To meet the ever-growing demand for rental properties, retrofitting existing homes is a must, argues Samantha Kempe; proptech will be a huge help
The UK is in the grip of a housing crisis spanning issues of affordability, habitability, and availability. With over 1.6 million households on social housing waiting lists and homelessness on the rise, the human impact is severe.
As the country confronts a pressing need for £250bn in funding (paywall) to alleviate the rental crisis by 2031, the path forward must involve more than relying solely on building new stock to meet the growing demand.
With over 80% of the country’s current housing stock in 2050 already standing, strategic retrofitting of existing properties presents the most viable solution, especially with some 34,327 properties classed as “long-term vacant”.
We might have a tendency to lean towards the shiny and new, but retrofitting existing housing is now both a moral and economic imperative. Upgrades not only benefit tenants through higher property standards and lower rents, but also enable investors to align financial upside with positive social and environmental outcomes.
The scale of the rental housing crisis
Numbers paint a sobering picture of the UK’s current housing crisis.
We have the physical properties in place, yet far too many renters lack access to a decent, affordable home. In fact, over 20% of private rentals are considered substandard by the government’s criteria, with 12% meeting the definition of a Category 1 hazard – unfit for human habitation.
Perhaps nothing encapsulates the crisis more than the surging numbers of people trapped in temporary accommodation. Recent figures show over 22,500 households were stuck living in emergency housing; a 14-year high.
The challenges of building new
Building new has been the go-to solution for these issues in the past, but the speed at which new homes are being built does not match the rental market demand.
The widening gap between new homes required versus properties delivered encapsulates the overarching challenge. As of Q4 2023, only 212,570 new homes were completed across the UK, a far cry from the estimated 300,000 new units required annually to meet demand.
Developers are struggling to meet the volumes needed, strained across the board by prohibitive land prices, complex planning bureaucracy, and rising construction costs. Site costs were already elevated prior to the pandemic due to high competition, but have since shot up as a result of the crisis in Ukraine.
The post-2020 inflationary surge has only increased pressures, pricing out many schemes entirely or necessitating substantial public subsidy support. For example, over £560m in levelling up funding has been lost to inflation. Other cost hikes in areas like utilities and labour have further inflated expenses.
These market challenges show little sign of abating. We must therefore confront the reality that solely relying on new builds to address shortages will not suffice.
The case for retrofitting
Now we must turn to existing stock. By modernising dated properties, investors can transform them into higher quality homes that will not only benefit its inhabitants, but also surrounding communities.
For instance, making the necessary energy upgrades to shift a property from a D to a C EPC rating can save tenants an average of £500 in lower energy bills while substantially reducing carbon emissions. Every EPC grade climb also brings around a 30–40% reduction in CO2 emissions per year.
Our own data has also shown that retrofitting is two times more carbon efficient and can impact up to three times more households. While new units can achieve similar operating emissions once finished, retrofits greatly outperform on overall sustainability by repurposing existing homes rather than starting from scratch. For ESG-motivated stakeholders, the evidence signals retrofitting as the superior choice for scaling positive change.
Retrofitting also helps maintain community character, reducing the need to squeeze in high-rise buildings that may threaten long-standing urban environments. By focusing on enhancing assets within existing neighbourhoods rather than wholesale redevelopment which often results in premium asking rents, mid-market and lower income residents can continue living in familiar neighbourhoods with improved living standards.
Propelling retrofitting with technology
Realising the full potential of retrofitting requires innovative proptech tailored to upgrading at scale. Solutions leveraging predictive analytics, artificial intelligence and centralised platforms can streamline analysis for investors.
For instance, AI predictive modelling can identify areas and assets poised for growth or decline before market price adjustments. By analysing variables like commute times, rental growth rates, yields, incomes, and occupancy rates across regions, the technology provides a granular understanding of local supply-demand dynamics. This helps pinpoint investments in locations offering the best tenant demand and stability.
Advanced analytics can also incorporate factors such as neighbourhood development plans, green spaces, local amenities, local employment rates, or even the quality of nearby schools – elements that significantly affect residential desirability and, consequently, investment performance.
Such precision technology enables precise, data-driven decision making to target capital where it can optimise societal and financial outcomes. As a result, stakeholders are able to to swiftly assess portfolio-wide retrofitting potential to identify the most high-impact candidates to maximise societal gains and optimise capital deployment.
Information unlocks better decisions, and combining ambitious capital allocation with targeted proptech promises greater speed and impact in mobilising the UK’s existing supply to meet growing demand.
Main image: Samantha Kempe is co-Founder and chief investment officer at IMMO
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