Valuation review

Changes in the notion of value

Steve Goodall

MD, e.surv

When it comes to valuing a property, it’s as simple as understanding how much someone will reasonably pay for it. The thing that complicates the process is on what grounds a buyer makes that decision. The reality is that it is a far more complex and complicated decision-making process than many of us would like to admit. People’s willingness to pay may ultimately be driven by many considerations – some not even related to the property, but to their personal circumstances. That said, we are all being encouraged to consider broader environmental value.

It’s so hard to define how a valuation is made in standard terms. Britain’s homes are not standard – far from it. Our housing stock is centuries old in some cases. Our working patterns and infrastructure needs are constantly changing, creating demand currents that affect local pricing patterns that can shift very quickly.

Access to fibre and, thus, 5G may just be beginning to influence property values, but as cloud computing and technology develop, the lack of fibre and the connectivity it supports will very likely begin to matter to the tune of thousands of pounds on property asking prices.

Understanding of how the green revolution and net zero will affect property valuations is also still in its infancy. But with the built environment estimated to be responsible for around 40 per cent of the UK’s carbon emissions, the ability to improve our homes’ energy efficiency will be makeor-break for the government in its pursuit of net zero by 2050.

What this means in practice is still poorly understood. However, the Royal Institution of Chartered Surveyors recently published a framework designed to highlight “core principles” that need to be assessed and managed in during the operation of the built environment.

ENERGY USE AND SOURCING

Understanding from where homes are sourcing their energy is just the first step in the UK’s transition to a net-zero economy. It’s not simply a case of using a supplier reliant on renewable sources (and who’s probably actually relying on oil and gas and then offsetting them on the markets). How this develops has the potential to be really interesting – and to have a significant impact on both property values and on the way surveyors think about valuations. Improving buildings’ energy efficiency in line with the government’s net-zero targets isn’t just about insulating roofs and cavity walls, switching out gas central heating for electric heat pumps, and popping some solar panels on the roof.

The whole energy network is going to have to change to support the transition to renewable energy, particularly because our capacity to store energy generated by wind, water, and sun when it’s in abundance remains very limited.

It’s likely that energy supply will become far more localised, with the grid offering backup power to supplement supply when there are demand spikes or insufficient local generation. Homes’ access to reliable and local renewable energy sources will increasingly affect their desirability as fossil-fuel costs get more and more expensive. Indeed, the ongoing conflict in Ukraine and the West’s reliance on Russian gas and oil supplies may accelerate this change, given it not only helps reduce emissions but also insulates Britain from geopolitical risks like these. Homes that meet legal energyefficiency requirements and have access to cheap renewable energy sources present less financial risk for lenders, who are already carrying the risk relating to borrowers’ ability to fund the necessary renovations in their back books. They will also appeal to buyers looking for lower household costs and more environmentally sustainable living environments. Prices will start to pull away from older stock that presents major renovation costs.

WASTE

Reduce, reuse, recycle has been a slogan emblazoned on raffia shopping bags for decades – but only recently has its material impact on property values begun to be properly considered.

A home’s sustainability will not be measured based solely on its energy supplier and the presence of a heat pump. RICS’ guidance refers to a number of different approaches to waste management and the effect it has on sustainability metrics. “Circular economy approaches” such as greywater recycling will increasingly affect value, as will slick services enabling residents to reduce and recycle easily and efficiently.

TRANSPORT

Our roads may still be clogged up with gas-guzzling vehicles, but make no mistake – government is determined to phase out petrol and diesel cars in favour of electric vehicles, replace diesel trains with hydrogen-run engines, and buses pumping out clouds of black exhaust with cleaner, greener alternatives.

Fibre and 5G are critical to support this vision – without them, transport infrastructure will be severely limited and dysfunctional. Proximity to a train station will still matter when it comes to valuing homes, but so will the new generation of transport – connectivity. The only thing that differentiates mortgages from unsecured lending is the security. It matters. And physical inspections matter because they offer the most complete form of security check. As borrower demand for more sustainable (and consequently more affordable) homes ramps up, pricing dynamics will adjust. Lenders, too, will drive this shift, with TCFD disclosures requiring a far more comprehensive understanding of carbon embedded in their businesses’ supply chains and asset exposure. M I