate.
Susan Freeman
But a lot of people do rely on EPCs to decide whether a property is lettable or saleable, so could they be relying on, you know, inaccurate information?
Anna Moore
Yeah there was a really interesting META study done by, I believe UCL looking at the error rates in EPCs and they found that 63% or 65% of EPCs had some kind of error in them and often enough to actually change the band. That’s wild. So the way that we approach it and what we recommend clients do is, one, start with a good stock and portfolio wide data exercise. It doesn’t have to be massively time consuming but just get to grips with where each of your properties are and the potential cost and then rather than just doing an EPC, if you’re actually thinking that you are going to do works, work to PAS 20/35 standard and have a proper retrofit assessment done. We’re required to use PAS 20/35 for anything that’s grand funded. It’s a requirement of grant money, um, it’s actually not required for the private rental sector which I think means people end up relying on EPCs and then finding that they’re totally at the whim of the contractor giving them a quote for what the right scope of works is and you can easily get taken for a ride that way. And so I think starting with a good data lead analysis of your stock and then properly having a PAS 20/35 retrofit assessment gives you a lot more confidence.
Susan Freeman
What does PAS 35 actually mean?
Anna Moore
Yeah so it is, it’s a, the technical answer is it’s a pre-curser to a British Standard, um, and so it’s set out by the British Standards Institute, the BSI and it’s the methodology and quality mark if you like, for how to do a retrofit. And within our niche world a retrofit and energy efficiency that’s the gold standard for what needs to be done over what sequence to that property. To give you a sense of how does that compare to an EPC, you know, it takes about five days to become a domestic energy assessor and complete EPCs. It takes three months plus to do your training for a PAS 20/35 retrofit assessor and then you’ve got to have practical experience. You know, we take people into our shop, they’ve got to do ride-alongs, sit with somebody properly apprentice etcetera. And so just a higher level qualification and it’s the industry standard in social housing where the barre has been I think, higher for longer and it’s one of those instances where I actually think the private sector can learn from how the social sector has approached this because we’re actually at average EPC C within the socially rented sector today.
Susan Freeman
It’s interesting. So do you think we are sort of heading towards a world where energy performance becomes as important as where the property is or its tenure or, or have we got quite a long way to go on that?
Anna Moore
I think we’re not there yet and I think the thing that will move behaviour is changing the minimum energy efficiency standard. We do see differences in property valuations for homes that fail MEs and that’s because they’re illegal tenancies, right. Until MEs rises, we’re not going to see that same sharp valuation differential for EPC D or E properties. I think where this plays in more is actually the overlap between energy performance and damp and mould and other condition risks because these things are a Venn diagram, right. Leaky properties where people turn the thermostat down to save on their bills end up having damp and mould problems much more often. Homes that are below EPC C are 73% more likely to have a damp and mould issue, right. And that’s expensive and it’s also a regulatory problem and if you think in the socially rented sector where Awaab’s Law came into force in October last year, you know, landlords have 24 hours to respond to serious damp and mould concerns or they will face regulatory action. It’s a huge focus for the Housing Ombud and the Regulator of Social Housing. I think that’s going to drive a lot of behaviour and obviously the Government is consulting in bringing the decent home standard into private rental. It probably won’t be the 24 hour notice period in private rental but it will be something similar and so again that level of focus on damp and mould on health and wellness, these things are highly overlapping. And so Susan, to your question earlier about are we moving away from ESG and Net Zero? I think we are moving away from that language but I actually think with a focus on damp and mould, health and wellness, comfort, we’re achieving some of the same ends, we’re just camouflaging it.
Susan Freeman
It’s an interesting way of looking at it. And I was just thinking because you were talking about, you know, people turning down the thermostat and what affect that is going to have. It’s difficult for landlords because they can’t regulate, you know, whether the tenant turns that thermostat down or not?
Anna Moore
Yeah and I think if you are a landlord and you haven’t had a proper look at the ventilation in your property, you are rolling the dice. That, for example, is something that PAS 20/35 does require, is a ventilation strategy for the property. That’s not required as part of the EPC. It doesn’t have to be a massively expensive mechanical ventilation and heat recovery system, right. You can do this with trickle vents, you can do this with dMEV’s but it’s something for sure to look at because an investment of £300, £400 into your property could save you £5,000 in damp and mould remediation.
Susan Freeman
There’s a lot to think about isn’t there? I, um, it’s just such a complicated set of areas and I was just wondering, obviously, you know, it’s a couple of years now since you set up your business. Have there been any particular surprises or, or things that you’ve learnt along the way that you might have done differently?
Anna Moore
Uh, I’m sure too many to tell. Yeah, I mean today we do, we’re a team of about 70, we do about 10,000 homes a year, you know, so we’ve grown to a reasonable scale. The thing that has really shifted at least in what we say, not necessarily in what we do is this point about camouflaging retrofit as damp and mould condition, decent homes etcetera. In practice you end up doing a lot of the same works but whereas there can be politicisation of net zero and decarbonisation comes in and out of vogue, people can’t argue with health and wellness which I think is entirely appropriate and so that I think has shifted in a pretty major way. As I say, the underlying works actually are often quite similar but the way that client’s think about it is, is quite different and the way that we kind of talk about and sell some of what we do is quite different. I think the other big thing for us that’s shifted is we’ve ended up doing much more holistic asset management for clients rather than pure play retrofit and so we talk about ourselves now as more asset management strategy and delivery and again that’s because it’s just efficient for our clients, you know, if they are needing to do work on condition and decency in the property as well as retrofitting ESG, well let’s just do that in one combined survey rather than you pay twice, let’s just do it in one combined set of works, you know, put the scaffolding up once, you know, it just makes sense and so that’s been the other big shift.
Susan Freeman
Yes it’s interesting isn’t it, I suppose, you know, you learn things as you, you know, as you go along and the market evolves and I was wondering is there anybody who’s been a sort of particular role model or mentor to you?
Anna Moore
Of course there have been tonnes and, you know, for me, something that I’ve really appreciated, um, is while I was not new to the UK when I stood up my business, I was relatively new to the housing sector and people both within social housing and private rental and institutional investors who sit around that eco system, um, and the real estate players who sit around that eco system have been so welcoming and so helpful and I’ve really, really deeply appreciated that. You know, both institutional investors that we’ve spoken about, housing associations and local authorities who are now our clients but also professional mentors and colleagues and some of the contractors and suppliers that we work with and I think, you know, it’s easy to beat up on construction and you know, to get mired in the difficulties of housing but I have found the people really committed, very thoughtful, generous with their time and at their best, very collaborative.
Susan Freeman
That’s great. And if there is anyone from the Government listening in on this podcast, what is your number one ask, Anna?
Anna Moore
Okay, um, the ship has sailed on eco, that’s fine. My number one ask is please, please, please ease procurement. This is one of those boring but important things where actually we get bottle necked and we were massively bottle necked on the Warm Home Social Housing Fund and Warm Homes Local Grant because the procurement environment was a disaster. We had one of the largest attempted devolution frameworks within England and very, very few projects have actually come through that because of minutiae like the call off mechanism not being clear and so what was meant to create a lot of transparency and competition instead lead to housing associations and local authorities having to go sideways and direct procure or go through their own frameworks because the Central Government portal wasn’t actually ready. That’s not the outcome that anybody wants, it’s anti-competitive, it’s opaque, it doesn’t deliver value for money. We had one local authority client who has been indefinitely delayed in their procurement because one person left the team. That’s unacceptable. We had another where they rolled forward with an incumbent who was under performing because re-tendering and going through the procurement process was going to be too difficult. You know, that’s not value for money for anybody, it’s not the outcome that makes sense for anyone and I think if Central Government is now expecting to axe market based mechanisms and put more money through local Government delivery, it owes local Government a speedy reliable transparent procurement system and more resourcing into their procurement teams, we’re just dumping more money into a pretty sclerotic infrastructure that can’t handle it already.
Susan Freeman
It almost sounds as if one should scrap it all and, and start again?
Anna Moore
I don’t think there was anything wrong with Find a Tender through GOV.uk, you know, where everything had to be posted in one place, you knew what it was, there was a target reward value and people could bid openly and you could assure yourself that there was value for money. Instead we’ve allowed a rise of for profit procurement portals, Domna were on fourteen of these things, right, and it’s a dizzying array and it doesn’t deliver transparency or competition and so I think pairing it back to single Government procurement portal, you know, this is a massively expensive exercise is just about simplicity.
Susan Freeman
And it’s a good place to end I think, it’s about, it’s about, uh, it’s about simplicity. Well I think if anybody can shake this up, um, Anna, you can so, uh, we’ll watch with interest.
Anna Moore
Thank you so much Susan, this was such a pleasure, I appreciate it.
Susan Freeman
Thank you Anna. We hear an awful lot about achieving net zero in relation to our new commercial real estate so it’s fascinating to find out about the challenges and opportunities in retrofitting our housing stock. It’s also a little concerning that you have to camouflage the net zero aspect as it’s seen as too political.
So that’s it for now. I hope you enjoyed today’s conversation. Please join us for the next PropertyShe podcast interview coming very soon.
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