Exploring the potential of Proptech to accelerate net zero housing
Orla Shields is the co-founder and CEO of Kamma. Kamma combines cutting-edge technology with market-leading data and analytics to provide solutions for property licensing compliance, climate risk reporting, and green mortgage uptake.
Decarbonising homes is vital to achieving net zero targets.
Why? Well, residential property is responsible for around 20% of total annual greenhouse gas emissions in the UK, so our homes have a big carbon footprint.
At the same time, homes have a high potential for emissions reductions. A large proportion of emissions are due to wasted energy from old and leaky housing stock — homes did not start to be built as ‘net zero ready’ by default until the late 2010s.
These high home emissions could be easily addressed through energy efficiency improvements.
So far, though, residential property has been incredibly slow to decarbonise.
This is due to a combination of many factors: a lack of available funding to cover upfront retrofit costs for homeowners, a lack of skilled retrofit contractors, a lack of legislation to hold the sector to account, and more.
One channel that we know is instrumental in accelerating the decarbonisation of UK homes is mortgage lenders. But lenders are currently held back because emissions data for homes is, sadly, yet to enter the 21st century.
This is one challenge that Proptech solutions (like Kamma) can play a huge role in overcoming, to unlock progress towards net zero.
The role of mortgage lenders in housing decarbonisation
Lenders have a close relationship with homeowners at the point of buying a new home.
It’s a time when many are planning renovations anyway, so this relationship can be harnessed for awareness and education about the benefits of energy efficiency improvements. Plus, lenders can also provide financing options such as low interest retrofit loans, to help cover the upfront costs.
In our experience working with lenders at Kamma, they’re often already keen to take on this role, because they recognise that there are a myriad of business benefits for them in energy efficiency upgrades too — from a lowered risk of arrears, to reduced financed emissions, to the ability to use new green assets to issue green residential mortgage-backed securities (RMBS).
But, despite the enthusiasm, lenders are currently hampered by the inadequacy of property emissions data.
What’s the problem with property emissions data?
As it stands the primary source of data for housing emissions in the UK is energy performance certificates (EPCs) — which lenders typically rely on to assess the level of energy efficiency risk in their mortgage book and identify assets with high potential for green mortgages or retrofit loans.
EPCs are full of problems as a data source.
Two that are particularly important in this instance are missing data and outdated baselines.
Missing data
Our recent analysis identified that only 51% of UK homes actually have an EPC, leaving huge blind spots. Plus, half of those have an EPC that is 5+ years old and so likely to be unreliable.
Outdated baselines
The EPC methodology uses static baselines dating from 2012 for energy prices and carbon intensity factors — both of which have changed significantly since then, leading to inaccuracies in both emissions estimates and retrofit cost estimates.
This incomplete and inaccurate EPC data leaves mortgage lenders blind to the true extent of climate risks and opportunities in their mortgage book, preventing real action.
Plus, it also gives homeowners an inaccurate picture of the ROI of retrofit, putting them off from making improvements. Retrofit costs are typically greatly overestimated and energy bill savings underestimated — due to the reductions in installation costs of energy efficiency measures and huge increases in energy prices that have occurred in recent years.
Proptech solutions can help to overcome the property emissions data problem
Data and technology solutions can be employed to overcome the challenges of EPCs and poor property emissions data — which is exactly what we’re doing at Kamma.
Here’s three examples of how PropTech can bridge the gap.
Example 1: Missing EPC data
The problem: Not all homes have a valid EPC, as they’re only required when building, selling, or letting a home. As mentioned earlier, our analysis found that only 51% of homes have an EPC — some mortgage books have a higher percentage than this (if a high amount of originations were in the last 10 years) and some lower (such as later life lenders).
The solution: Kamma’s predictive EPC modelling approach combines geospatial data analysis with machine learning modelling to predict EPC data to a high level of accuracy, filling the gaps in a mortgage book’s EPC data coverage.
Example 2: Address matching
The problem: Additional blind spots arise in EPC data due to poor address matching between the government’s EPC Open Data database and a lender’s address data for their mortgage book — it sounds like a ridiculous problem to have, but small differences in how the address is formatted can actually cause big gaps.
The solution: Kamma’s address resolution code finds and scrapes all of the possible sources of address data for an individual property to enable address matching at a 95% level of accuracy, further closing data gaps and increasing accuracy.
Example 3: Outdated carbon intensity factors
The problem: The EPC methodology uses a 2012 carbon intensity factor of 519gCO2 per kWh to calculate emissions from electricity use. The National Grid is much cleaner today than in 2012 due to the phase out of coal and the increase in renewables, with actual carbon intensity around 173gCO2 per kWh. The static baseline also doesn’t account for large variances in carbon intensity depending on locality e.g. Scotland has much more renewable energy than England. This leads to inaccurate property emissions calculations, meaning an inaccurate view of financed emissions, climate risk, and retrofit opportunity for lenders.
The solution: Kamma’s EPC data API integrates directly with the National Grid for a real-time (updated every 30 mins) and localised picture of carbon intensity. We use this, alongside other methods, to increase the accuracy of energy efficiency and emissions data that lenders have for their mortgage portfolio — enabling accurate financed emissions calculations, transition risk analysis, retrofit opportunity scoping, and more.
Naturally, these solutions are only one part of speeding up the rate of property decarbonisation. As mentioned at the start of this article, there are a combination of many factors holding back the market for retrofit. A concerted effort is needed by all parties across both property and financial sectors if we are to meet net zero targets for UK housing — with Proptech solutions playing a vital role in overcoming many of the challenges faced.
