That positive externality will be really powerful in the coming years – it already is – and it is important that it is used for good.
We have seen many fascinating ideas that turn out to be fuelled by metaphorical kool aid, from WeWork’s valuation through to real-estate-related NFT projects for which, frankly, it is very difficult to see how NFTs add any material value to the project. Going forward, being savvy about what is ‘value-add’ tech and what is not will be important.
Regulation and the environment
From a legal and regulatory perspective, we have seen continued growth in the reach of regulations, thanks to the government’s desire to make the housing sector more professional. The result is a shift in the balance of power from smaller investors and sideline landlords to homeowners at one end, and institutional investors at the other.
This aligns with the more consumer-focused political agenda I mentioned earlier. We now have 168 laws and regulations governing property and its management. Notably, many of the newest regulations have focused on the environmental performance of buildings – which brings me onto environmental changes.
Our awareness has grown around the key areas of risk relating to the environment. The UK’s legally binding commitment to achieve net zero by 2050 means that now sustainability is no longer a ‘nice to have’.
Net zero is a legally binding national target that means that the UK’s total greenhouse gas emissions should be equal to or less than the emissions the UK removed from the environment.
It requires first to improve energy efficiency, for example reducing energy usage, then increase renewable usage, then finally to offset any remaining carbon, for example through planting trees to absorb carbon dioxide from the atmosphere.
This legal obligation is showing up in the form of new rules, regulations and best practices affecting all sectors that contribute to emissions.
The urgency to address the sustainability agenda has been highlighted by the high impact, low probability shock of Covid-19, which has strengthened the case for prioritising people and planet alongside profits and illustrated the power of collective action to tackle global problems.
The low environmental efficiency of buildings has been highlighted by the tragedy and violence in Ukraine, and the associated impact on energy markets.
So, what are the risks? Firstly, there is physical risk, for example flooding risk. Secondly, there is transition risk, where buildings become obsolete or fall in value due to environmental changes or regulations around the environment.
A great example of this is the impact of minimum energy efficiency standards on rental houses with EPC ratings below E, which can no longer legally be rented out.