How to Convince Landlords to Spend on Making Rentals More Energy Efficient, When It Won’t Make Them More Money?

Alex Whyatt rents a terraced cottage in Stoneybatter with, he says, a warm living room which seems well-insulated but a cold kitchen in an extension. The bedroom is always cold too, he says.

He puts the heat on a lot, he says, and still some rooms are cold. “You pay huge money on rent and if the house is poorly insulated you are also paying big money on heating,” he says.

Whyatt, who works in environmental education, says that he cares about the warmth of his home. “And I care about the emissions.”

Meanwhile, his landlord is sound, he says. “I have a lot of time for him.”

But Whyatt says he doesn’t feel it is reasonable to ask the owner to do expensive renovations to lower his energy use and cosy his home, the kind of work he would do if he owned it but can’t realistically do as a renter.

“There is no incentive for you to make improvements and, likewise, there is no incentive for the landlord to make improvements,” he says.

That is sometimes known as “the split-incentive problem”, whereby the party who pays for something isn’t the one who immediately would benefit.

And it’s a problem the government will have to navigate as it rolls out a promise made in its housing strategy, Housing for All, to introduce minimum BER ratings for private rental properties by 2025, “where feasible”.

Any changes, says a recent report by charities Threshold and St Vincent de Paul, need to be carefully managed to ensure that tenants don’t lose their homes in the process.

Warm Housing for All

As yet, the government hasn’t said what the minimum BER target for private rentals will be, but it plans to aim for a B2 rating for all social homes, according to Housing for All.

A past analysis by the Sustainable Energy Authority of Ireland (SEAI) found that 55 percent of private rentals had a BER rating or D or less, with 20 percent rated F or G.

Something does need to be done about the energy efficiency in rental homes, says Ann-Marie O’Reilly, policy officer with housing advice charity Threshold. “Tenants are being left behind.”

Low-income tenants get the occasional increase in fuel allowance, but that is only for those on social welfare, she says. Other tenants are left carrying the cost of soaring energy prices and carbon taxes.

Threshold and St Vincent De Paul’s report recommends that the government roll out special incentives for landlords with low-income tenants who get the Housing Assistance Payment, as long as the tenant gets a long-term lease.

This would be equivalent to the Better Energy Warmer Homes scheme, through which homeowners who receive certain social welfare payments can get free energy upgrades, says the report.

Changes should be introduced slowly and very carefully to ensure that tenants are not evicted for the improvements to take place, and that the programme doesn’t drive up rents, says O’Reilly.

At the moment, landlords can evict tenants if they are doing a significant refurbishment, but that means major works, she says.

In those cases, the landlord has to get a professional to say that any works would be a threat to occupants, and then they have to offer the property back to the tenants when works are finished.

Landlords can also increase rents more than is usually allowed under rent pressure zone measures, if they make specific substantial changes to a home.

That means either improving the BER by at least seven levels, or improving it by two or three levels alongside two other types of renovation, such as adding rooms or changing the internal layout.

In drawing up the report, Warm Houses for All, Threshold and St Vincent de Paul consulted experts in retrofitting, says O’Reilly.

Those experts said that in most cases tenants don’t need to move out of the property for the work to be done, she says. “It can be done with the tenants in situ, if you want.”

Working Through It

O’Reilly says the Department of Housing should consult with landlords to find out what measures would work for them, and tailor supports such as grants or tax breaks.

Completing all this by 2025 is quite soon, she said. “There needs to be a good, decent lead-in time.”

The Department of the Environment, Climate and Communications has done some leg-work on that, running a public consultation on ideas to improve energy efficiency in the rental sector in late 2019 and early 2020.

Many of those who responded pointed to taxation as an area to look at, including the Irish Property Owners’ Association (IPOA).

BER ratings do need to be improved, says Margaret McCormick, spokesperson for the IPOA.

Landlords who have paid off their mortgages might be able to invest in upgrading their properties, but for landlords who have big mortgages, the expenses will be challenging, she says.

A landlord who has a mortgage on a property, often doesn’t have any surplus income from it after they pay the mortgage, taxes and other charges, says McCormick.

Many landlords pay an effective income tax rate of around 52 percent (including PRSI and USC), she says. They also pay the local property tax and might have fees to agents or service charges for apartments.

The interest payments on the mortgage can be deducted as an expense, but capital expenditure can’t, she says. “Revenue doesn’t treat renting property as a business,” says McCormick. “The tax treatment is very odd.”

If they carry out renovations, they can’t claim that money as an expense for that year, she says. They should be able to, she says.  “I firmly believe it’s a no-brainer.”

O’Reilly of Threshold says that the tax treatment of landlords should be reviewed to encourage them to invest in renovations. It is mad that they cannot claim capital works as expenses, she says.

There are 22,000 fewer registered tenancies in the country now than there were in 2016, says McCormick, despite the significant increase in the build-to-rent sector. “For every investor going in two are leaving,” she says.

When a landlord goes to sell a home with a lower rent attached to it, that isn’t of interest to another investor and will be bought instead by an owner-occupier, she says. As a result many of the homes that are being removed from the rental stock are the ones that had cheaper rents, she says.

The government “need to be very careful” that the energy-rating changes don’t incentivise more small landlords to leave the rental sector, she says. “We need to keep our individual landlords.”

In its submission to the Department of the Environment, Climate and Communications’ consultation two years ago, the energy company SSE Airtricity said that it while it supported the idea of a minimum BER in the private rental sector in principle, now wasn’t the right time to bring it in.

They said they “would caution against regulation that could risk further exacerbating supply issues in the residential rental market”.

Empowering Tenants

One approach that the department asked for feedback on during its consultation two years ago, was measures that would empower tenants themselves to act.

It highlighted the UK, where regulations in 2015 established a new right for tenants in the private-rented sector to request consent from their landlord to install energy-efficiency improvements, and the landlord cannot unreasonably refuse consent.

In Phibsboro, Ger O’Halloran says he is aware of community schemes whereby those in terraced houses can group together and save money by getting the properties all upgraded at once.

As a renter, though, and one in a poorly insulated home, he feels he has few options, he says. “The dysfunction of the rental market in Dublin limits choice for all but the highest of earners.”

“Local communities should be supported and provided with guidance to establish community-wide retrofitting schemes,” he says. “Tenants should be given a voice and an ability to join such schemes.”

Whyatt and O’Halloran both live in one of the worst parts of Dublin for energy ratings. According to the Central Statistics Office (CSO), 25 percent of homes in Dublin 7 have BER ratings of F or G.

It is possible that if tenants had long-term leases guaranteed, some would like to get more involved in improving their rented homes, says Whyatt, who rents in Stoneybatter.

“Maybe if I was empowered as a tenant that might be helpful,” he says. If he could access grants and get the work done, “I’d take that project on.”

But he would have to be able to subtract the spending from the rent. “I wouldn’t do it at a cost to myself, because I’m not going to invest in a property that I can’t live in long-term,” he says.

The real solution lies in expanding access to homeownership though, says Whyatt.

When he buys his own place he will retrofit it well. “I’m going to put work into making it warm and cosy and cheaper to heat,” he says.

“If Feasible”

It’s unclear as yet when the government will consider it feasible for a rental property to be brought up to a minimum BER rating, and when it might be exempt, and deemed unfeasible.

“Older properties are challenging,” says McCormick, spokesperson for the Irish Property Owners’ Association. “Expenditure needs to be cost-effective.”

Even if the landlord spends a lot of money it won’t be possible to bring all the old properties up to modern, high BER ratings, she says.

O’Reilly, of Threshold, says there is EU guidance on what to do with those older homes: they should be brought up to the “cost-optimal equivalent”.

“Where a property can’t feasibly be brought up to a minimum BER,” says O’Reilly. “Work can be undertaken to get it as good as it’s going to be without breaking the bank.”

In its submission to the 2019 consultation, the corporate landlord Kennedy Wilson listed four exemptions that should be considered.

One was where tenants, say, don’t consent to works, it says, and another is where all improvements have been tried and the property is still stuck below an E rating.

The other two exemptions it suggests centre around property values. There should be an exemption where written advice says works will devalue the property by more than 5 percent, says the Kennedy Wilson submission.

Also, there should be an exemption when energy efficiency improvements would not pay for themselves within seven years, it says.