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Housing Market Impacts from Heating and Energy Efficiency Regulations in Scotland

In 2020, the buildings sector in Scotland accounted for approximately 20% of the country's greenhouse gas emissions. To help meet Scotland’s climate change emission reduction targets, measures to decarbonise heating and deploy energy efficiency measures are required.

To this end, the Scottish Government consulted on proposals for a Heat in Buildings Bill, setting out how Scotland plans to use its regulatory and policy levers to incentivise deployment of clean heating technologies and energy efficiency measures.
Cambridge Econometrics was commissioned by ClimateXChange to investigate the potential impacts of the heat and energy efficient regulatory measures included in the Bill on the Scottish housing market.
ClimateXChange
Housing Market Impacts from Heating and Energy Efficiency Regulations in Scotland

Authors: Barnabas Benyak, István Heilmann, Jennifer Dicks and Ornella Dellaccio.

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The Impact of Potential Regulatory Measures Were Assessed

Drawing on evidence based on an extensive literature review and stakeholder consultation process with a range of housing market actors, four scenarios representing different potential regulatory measures were assessed.

Each scenario was compared to a policy-free baseline scenario which assumes no proposed policies consulted in the Heat in Buildings Bill are introduced.

1

The introduction of heating and energy efficiency regulations at proposed backstop dates and trigger points. 

2
Extension of the grace period for trigger points.
3

Removal of point of purchase trigger points from regulatory proposals. 

4
Potential exemptions for first-time buyers from trigger points.

Findings

While the Heat in Buildings Bill scenario ensures earlier compliance with the regulation, it may also result in a slowdown in activity of the Scottish housing market.

In the rental market, tenants are likely to bear some of the upfront costs of energy efficiency retrofits in the form of higher rents.

Following the introduction of the proposed Bill, landlords may decide to exit the market if they do not want to comply with the regulations.

Extending the grace periods to five years is not expected to affect compliance rates, compared to a two-year grace period. However, it could delay clean heating installation timings, as homeowners often defer action until the deadline.

If there were no early-action trigger points, compliance with the regulatory framework may be postponed, leading to delayed action in achieving emissions savings.

This could result in a significant increase in demand for energy-efficient homes specifically around the backstop dates, potentially causing a shortage of energy efficient properties.

The market slowdown where an exemption for first-time buyers is introduced is relatively modest compared to the Heat in Buildings Bill scenario where there are no exemptions.

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Adam Brown

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