Sponge SustainableLifestyles BusinessCase-06-12

The gaps in the existing case for
building sustainable homes to

encourage sustainable lifestyles
A report by Upstream for the Sponge

Sustainability Network
November 2005
Upstream for Sponge
Sponge Sustainability Network

Sponge is a network of open-minded individuals who share a particular interest in
sustainable development. These individuals generally work in, or are associated
with the development of our built environment; from bricks and mortar through
design, engineering and planning to communities and regeneration.
Sponge provides a focus for fresh ideas in building; demonstrating how sustainable
development can improve the quality of our built and natural environment.
Sponge works with existing groups who also have an interest in sustainability and
individuals who wish to be kept informed. The group is aimed at young
professionals and participation is open and encouraged to all.
This research project is part of the 3-year Defra Environmental Action Fund project
Building the Market for Sustainable Homes. For more information about this project
please see www.spongenet.org.
Upstream
Upstream is a strategic sustainability consultancy and is committed to assisting its
clients - all of whom work with property – to manage the economic, social and
environmental issues they face in ways that add value to their businesses and to
the communities in which they operate. Upstream has an active research and
advocacy programme and has contributed to a number of key projects promoting
sustainability within the home building sector. For more information about
Upstream please see www.upstreamstrategies.co.uk.
Steering Group members:

Industry steering group:
Sonny Masero Energy for Sustainable Development (ESD) and Sponge Director
Kendal Marsland Murray BioRegional Development Group and Sponge Project Manager
Andrew Eagles Housing Corporation
Gareth Jones Genesis Housing Group
Sheila Large The Riverside Group
Jim McClelland Sustain' Magazine
Martin Townsend Defra
Jo Wheeler WWF
Sponge members steering group:

Jane Durney BioRegional Development Group
Ed Gillespie FUTERRA Sustainability Communications Ltd
David Grover EcoAnswer Research and Consulting
Chani Leahong Fulcrum Consulting
Cara Naden Somerset Trust for Sustainable Development
Amanda Pearson Impetus Consulting Ltd
Liz Root BRE
ii The gaps in the existing case for building sustainable homes to encourage sustainable lifestyles
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Executive Summary
The imperative to build sustainable homes is apparent and urgent. The role of
house builders in delivering sustainable homes is crucial, but also requires action by
other stakeholders.
There is extensive literature on the benefits of building sustainable homes, but not
this is not convincing to house builders, particularly in the private sector. Objectives
of this research were to review the business-case literature and to identify why this
is the case and therefore where future research or action needs to be taken to
strengthen the business case. To this end, the report focuses specifically on new
build, and on private developers where the business case is the least developed.
In order for developers to build sustainable homes to create sustainable lifestyles
there needs to be credible evidence that this adds value to the business. To develop
truly sustainable projects, private and public sector developers must ensure that
schemes are not only environmentally and socially sustainable, but that they are
also economically viable. The fact that private developers must also satisfy
shareholder demands means that they are more compelled by short-term financial
gains than public sector developers.
There is a clear relationship between the nature of house-builders’ responses to
sustainability and the benefits they derive. The more thoroughly sustainability is
embedded within the business, the greater the benefits, as illustrated below:
Market
differentiation
Reputation
management
Greater operational
efficiency
Gaining planning
permission
Risk
management
Legislative
compliance
The gap analysis has provided an insight into the strength of business case in
relation to each of the business drivers. To summarise, this research has found
that:
FINANCIAL PERFORMANCE:
There is a growing body of evidence providing examples of how sustainability issues
can contribute towards good financial performance. However, at the moment, there
is little definitive evidence that shows that the link is causal and that the benefits
accrue to those making the initial investment. The main gaps in the business case
occur when:
iii The gaps in the existing case for building sustainable homes to encourage sustainable lifestyles
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• Land values do not reflect the investments that will need to be made to build
to high standards of sustainability
• The business-case is made on the basis of life-cycle costs, rather than
development profits
• Where the cost-benefits do not equate to a significant proportion of the
development profits
• Mainstream investors are not engaged with sustainability issues, leaving them
in the realm of the Socially Responsible Investment teams.
More conclusive evidence is needed to clarify the nature and extent of the causal
relationship between sustainability and financial performance, in relation to both
share price and development profits. This needs to be worked through, in detail, at
an individual project level.
LEGISLATION:
There is a significant and growing body of policy and legislation concerning
sustainability issues. However, the main gaps in the business case occur when:
• There is a lack of enforcement of compliance with regulations
• Penalties for non-compliance and rewards for exceeding compliance are not
great enough
• There is a lack of legislative flexibility to allow context and outcome driven
approaches
• New and forthcoming legislation has still to take effect.
Whilst there is some need for additional research to consider the nature and effects
of different approaches to compliance, the most significant action that is required is
more effective enforcement of existing regulation and legislation and support to
secure the fiscal incentives that have already been proposed.
RISK MANAGEMENT:
Risks can take many forms including litigation risk, regulatory risk, strategic risk,
operational risk, technical risk, brand risk, and reputational risk. Many of these
risks are addressed on a case by case basis by developers on individual projects.
However, the main gaps in the business case occur when developers are not able to
quantify the strategic risks that may affect medium and long term business
strategy or value. The drive to do so will become stronger following the introduction
of the Operating and Financial Review (OFR) and the European Union Accounts
Modernisation Directive, but there is more research required to enable developers
to understand how to identify, manage and quantify such risks.
PLANNING PERMISSION:
Gaining planning permission is becoming a key driver for house-builders to
incorporate sustainability principles into their developments. At a national, regional,
and local level developers are under increasing pressure to address sustainability at
the planning stages, particularly since the publication of Planning Policy Statement
1: Delivering Sustainable Development. However, the main gaps in the business
case occur when:
• There is a lack of consistency in planning at a national, regional and local
level
iv The gaps in the existing case for building sustainable homes to encourage sustainable lifestyles
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• Penalties for non-compliance with planning conditions, and rewards for

building to higher sustainability standards, are not great enough
• Knowledge of sustainability issues is not great enough within planning
departments.
Research would suggest that a little time is needed before it is known how recent
changes in the planning system will affect some of the gaps identified; early
indications of energy planning policies resulting from Planning Policy Statement 22
suggest that the new revisions can make a significant contribution to the delivery of
sustainable homes. More work is needed on how developers who wish to build to
higher sustainability standards can be rewarded through the planning system.
Action is required to provide information and training to planning professionals
about sustainability.
OPERATIONAL EFFICIENCY:
There is a significant scope for house-builders to increase the operational efficiency
(social and environmental) of their product both before and after occupation to
maximise development profits. However, research suggests that whilst there is
evidence that the case to improve operational efficiency can be strong when the
costs are significant (e.g. waste management); in many cases the cost savings of
increasing efficiency are not significant enough. Additionally, developers are given
limited support through grant schemes or other financial incentives to trial more
innovative initiatives.
REPUTATION MANAGEMENT:
Stakeholders, including investors, clients, government, local authorities, local
communities, employees, customers and NGOs are all becoming more and more
demanding in relation to companies’ environmental and social performance. The
main gaps in the business case occur when stakeholders are unsure as to the level
at which their expectations can be set, and the degree to which they can challenge
developers. There is little evidence to suggest that house-builders have yet been
affected reputationally by their sustainability records. However, the public sector
funding bodies are becoming more challenging to their development partners, and
the strength of the case is certainly growing in relation to this issue.
MARKET DIFFERENTIATION:
Market differentiation is the ‘holy grail’ for the developers of sustainable homes.
However, much more evidence is required to make the case add-up. Whilst,
frequently-cited evidence exists to demonstrate that customers would pay more for
sustainable homes, there is still limited evidence that this is being borne out in
practise, particularly in relation to mainstream developments. The case is further
weakened by limited public awareness of these issues, and in particular the
EcoHomes Standard, which makes it difficult for homeowners to differentiate homes
on the basis of their sustainability credentials.
DOES THE PROVISION OF SUSTAINABLE HOMES ALTER LIFESTYLES?:

There is evidence to suggest that the provision of more sustainable infrastructure
(e.g. a home) can lead to behavioural changes. However, more research is required
to examine how specifically the provision of a sustainable home can influence a
range of behaviours (which make up a lifestyle), particularly in relation to
behaviours that would require action on the part of the resident. It is also well
established that cost can play a key role in changing behaviour, and as with many
v The gaps in the existing case for building sustainable homes to encourage sustainable lifestyles
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of the drivers above, more fiscal incentives are needed. In addition, developers
need to provide more information on the sustainability features of the
developments they build, to drive both behavioural changes and demand for these
features.
CONCLUSIONS:
There is a significant amount of literature concerning the business case for building
sustainable homes. This research has demonstrated that, on the whole, the case is
well made at a generic level, but when you ‘scratch beneath the surface’ the case is
not proven or well evidenced. This is a consequence of two key factors:
• A lack of understanding of those factors that contribute to development
profitability and investment performance.
• A heavy bias towards public sector projects, which in their totality account for
a relatively small proportion of new build, and which are able to use long-term
accounting to make the case add up.
In order to provide a more convincing case for building sustainable homes
(particularly for private developers) a variety of research and action is required to
provide a more robust, in-depth and quantitative evidence for the business case for
sustainable homes.
10 key questions to strengthen and drive the

business case for sustainable homes:
• How can legislation and planning be more effectively enforced and good
practice incentivised?
• How is medium to long-term business performance affected by non-
financial risks?
• What would drive investors to mainstream sustainability, apply increased
level of scrutiny, and demonstrate how it effects their decisions?
• To what extent do land values reflect the costs and benefits of developing
to higher sustainability standards?
• How can we achieve greater consistency, clarity, and application of
planning policies and develop sustainability training to ensure effective
implementation?
• Can grant schemes be expanded to encourage investment and innovation,
and where would they be best targeted?
• How could sustainability provide a means of addressing the current skills
shortage?
• Do sustainable homes create added sales value?
• How can developers make the sustainability features of homes (and
communities) transparent and easily understood by consumers?
• What are the quick wins to drive lifestyle changes?
vi The gaps in the existing case for building sustainable homes to encourage sustainable lifestyles
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Table of Contents
1 Introduction ___________________________________________________________________ 1
The imperative to build sustainable homes_______________________________________ 1
What do sustainable homes and lifestyles look like?______________________________ 2
What is the Government doing to drive sustainability in the built environment? __ 4
The role of house-builders in creating sustainable homes and lifestyles___________ 4
Building the Market for Sustainable Lifestyles ____________________________________ 5
Objectives and methodology_____________________________________________________ 5
Scope of the research ___________________________________________________________ 6
2 Gaps in the business case for sustainable homes ___________________________ 8
2.1 Financial performance: development profitability and investment
performance________________________________________________________________ 9
Summary of key gaps in business case: financial performance _____________ 22
2.2 Legislation_________________________________________________________________ 25
Summary of key gaps in business case: legislation _________________________ 34
2.3 Risk management _________________________________________________________ 36
Summary of key gaps in business case: risk management _________________ 41
2.4 Gaining Planning Permission _______________________________________________ 42
Summary of key gaps in business case: gaining planning permission _______ 47
2.5 Operational efficiency ______________________________________________________ 49
Summary of key gaps in business case: operational efficiency______________ 54
2.6 Reputation Management ___________________________________________________ 55
Summary of key gaps in business case: reputation management ___________ 59
2.7 Market differentiation ______________________________________________________ 61
Summary of key gaps in business case: market differentiation _____________ 66
3 Does the provision of sustainable homes alter lifestyles? _________________ 68
Summary of key gaps in understanding whether sustainable homes lead to
sustainable lifestyles __________________________________________________ 74
4 Conclusions and Recommendations _________________________________________ 76
vii The gaps in the existing case for building sustainable homes to encourage sustainable lifestyles
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1 Introduction
The imperative to build sustainable homes
Housing infrastructure and the way people live in their homes plays a critical role in
delivering sustainable development. The impact of housing is significant and
increasing:
• Housing currently accounts for 30 per cent of the UK’s carbon emissions.1
• Housing accounts for 56 per cent of all water use. 1
• Road traffic increased by 17 per cent between 1990 and 2003, resulting in
greater air pollution, congestion, and health problems. The associated carbon
dioxide emissions from private car use also increase by 8% in this period.2
• Every person in the UK generates, on average, half a tonne of waste every year,
despite drives to reduce waste. Although recycling is increasing, it is still at one
of the lowest rates in Europe.3
• Nearly five million people in over two million homes are located in areas at risk
of flooding.4
• House prices are continuing to rise pushing first-time buyers and key workers
out of the market - nurses are priced out of the housing market in 93% of the
UK’s towns and cities, as are 90% of fire-fighters, 77% of teachers and 71% of
police officers.5
• 8.6 million people aged 16 and over declare themselves to be disabled,
representing 15 per cent of the UK population. 6 There is currently a shortfall of
around 150,000 homes suitable for people with disabilities. 7
• Safety and security plays an important role in people’s well-being.
Developments designed using the Secured by Design (SBD) principles of
‘designing out crime’ experience between 54% and 67% less crime than
equivalent non-SBD developments.8
• 79% of people living in the least deprived areas of the UK enjoy where they live
compared with 46% in the most deprived areas.9
Addressing all of these and other sustainability issues in the provision, design and
development of housing could therefore make a vital contribution to sustainable
development.
1
Environmental Audit Committee (EAC) (2004) Housing: Building a sustainable future. See:
http://www.publications.parliament.uk/pa/cm200405/cmselect/cmenvaud/135/13507.htm#n110
2
HM Government (2005) Sustainable Development Indicators in your Pocket 2005. See:
http://www.sustainable-development.gov.uk/performance/8.htm
3
Defra (2005) Recycling and waste webpage. See: http://www.defra.gov.uk/environment/waste/
4
Environment Agency (2005) Flood – what you need to know.
5
Halifax (2005) Key Worker Annual Review See:
http://www.hbosplc.com/media/includes/21.05.05%20Key%20Worker%20Affordability.doc
6
Employeers Forum on Disability (Disability Online for CSR Practitioners: Keeping Global Business in
Touch). See: http://www.employers-forum.co.uk/www/pdf/DisabilityOnline.pdf
7
National Housing Federation (1995) Housing for Health.
8
Secured by Design (2001) Secured by Design Focus, Winter 2000/01. See:
http://www.securedbydesign.com/focus/issues%5CSbD_Focus_Issue_1.pdf
9
HM Government (2005) Securing the Future - delivering UK sustainable development strategy.
1 The gaps in the existing case for building sustainable homes to encourage sustainable lifestyles
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What do sustainable homes and lifestyles look like?

One of the key difficulties in undertaking research into sustainable homes and
lifestyles is the lack of widely accepted definitions. In terms of environmental
impact, Sponge describes a home as having a:
…“metabolism” that primarily includes energy, water, food, consumer
goods (i.e. a car, white goods, electrical entertainment equipment) and
waste, noise and pollution. The development of a sustainable home can
“design-in” technical measures that will improve this metabolism and
that will enable residents to make sustainable lifestyle choices as a
natural pro-environment habit.
In common with many other definitions and descriptions of sustainable homes, this
focuses upon the environmental sustainability of the home. It appears that the
socio-economic elements of sustainability are much more difficult to define,
perhaps because they are more context specific and involve principles that do not
relate to individual households but to communities. In this regard, whilst
‘sustainable communities’ is a widely used term, there appears to be little
consensus on a rigorous definition, although there have been numerous attempts to
create one, such as that provided by the Office of the Deputy Prime Minister
(ODPM) (see box 1 below).
Box 1: Sustainable communities: Homes for all

The definition of sustainable communities was set out by the ODPM in the document
Sustainable Communities: Homes for All
Sustainable communities are places where people want to live and work, now and in the
future. They meet the diverse needs of existing and future residents, are sensitive to their
environment, and contribute to a high quality of life. They are safe and inclusive, well
planned, built and run, and offer equality of opportunity and good services for all.
Sustainable communities should be:
• Active, inclusive and safe – fair, tolerant and cohesive with a strong local culture and
other shared community activities
• Well run – with effective and inclusive participation, representation and leadership
• Environmentally sensitive – providing places for people to live that are considerate of
the environment
• Well designed and built – featuring a quality built and natural environment
• Well connected – with good transport services and communication linking people to
jobs, schools, health and other services
• Thriving – with a flourishing and diverse local economy
• Well served – with public, private, community and voluntary services that are
appropriate to people's needs and accessible to all
• Fair for everyone – including those in other communities, now and in the future.
SOURCE: ODPM (2005) Sustainable Communities Homes for All. See:

http://www.odpm.gov.uk/embedded_object.asp?id=1122890
Whilst coming to an agreed definition is a somewhat academic discussion, it is

important that there is a degree of understanding as to those issues encompassed
by sustainable homes, communities, and lifestyles.
Following a comprehensive literature review undertaken on behalf of Defra, Andrew
Darnton proposed an exploratory framework for a sustainable lifestyle. Darnton
argues that a complete picture of a sustainable lifestyle must cover both patterns of
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consumption and patterns of action, where the non-consumptive behaviours (or

patterns of action) most closely relate to the sustainable communities sphere of
sustainable development. The framework is based around thirteen groups of
behaviours the details of which are provided in box 2 below.
Box 2: Sustainable behaviours that contribute to sustainable lifestyles
Behavioural Group Specific examples of behaviours
Energy use – domestic • Buy energy labelled products

• Fit insulation
• Subscribe to a green energy tariff
Energy use – transport • Reduce car use
• Increase walking and cycling
Water use • Use a rainwater butt
• Have showers instead of baths
Waste • Recycle household waste
• Use green collections
Household consumption – • Buy fair trade and organic food
food • Reduce food miles
Household consumption– • Shop locally

general
Housing • Move to a smaller house

• Demand habitable standards
Tourism • Consider eco-tourism holidays
• Take domestic holidays
Leisure • Increase leisure activities
Participation • Take part in consultations

• Be a member of a group
Volunteering • Help someone else
• Undertake civic service volunteering
Banking • Use ethical banks and products
Neighbourliness • Meet friends and neighbours socially

• Reduce noise pollution
SOURCE: Darnton (2004) Driving Public Behaviours for Sustainable Lifestyles – Report 2 of
Desk Research Commissioned by COI on behalf of Defra. See: http://www.sustainable-
development.gov.uk/documents/publications/desk-research2.pdf
Many of the behaviours listed above can be influenced or driven by a range of

stakeholders. There is no one key player responsible for influencing and driving
more sustainable lifestyles; progress will only be achieved through the actions of a
number of players including individuals, businesses and government.
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What is the Government doing to drive sustainability

in the built environment?
In January 2005, the Government published its revised sustainable development
strategy Securing the Future focusing on how the Government can help ‘deliver a
better quality of life through sustainable development’. It outlined the
Government’s approach to achieving sustainable development, focusing on five
guiding principles:
• living within environmental limits;
• ensuring a strong, health and just society;
• achieving a sustainable economy;
• promoting good governance; and
• using sound science responsibly.
The strategy identified four areas for immediate action, one of which was the need
for sustainable production and consumption or ‘achieving more with less’.
The Government’s approach to the built environment plays a decisive role in driving
sustainable homes, thus determining what infrastructure is available to people to
live more sustainable lifestyles. In 2003, the Government set up the Sustainable
Buildings Task Group to identify ways in which government and industry could
improve the quality and sustainability of new and refurbished buildings. The main
recommendation of the taskforce was that a national Code for Sustainable Buildings
should be established10. The Government acted upon this recommendation and the
Code is due to be rolled out by April 2006.
Another important step by the Government in driving a more sustainable built
environment was the publication of Planning Policy Guidance 1: Delivering
Sustainable Development, which saw the Government explicitly state that it sees
sustainable development at the heart of its planning policy. National planning policy
is beginning to reflect this ethos and it is slowly being picked up by regional and
local planning authorities in their regional and local development frameworks.
Regional and local planning authorities are also beginning to adopt sustainability
checklists and guidance to ensure developers incorporate sustainability features
into their developments. However, in light of the Barker Review, the Government is
also currently pushing for high levels of housing growth, particularly in the south
east. This has lead to a great deal of speculation by a plethora of organisations as
to whether this aspect of the Government’s housing agenda is currently out of step
with its sustainability commitments.
The role of house-builders in creating sustainable

homes and lifestyles
Sponge believes that property developers, designers, housing associations, house-
builders and contractors can enable sustainable patterns of consumption through
helping to change behaviour as follows:
• Creating communities where an individual can learn from neighbours who are
also living a sustainable lifestyle;
10
Sustainable Buildings Task Group (2004) Better Buildings – Better Lives. See:
http://www.dti.gov.uk/construction/sustain/EA_Sustainable_Report_41564_2.pdf
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• Designing-in measures to create domestic environments where sustainable

lifestyle choices are the norm; and
• Providing sustainability information to residents to allow them to make ‘rational
choices’ about their lifestyles.
Building the Market for Sustainable Lifestyles

It is against this background that Sponge has secured funding from Defra through
the Environmental Action Fund (EAF) to explore Building the Market for Sustainable
Lifestyles. This is a three year project that will research, compile and disseminate
the case for building homes that encourage sustainable lifestyles.
Much has been written on the topic of the business case for sustainability. However,
the lack of exemplar sustainable mainstream housing developments, together with
anecdotal evidence from house-builders, suggests that the business-case drivers
may not have been developed to the correct level of sophistication. Most developers
are, therefore, failing to capitalise on the benefits and opportunities that this
literature highlights.
In recognition of the fact that the business-case literature is undersubscribed and
lacks credibility, this initial piece of research was commissioned to provide a
foundation for the three-year EAF project. The purpose of this project can therefore
be summarised as follows:
• To critique the business–case for sustainable homes, assessing whether it is
relevant, credible and compelling for the house-building sector.
• To summarise and provide access to the business-case literature to a wide
audience through the Sponge membership.
• Examine whether there is evidence that sustainable homes do lead to more
sustainable lifestyles and what role developers can play in driving behavioural
changes.
Objectives and methodology

The specific objectives of this report were to:
• Collate and review existing evidence that demonstrates the business case and
demand for sustainable homes.
• Highlight any obvious gaps in the business case.
• Provide full references for all relevant materials.
• Provide copies of the most relevant reports.
• List contact details for those organisations that are key stakeholders in the UK
house-building industry that can influence the case for sustainable homes and
highlight those organisations actively promoting the case.
This desk-based study was undertaken in a number of stages. The first stage was a
collation of existing evidence that demonstrates the business case and demand for
sustainable homes, as well as evidence that demonstrates that sustainable homes
drive sustainable lifestyles.
A wide range of sources were drawn upon including:
• Government
• Government agencies and regulatory bodies
• Industry bodies and trade associations
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• House-builders’ public disclosure on sustainability issues including sustainability

and corporate responsibility reports.
• Sustainability advocates and NGOs
• Sustainability periodicals
• House-builders’ sales and marketing magazines
• Mainstream press and magazines
• Websites and other on-line resources
Following collation of the existing evidence, the information was reviewed and
categorised in relation to the business case. In seeking to categorise the existing
research and establish the relative strength of the case, a focus was given as to
whether the case:
• Is clearly defined
• Well quantified
• Effectively articulates how the benefits accrue to specific stakeholders at specific
times in the development process.
Through this process, gaps in the business case were identified.
The findings of the research are provided in two formats;
• This report which provides a categorisation and evaluation of the relative
strength of the business case together with the gap analysis. The first draft
of the report was reviewed by the Sponge members, an industry steering
group and the Sponge board of directors. The feedback from this process
was then used to inform the final report.
• A series of appendices which provide a summary of the information reviewed
and key organisations involved in the sustainable homes/lifestyles debate.
Scope of the research

There is potentially a huge body of literature which could be reviewed to address
the projects aims, ranging from generic literature concerning company performance
to case studies on specific projects. These have been used extensively to inform
this research, however, the main subject of this report is to establish the gaps in
the business case for building sustainable homes. In this regard the report has a
number of limitations:
• It does not address the important and urgent issue of the existing housing stock
in the UK. The Sustainable Development Commission has recently published a
useful paper on this subject, which would be a helpful first port of call for
anyone wishing to explore this further11.
• The report is focused primarily on private sector house-building. There are two
important reasons for this: firstly, over 90% of new build is undertaken within
the private sector12 (of which just over 50% is undertaken by the 25 largest
11
Sustainable Development Commission (2005) Sustainable buildings – The challenge of the existing
stock. See: http://www.sd-commission.org.uk/news/resource_download.php?attach_id=028YWFT-
8251JCW-YIX8C0Q-LWK3K6L
12
In 2003/04, the private sector completed 171,490 new dwellings, compared with 18,577 for RSL’s and
local authorities. ODPM (2004) Table 201: Housebuilding: permanent dwellings started and completed
by tenure. See: http://www.odpm.gov.uk/embedded_object.asp?id=1156033
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house-builders)13; secondly, the business case for private developers is less

robust than for the public sector and the benefits are not as well quantified.
• This research has not fully addressed the issue of life-cycle assessments to
justify the costs of sustainability features. As the research has focused on
building new homes rather than the on-going management, capital costs were
considered more significant than life-cycle costs for this analysis.
• Sustainable lifestyles can be driven by features ‘built-in’ to homes and
communities, but are also dependant upon the behaviour of individuals. Only
those areas where developers can have a clear influence over behaviour are
explored in this research. Defra has undertaken extensive research on
influencing sustainable lifestyles which should be the first reference for further
information on this topic14.
13
Housebuilder Magazine (2005) Britain’s Biggest Housebuilders.
14
Darnton, A (2004) Report 1: The impact of sustainable development on public behaviour. Undertaken
on behalf of COI on behalf of Defra. See: http://www.sustainable-
development.gov.uk/publications/publications.htm
Darnton, A (2004) Report 2: Driving Public behaviours for sustainable lifestyles. Undertaken on behalf of
COI on behalf of Defra. See: http://www.sustainable-development.gov.uk/publications/publications.htm
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2 Gaps in the business case for

sustainable homes
In order for developers to build sustainable homes to create sustainable lifestyles
there needs to be credible evidence that this adds value to the business. To develop
truly sustainable projects, private and public sector developers must ensure that
schemes are not only environmentally and socially sustainable, but that they are
also economically viable. The fact that private developers must also satisfy
shareholder demands means that they are more compelled by short-term financial
gains than public sector developers.
There is a clear relationship between the nature of house-builders’ responses to
sustainability and the benefits they derive. The more thoroughly sustainability is
embedded within the business, the greater the benefits, as illustrated below:
Market
differentiation
Reputation
management
Greater operational
efficiency
Gaining planning
permission
Risk
management
Legislative
compliance
An understanding of the way in which sustainability issues affect financial

performance is fundamental to the business case concerning all of the above
drivers. Therefore, the first section below explores this relationship in some detail.
The subsequent sections of this report go on to examine each one of the above
drivers in more detail, seeking to establish the relative strengths and weaknesses of
the business case.
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2.1 Financial performance: development

profitability and investment performance
Summary: Financial performance, sustainability and the
business case
Does the case add up? Frequently cited financial performance

drivers:
• The wider benefits of building homes to greater sustainability standards
are far greater than the initial capital costs.
• There are not always greater costs in building to greater sustainability

standards
• Sustainability enhances development profitability
There is a growing body of literature to support the assertion that sustainability

performance adds to financial performance. However, on the whole, current literature
remains rather generic, and there is little to address sustainability and house-building
specifically. If house-builders are to embrace sustainability as a business principle, there
needs to be a clear relationship between the factors driving financial performance and
sustainability. At the moment, there is little definitive evidence that shows that the link
between sustainability and financial performance is causal.
In order to provide an effective business driver for house-builders sustainability must,
therefore:
• Provide a premium for houses. Research suggests that this premium is critical
for developers to adopt sustainability principles. The evidence would suggest that while
people have stated that they would pay a premium for more sustainable homes, there is
little evidence that this is yet to translate into action.
• Enhance development project profitability. The benefits of building to higher
sustainability standards must outweigh any additional costs. Evidence would suggest
that at the moment, building to greater sustainability standards is more expensive for
developers, and that the benefits have not been sufficiently quantified to drive
developers to adopt higher standards. Private developers are also being slow to
integrate sustainability features which do not cost any more than their traditional
counterparts.
• Enhance investment performance. Research shows that investor support for
greater sustainability performance will be strongest when a clear relationship between
investment performance and sustainability is demonstrated. Research for this project
showed that this case is slowly being built by Socially Responsible Investment (SRI)
teams, but more work will be required before the case is robust.
• Be attractive to institutional investors if the company is listed on the stock
exchange. As above, institutional investor support will be strongest when a clear
relationship between investment performance and sustainability is demonstrated.
Research shows that mainstream investors still require a greater case to be made.
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Does sustainability influence financial performance?

The strength of the argument surrounding financial performance and sustainability
can only be fully arrived at through a detailed understanding of what drives
performance. Figure 1 below provides a simple analysis of what factors and players
are involved in a private (non-listed) house-builder’s financial performance,
demonstrating what relationships and interactions exist. Figure 2 provides a similar
analysis for listed house-builders who must also consider investor interest in their
financial performance.
If house-builders are to embrace sustainability as a business principle, there needs
to be a clear relationship between the factors driving financial performance and
sustainability. The sections below look in detail at how sustainability could influence
financial performance and whether there is any evidence to support this.
It should be noted that the following sections are focused primarily on the financial
performance of private house-builders. While some of arguments in the section on
development performance will be relevant to public sector house-builders, the
relationship between financial performance and sustainability is obviously very
different for public and private sector companies. Public sector bodies have a
greater interest in the on-going sustainability of the development, and have a
greater scope to take into account less tangible benefits to residents and the wider
society (such as the health benefits of using more natural materials and providing
open spaces).
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Banks Building Societies
Corporate and Interest and

project loans capital repayments
Mortgages
House-Builder
Buying
Development Selling
Project Profit Customers
Demand
Figure 1: Summary of the factors affecting a private (non-listed) house-builder’s House

financial performance Price
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Investors Banks Building Societies
Corporate and Interest and

Equity Dividends, project loans capital
plus repayments
growth/
decline in
share price
Mortgages
House-Builder
Buying
Equity
Share capital
price
Selling
Customers
Development
Project Profit
Demand
House
Price
Figure 2: Summary of the factors affecting a private (listed) house-builder’s financial
performance.
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Does sustainability affect house prices?

In relation to financial performance, it will obviously be beneficial and favourable to
private developers if customers were willing to pay a premium for sustainable
homes. However, if no such evidence is available, developers will remain reluctant
to incorporate sustainability features that cut into their profits and do not generate
any form of return. This will be particularly significant when the housing market is
slow, developers may be forced to offer financial benefits to customers to persuade
them to buy, further reducing the profitability of a house that may already be
generating a lower profit due to the incorporation of sustainability features.
The evidence for whether there is a market demand for sustainable housing and
whether customers are willing to pay a premium is discussed in detail in section
2.7. The evidence would suggest that while customers are demonstrating an
interest in the sustainability features of developments and state that they would be
willing to pay a premium, this has not yet translated into action.
Does sustainability affect development project profits?

A number of factors contribute to the overall profitability of a development project.
As discussed above, the value at which the properties sell is obviously critical to the
development’s profitability. This financial benefit has to be factored against the
costs incurred in the development process including the cost of land, gaining
planning permission and development costs in order to calculate the financial
performance of the development. The effect of sustainability on development
project profits is discussed in more detail in the sections below:
Land Value – The value developers pay for land reflects the costs that will be
incurred in developing the land (incorporating issues such as remediation and
planning) as well as the profits they will make. A number of organisations have
looked at how incorporating sustainability features into developments can reduce
the land costs. This approach is likely to be favourable to developers, as it allows
the sustainability of the product to be increased without necessarily increasing the
capital costs of development. This approach was exemplified in the development of
BedZED discussed in box 3 below.
The sections below describe how public and private sector landowners are likely to
have significantly different interests as to whether developers adopt high
sustainability standards on their land, and how willing they would be to reduce the
cost of the land to offset the increased costs of building to higher standards.
Public sector landowners – The drivers for good sustainability performance on
publicly owned land are quite strong, but are yet to fully come into fruition. There is
little to suggest that the public sector is yet to be influenced by a developer’s record
in relation to sustainability issues when selling its land.
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Box 3: Acquiring land at lower than market price – BedZED

The acquisition of the land for the BedZED development by Peabody/BioRegional
exemplifies how quantifying the environmental and social benefits of a development with
high sustainability standards can be used to acquire sites at below market value.
The bid by Peabody/BioRegional included a summary of how a ZED would be a
mechanism for Sutton Council to deliver objectives under its environmental and planning
policies. The Council engaged environmental economists to place an independent financial
value on BedZED’s benefits. It was found that by valuing the benefit of reduced carbon
emissions alone, the value of the ZED scheme over a conventional competitor was
between £100,000 and £200,000. Other benefits that were present but not so rigorously
costed included:
• Employment opportunities
• Educational value
• Reducing waste and pollution
• Attracting environmental businesses to the area.
Sutton Council agreed to accept the bid in 1998. While the bid for the land was not the
highest in financial value, when these non-financial benefits were taken into account, the
benefits to Sutton Council of selling the land for the development of the ZED scheme were
greater than conventional financial accounting would indicate.
SOURCE: Energy Efficiency Best Practice Programme (2002) General Information Report 89:
BedZED – Beddington Zero Energy Development, Sutton.
The example of BedZED shows that it is possible for public sector bodies to factor in
the long-term benefits of sustainable development. Indeed, the Local Government
Act 1972: General Disposal Consent 2003 ("the Consent") has provided local
authorities with greater freedom to dispose of their land “for less than best
consideration” (or below market prices). The consent removes the requirement for
authorities to seek specific consent from the Deputy Prime Minister and the
Secretary of State (which was required for the sale of the land for BedZED, above)
where the undervalue of the land is less than £2,000,000. ODPM Guidance on the
Act states that:
The terms of the Consent mean that specific consent is not required for
the disposal of any interest in land which the authority considers will
help it to secure the promotion or improvement of the economic, social
or environmental well-being of its area.15
There is, however, limited evidence that mainstream developers have taken
advantage of these changes in the power of Local Authorities to dispose of land at
lower than market value. Indeed, there are questions as to how widely this
approach can and will be applied. Stephen Hill, Head of English Partnerships
Millennium Communities Programme, recently commented that:
We [English Partnerships] have the capacity to discount land to pay for
the extra cost [of building more environmentally-friendly homes]. The
problem is we are pretty much the only people that can do this. There
isn’t enough volume of business to enable housebuilders to treat this
any other way than one-off16.
15
ODPM (2003) Circular 06/03: Disposal of Land for Less than Best Consideration. See:
http://www.odpm.gov.uk/stellent/groups/odpm_planning/documents/page/odpm_plan_023358.hcsp
16
Regeneration & Renewal (2005) The Green House Growers, 14th October 2005.
Upstream for Sponge
Hill suggested that one way of overcoming this barrier would be to have five-year
partnering agreements between public sector landowners and private developers.
This agreement could see public sector bodies procure commercial partners over a
period of time, with an agreement that they bring down the costs of building more
sustainable homes.
It is likely that such an approach would require the public sector body to
benchmark development partners’ approaches to sustainability. The public sector
could benchmark companies on the basis of their corporate approach to
sustainability, as well as on their previous performance on projects, in order to
select the most appropriate developer for a partnering agreement. A similar
approach could also be used by public sector bodies when selling individual pieces
of land, where the sustainability of the development design could also be factored
into the appraisal.
Private sector landowners – On the whole, private sector landowners are not really
pushing sustainability on to developers, although there are some examples where
this is happening, in particular, the Prince of Wales’ development at Poundbury and
on a number of National Trust sites. There is no great pressure on the majority of
private landowners to require higher standards.
Private developers are unlikely to be interested in the long-term benefits of the
development of their land to higher sustainability standards. Until there is evidence
that home-buyers have a preference for more sustainable homes and are willing to
pay a premium for them, private landowners will remain uninterested in
sustainability, as there will be no financial benefit to do so. A gap remains in
understanding what conditions would drive private landowners to push developers
towards higher sustainability standards.
Planning costs – There are strong drivers within the planning process to address
sustainability which are discussed in more detail in the section on planning below.
Getting through the planning process can often entail significant costs, and the
costs associated with meeting technical requirements for planning submissions are
becoming increasingly significant. For investors, this represents an element of risk.
In addition, significant capital costs are often incorporated with Section 106
agreements or other fiscal arrangements. Local Planning Authorities (LPA’s) can be
quite demanding on their requirements, arguing that developers can make large
profits on developments; conversely developers argue that they are a business and
that the returns must relate to the capital employed and to the risks they take.
LPAs have suggested that open-book accounting should be used to provide greater
transparency to the process. LPAs often fail to fully appreciate the risks involved in
the development process. This argument is exemplified when looking at land value.
Many developers speculate on land prices by acquiring land that is, at acquisition,
not profitable, and in some cases developable. They may then retain these sites in
their land bank for a number of years. If the market changes and development
which was not previously attractive becomes favourable, then the developer may
make a significant profit. However, the risk taken in purchasing and holding onto
the piece of land may have been great. There is currently no way in which the value
of this risk can fully quantified by LPAs in their assessment of land value. More
robust processes are needed to quantify the risks taken by developers in order for
them to be more transparent about their accounting.
Design and specification costs – In achieving planning permission, developers
will make commitments to implement certain standards in the design and
specification of dwellings. Developers often state that fulfilling sustainability
Upstream for Sponge
commitments results in additional costs, which impacts negatively on the

development profits. This argument has tended to focus on research into the costs
of achieving specific EcoHomes ratings.
There have now been a range of studies undertaken on these issues, a summary of
which is provided in box 4. All these studies highlight that, for sites located near
public transport, the costs of getting to EcoHomes ‘pass’ or ‘good’ may be relatively
small, or indeed zero. However, there can be significant costs associated by
reaching higher EcoHomes standards as demonstrated in the table below.
Box 4: The costs of building to EcoHomes

Absolute costs:
Pass Good Very Good Excellent Source
£0- £30 £0 - £111 £1430 - £1680 £1760 - £3040 Sustainable Homes (2002)
- £1100 £1975 £2625 Townsend (2005)
Relative costs (% increase in capital costs):

Pass Good Very Good Excellent Source
- - 2% - WWF (2003)
- - - 8% BioRegional (2004)
0 – 0.1% 0.3 – 0.9% 1.3-3.1% 4.2-6.9% BRE and Cyril Sweett
(2005)
NOTES:
1) Where ranges of costs are given, costs at the lower end will represent the costs in a good location,
whereas the higher costs will represent poor locations.
2) Some items within EcoHomes could not be priced in the BRE/Cyril Sweett research e.g. ecological
value, as these were very site specific. This means that the costs for the higher ratings could be
reduced if the ecology credits can be gained cost effectively.
List of sources:
Sustainable Homes (2002) EcoHomes Costings – An exercise for Sustainable Homes undertaken by
E2S environmental consultants.
Townsend, N. (2005) Nick Townsend, Group Legal Director of Wilson Bowden, speaking at
Sustainability in Housebuilding, Home Builders Federation Conference, 8th September 2005
WWF (2003) One Planet Living in the Thames Gateway.
See:http://www.wwf.org.uk/filelibrary/pdf/thamesgateway.pdf
BioRegional (2004) Enabling One Planet Living in the Thames Gateway. See:
http://www.wwf.org.uk/filelibrary/pdf/z-squared2004.pdf
BRE and Cyril Sweet (2005) Putting a price on sustainability? See:
http://www.brebookshop.com/details.jsp?id=148783
It is worth highlighting that when this research is done, it is usually biased in its
perspective. Research undertaken on behalf of developers often ‘adds-on’
sustainability features to standard specifications, which then can result in additional
cost. On the other hand, research undertaken by sustainability advocates that
incorporates EcoHomes criteria into the standard specification, therefore making
the costs an integral part of the development design, finds that the additional cost
is much less significant. It should, however, be noted that scoring against the
EcoHomes criteria is both location specific and biased towards environmental
sustainability. As such it is difficult to make generic assessments of the ‘costs’ of
sustainability in development design.
It is also worth highlighting that a frequently cited issue surrounding the costs of
integrating sustainability features is that design experts (such as engineers) are not
involved early enough in the planning process. Once development plans are passed
through there is very little flexibility to make the design more sustainable, and
Upstream for Sponge
integrating features is likely to be more expensive than if they had been designed
in initially. It should not be overlooked, however, that engaging experts earlier in
the process increases costs, and therefore increases the risk of the project in
getting it through planning.
A number of studies have sought to undertake more sophisticated analyses of the
costs and benefits of building to higher sustainability standards. These studies seek
to quantify the benefits of building to higher standards over the lifetime of a
development, set against the initial capital costs. The most detailed of these was a
cost benefit analysis undertaken by the Environment Agency (2005). The analysis
found that a 25% improvement in resource efficiency would have a maximum
capital cost of £800 pounds per home, but that the potential benefits would amount
to over £2,274 over a 25 year period (using a 3.5% discount rate). A study by
RSPB examined the impact of increasing construction rates to levels proposed by
Barker, focusing on whether the costs of building these homes to EcoHomes
Excellent for water and energy use would provide greater benefits through avoiding
the externalities of greenhouse gas emissions and water infrastructure. This study
found that over 15 years there was an 8:1 benefit to cost ratio of building to higher
environmental standards. It should be noted that both these studies focused on the
environmental costs and benefits, and neither provided an analysis of the costs of
achieving greater social sustainability (e.g. costs of including security measures,
community facilities, detailed and on-going community consultation, joining the
Considerate Construction Scheme), however, some discussion is made of the
potential social benefits (uncosted).
While both reports provide an interesting analysis of how the various costs and
benefits can be calculated, they both have significant shortcomings in their
approach and analysis. While the analysis may ring true for social housing
developers who retain an interest in the development after homes have been
occupied, they do not accurately reflect the costs and benefits for private
developers. Both reports assume that private developers will pay the additional
costs to increase efficiency, only for the benefits to accrue to the homeowner
(directly) and to wider society (indirectly). While some mention is given of the fact
that these additional costs could be offset by price premiums on the properties and
increased mortgage payments, there is little quantitative evidence to suggest that
homeowners will pay more for sustainable homes. The Environment Agency report
suggests that this has happened in developments such as BedZED, but it should be
noted that this is a very particular development and may not reflect demand in the
wider market. More recently Countryside Properties have been quoted in saying
that their approach to sustainability brings customers through the door, and
enables it to achieve a “premium over local value”. This issue is discussed in more
depth in the section on market differentiation below.
Therefore, a large gap in the current literature is a cost-benefit analysis which
explicitly looks at whom the costs and benefits of increased sustainability during the
homes lifecycle really accrue. Such a study would almost certainly find that the
benefit for private developers to incorporate more expensive technologies which
increases product sustainability over its lifetime would be qualitative rather than
quantitative (related to brand, reputation and the ability to acquire planning
permission). However, it may serve to highlight areas in which developers could
increase product efficiency without having to pay a premium (for example, A-rated
white goods don’t always cost more then their less efficient counterparts; further
information on this point is examined in the National Energy Services (NES) Report
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The Appliance of Science17). It would also highlight areas where developers will be
reluctant to take action to improve the sustainability performance (due to the high
costs) and where government grant schemes may be best targeted. Such an
analysis would also be useful for organisations which are actively seeking to
forward the sustainability approaches of house-builders as it will highlight issues to
which campaigns could target with greatest effect.
Construction costs – Addressing sustainability issues can reduce construction
costs by increasing operational efficiency. This issue is addressed in detail in section
2.5 below.
In relation to all of the above issues, the only argument that has been worked
through in relative detail relates to the cost savings that can be accrued through
operational efficiency (for example effective construction waste management can
have considerable costs savings). This particular argument is weakened when cost
savings make a relatively small contribution to overall development profits. There is
clearly more work to be done to link the other development performance indicators
above with sustainability performance.
It should be noted in relation to development profitability, that those developers
who take a long-term interest in a project (which includes social landlords and
private developers who retain an equity share in the development), will be more
interested in the long-term value of the project rather than short-term profitability.
This may provide a greater scope for these developers to incorporate sustainability
features which enhance the long-term value of the site; for example the provision
of green spaces, community facilities, and security features may all add to the long-
term desirability, and value, of the development. Little research has been
undertaken to examine which features are most likely to add long-term value to a
development, and what the long-term benefits are, of including these features into
the development design. This issue is discussed in further detail in the section 2.5:
operational efficiency below.
Does sustainability enhance investment performance?

A key question for owners of any business, whether shareholders or private owners,
is whether sustainability adds to investment performance. As the section above
discussed, there are a number of ways in which sustainability can affect the
profitability of a development; when these costs and benefits are summed across
the whole portfolio they could significantly influence company profitability and share
prices (where the company is listed).
The report by Morley discussed in previous sections sought to analyse how
investment performance is affected by house-builders approaches to sustainability.
While this report is focused on the financial performance of listed house-builders,
the principles of whether sustainability adds to financial performance could be
applied to any non-listed company. The report states that:
…for two key financial metrics used by investors to value house builders
[Price to earnings and premium/discount to Net Asset Value] there is a
good sustainability performance and financial performance.
17
NES (2004) The appliance of science: a research project into the installation of energy efficient
appliances into private sector new homes. See:
http://www.nher.co.uk/pdf/NES%20Appliance%20of%20Science%20June%202004.pdf
Upstream for Sponge
The graphs in box 5 below summarise Morley’s findings.
The Morley report provides an interesting insight into how sustainability issues may
affect the long-term investment performance of a house builder. However, the
analysis also highlights a key gap in the current business case for sustainable
homes as it is one of the only studies to try and link financial performance with
sustainability performance18. Further work will be needed into the links between
investment and sustainability performance before any substantive conclusions
about the links can be formed.
Box 5: Financial performance and sustainability
SOURCE: Morley (2005) Building for the Future: Investing for Sustainable
Development in the UK Property Sector.
Are institutional investors driving house-builders in improving

their sustainability performance?
Investor interest in sustainability is likely to be a key driver in the provision of
sustainable homes by listed house-builders. In their review of the barriers to
sustainable homes, WWF identified that a perceived lack of investor support is often
cited as a critical barrier by stakeholders. It is felt, particularly by developers, that
investors are not interested in sustainability and are solely focused on quick returns
and maximum profits. However, this view is increasingly being challenged by both
socially-responsible and mainstream investors. As the socially-responsible
investment market grows, further pressure is likely to be placed upon companies to
take a more sustainable approach to their business. Indeed, a study published by
Morgan Stanley and Oxford Analytica has projected that pension funds managed
according to a socially responsible investment basis could account for up to 15 per
cent of the UK stock market by 200919.
A number of investors are actively challenging the assertion that they are not
interested in the sustainability performance of house-builders. Since 2002, HBOS
and its asset management arm Insight Investment have been working with WWF to
support their One Million Sustainable Homes Campaign. Through the partnership
between Insight Investment and WWF, the 13 largest listed house-builders have
been benchmarked in relation to their sustainability performance twice since
18
It should be noted that the both the WWF and Insight Investment benchmarking analyses have
undertaken a crude analysis of score within the survey and company turnover, neither of which showed
a relationship.
19
Morgan Stanley Equity Research Europe: Thoughts on SRI Investors, July 2005.
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200320. The 2005 benchmarking exercise Investing in Sustainability found that

performance and reporting had considerably improved since the first exercise. The
average score was 68 per cent, compared to 47 per cent in 2003. The report stated
that WWF and Insight Investment believes that:
…“companies’ improved performance in this year’s analysis is due, in
part, to the constructive dialogue between companies, Insight and WWF
over the last two years.”
This finding demonstrates that investor interest can drive improved performance on
sustainability issues.
Morley is another investor which is becoming increasingly interested in the
sustainability performance of house-builders. However, its report Building for the
Future: Investing in sustainable development in the UK residential property sector
does not take such a positive stance on investor interest as the WWF and Insight
report stating:
…few mainstream (equity and property) investors appreciate the
relevance of sustainability issues to investment performance in the
sector. There is a danger that residential property stocks could be mis-
priced if sustainability issues are not sufficiently factored into
investment analysis and decisions.21
The report identifies in detail key areas that investors should be interested in
including land acquisition, planning, employee issues and risk management, all of
which benefit from a good approach to sustainability.
While it appears that investor interest in sustainability issues is growing, this
pressure is still generally coming from SRI teams rather than mainstream investors.
This means that questions surrounding sustainability performance do not generally
carry the same weight as if they were being asked by “the people that hold the
purse strings”. This gap could be addressed in a number of ways, particularly
through pressure on SRI funds to better engage with their property investment
managers, extend their engagement programmes to the property portfolio and
considering the development of property SRI funds. SRI funds could also develop
sector-specific queries for their equity engagement programmes, and assess project
as well as corporate sustainability. SRI investors need to ensure that the companies
SRI standards are being met at both corporate and project level, and that
procedures are in place to tackle developers who are not meeting their standards.
A number of these gaps are beginning to be addressed. In particular, Morley has
established Igloo22 to undertake environmentally friendly, well designed mixed use
regeneration projects. The fund is designed to provide institutional investors access
to the urban regeneration market within a sustainable and socially responsible
framework. The fund has been developed as an investment model which focuses on
longer term returns rather than quick wins.
20
Only 12 companies were benchmarked in the 2005 exercise as Countryside Properties declined to
participate following their privatisation. Full details can be found in the report Investing in Sustainability.
See: http://www.wwf.org.uk/filelibrary/pdf/investinsustainability.pdf
21
Morley (2005) Building for the Future: Investing for Sustainable Development in the UK Property
Sector.
22
www.igloo.uk.net
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FINANCIAL PERFORMANCE: DRIVERS IN PRACTICE

CASE STUDY: THE INSTALLATION OF COMMUNITY HEATING BY ABERDEEN
COUNCIL
This case study demonstrates how public sector bodies can factor in the whole-life costs
of installing sustainability features, due to their long-term interests in developments. It
reflects how public sector bodies have more flexibility in their approach to development
profitability than private developers.
Aberdeen County Council used whole-life costing when making improvements to their
heating systems, building fabric and thermal installation in some of their high-rise
properties. The Council looked at both the capital costs as well as the whole-life costs
(over 25 years) and the weekly running costs of the flat to evaluate potential options for
the upgrade of the buildings. The options evaluated are summarised in the table below:
Option Capital cost Whole life cost Weekly running
(25 years) cost per flat
Existing heating n/a n/a £5.23
systems
Upgrading electrical £780,000 £2,680,000 £5.23
heating
Centralised boiler £935,000 £2,275,589 £4.15
plant
Combined Heat and £1,530,000 £1,896,956 £3.20
Power (CHP)
Scheme
The analysis highlighted that despite the high initial capital costs, the CHP scheme was
the cheapest scheme over the whole life of the project. The installation of CHP would also
reduce tenants’ heating costs by 40 per cent, with similar reduction in carbon emissions.
The Council opted to install the CHP scheme based on whole-life costing.
SOURCE: EST (2005) Using whole life costing as a basis for investments in energy efficiency
– guidance: Energy Efficiency Best Practise in Housing. See:
http://www.est.org.uk/uploads/documents/housingbuildings/ce119.pdf
Summary of key gaps in business case: financial performance
Gap identified in the Is further Suggestions of further research/actions that Organisation who
business case research/action could be undertaken to fill gaps should lead
required? action/research
House prices
See section below on Market differentiation for further information on the gaps related to house prices and sustainability
Development profitability
Land values do not always Yes – further RESEARCH: Further research will be needed in the future to Sponge
accurately reflect the benefits research is required assess the margins of acceptability in reducing land prices on the
Public sector landowner
of increasing the sustainability basis of sustainability. Research could provide guidance on which
(such as English
of a site, particularly on public non-financial benefits could be costed in order to provide a
Partnerships)
sector owned land. clearer insight into the value of the scheme, which would allow
the land to be costed more appropriately. Private sector developer
There is little evidence that No – further research Further research will be needed in the future to assess the
private landowners are pushing not required until margins of acceptability in reducing land prices on the basis of
developers to address other gaps have been sustainability. This cannot be undertaken until other research
sustainability issues. addressed. addressing fiscal drivers has been undertaken and implemented.
Planners are not adequately Yes – further RESEARCH: A tool to help planners better quantify the risks Professional body (such as
equipped to quantify the risks research is required associated with the acquisition and development of a site. the Town and Country
developers take on when Planning Association and
acquiring and developing a RICS)
site.
The costs of integrating Yes – further RESEARCH: A study to examine the costs of integrating Sponge
sustainability features into research is required sustainability features into development design and specification,
Consultancy (with
development design and reflecting those issues that have been costed in meeting
experience in costing
specification, while well legislative or planning requirements.
projects and sustainability
quantified for EcoHomes, do
issues)
not take account of broader
sustainability issues or reflect
those issues that have already
been costed in meeting
legislative or planning
requirements.
Design experts are not Yes – action is ACTION: More engagement is needed with developers to Sponge
involved early enough in the needed encourage them to engage design experts earlier in the process
Professional bodies (such
planning process, which can to better facilitate the integration of sustainability features.
as RICS, CABE, and TCPA)
mean that there is less
flexibility and greater costs in Industry Bodies (such as
integrating sustainability Constructing Excellence,
features. and HBF)
It is unknown which Yes – further RESEARCH: A study could be undertaken to examine which Sponge
sustainability features drive research is required sustainability features add to the long-term value of a project,
Social housing bodies
the long-term value of a site. with particular reference to developers with a long term interest
(such as the Housing
in a site.
Corporation)
Large private sector

landlords (e.g. The Crown
Estate, Grosvenor,
Grainger Trust)
Investment performance
More conclusive evidence is Yes – further RESEARCH: Further research is required to demonstrate that Institutional investors
needed that sustainability research is required sustainability issues affect investment performance for house-
enhances investment builders. Any study should be robust and, where possible,
performance. provide information on the statistical significance and sensitivity
of any conclusions.
Investors are not doing enough No – further

to drive house-builders to research/action not
address sustainability issues – required until the
particularly mainstream other gaps related to
investors. investment
performance have
been addressed.
SRI investors need to do more Yes – further action RESEARCH: Research could investigate the most effective way Sponge in association with
to engage the mainstream and research is that SRI investors could engage with mainstream investor. It socially responsible
investors in the sustainability required should also examine how such action should be facilitated, and investors
debate. what bodies should be involved.
ACTION: This will depend on the outcome of the research. It

may involve presentations to mainstream investors, articles in
the mainstream investment press etc.
2.2 Legislation
Summary: Legislation, sustainability and the business case
Does the case add up? Frequently cited legislative drivers:

• The Kyoto Treaty
• Building Regulations (and particularly Part L: Conservation of Fuel and Power)
• The Energy Performance in Building Directive (EPBD) (Forthcoming)
• The Code for Sustainable Buildings (CSB) (Forthcoming)
Legislation is one of the most significant drivers for house-builders to embrace sustainability
principles, which in turn can drive the production of sustainable homes and which, in turn,
may better permit the sustainable behaviour of occupiers. The most recent benchmark of
house-builders’ approaches to sustainability issues undertaken by WWF and Insight
Investment, demonstrated that compliance still plays a large part in driving many
companies’ sustainability strategies23. House-builders are often keen to emphasise that
addressing sustainability issues above the required mandatory minimum standards often
confers little or no commercial benefit24.
In order to provide an effective business driver legislation must, therefore:
• Drive change towards a defined outcome, in this case a sustainability ‘good’. The
research undertaken for this project demonstrates that the Government is seeking to
develop and implement legislation which encourages developers to address sustainability in
housing. However, evidence would suggest that current legislation is not always totally
joined up to the Government’s wider policy commitments.
• Be effectively enforced. Research would suggest that legislation is not currently being
effectively enforced in the house-building sector and that further work is needed to address
this issue.
• Have appropriate levels of costs associated with non-compliance and rewards associated
with good compliance records. Research for this report would suggest that while there are
not currently sufficient costs associated with non-compliance, the Government is looking at
ways to address this issue. While there is a large body of evidence demonstrating how
developers could be rewarded for exceeding minimum standards, these measures now need
to be put into place to encourage developers to adopt higher standards.
23
WWF/Insight Investment (2005) Investing in Sustainability. See:
http://www.wwf.org.uk/filelibrary/pdf/investinsustainability.pdf
24
Morley (2005) Building for the Future – Investing for sustainable development in the UK residential
property sector.
What legislation is being developed to support the
Government’s objectives for sustainable homes?
The development of legislation follows decisions concerning Government Policy.
There is no doubt that legislation concerning sustainability issues is increasing. The
sheer amount of legislation concerning sustainability issues has been cited by
developers as both a driver and an inhibitor to sustainable homes, with many citing
the cost of additional procedures, resources and bureaucracy involved in
implementing compliance regimes having an insufficient ‘upside’ in terms of
rewards.
Some of the most significant pieces of existing environmental and social legislation
for house-builders include:
• The Environmental Protection (Duty of Care) Act 2000
• The Hazardous Waste Regulations 2005
• Building Regulations (which can be taken to include the recent amendments to
Part L which will not come into force until 2006)
• The Work at Height Regulations 2005
• The Disability Discrimination Act 2005
A number of documents seek to address whether or not the Government has yet
developed legislation to support key policy decisions that drive the development of
sustainable homes. For example, a particularly good (although now slightly
outdated) overview of government policy in relation to the provision of sustainable
homes is provided in the WWF report Fiscal Incentives for Sustainable Homes.25 The
report also outlines how government sustainability targets could be met through
the provision of sustainable homes (for example improving the energy efficiency of
the housing stock will help the Government deliver upon its Kyoto obligations and
its own targets). Another WWF report, One Planet Living in the Thames Gateway,
also provides a simple summary table of how Government Targets and
Commitments could be met through more sustainable homes.
Evidence would suggest that in relation to some issues, the Government is driving
the sustainability agenda quite hard. For example, energy is a key area where
legislation is helping the Government to meet policy commitments. Despite facing
criticism over the most recent amendments to Part L of the Building Regulations,
these amendments had been undertaken two years ahead of schedule, and when
taken together with changes to strengthen Building Regulations in 2002 will
improve standards by 40%. The increasing environmental legislation over recent
years has seen a change in the design and construction of homes. It is important
that the Government maintains this momentum, builds on the success of existing
legislation, and seeks to broaden its scope through a range of measures that
together help the Government to consistently deliver upon its sustainability
commitments.
25
WWF (2002) Fiscal incentives for sustainable homes. See:
http://www.wwf.org.uk/filelibrary/pdf/sustainablehomes.pdf
Legislation is increasing, but how is the housing sector
responding?
A frequently cited gap in the Government’s legislation and policy in relation to
sustainable homes is the lack of enforcement of compliance with regulations. The
House of Commons Environmental Audit Committee note that:
…time and again over the course of our inquiries into environmental
crime, it has been brought home to us that unless there is a real threat
of being detected, the offender will continue to offend. We cannot stress
strongly enough the importance of the threat of detection as a
deterrent.26
Organisations such as WWF and BRE have highlighted and demonstrated that within
the house-building sector compliance with regulations is often poorly enforced and
monitored. Research by BRE, measuring compliance of new homes with building
regulations for air permeability, found that of the sample tested, nearly a third of
homes failed27.
The Environmental Audit Committee stated in their review of sustainability in the
house-building sector28 that:
The only body we heard from who expressed the view that existing
Building Regulations are being widely complied with was the House
Builders Federation. When asked, they stated that they believed
compliance with Building Regulations by house-builders was 100%. The
Federation went on to point out the NHBC and Zurich, the two bodies
who provide insurance cover for owners of new build homes, carry out
post-completion inspections for warranty provisions that help ensure
compliance. Unfortunately, these bodies do not provide warranties for
compliance with all the provisions of the Building Regulations,
compliance with energy efficiency measures, for example, are not
covered… The fact that compliance with Part L of the Building
Regulations is not covered by new buildings insurance, combined with a
lack of post-completion inspections by Building Control bodies, provides
little incentive for developers to carry out work to a standard that
ensures proper compliance with energy efficiency requirements.
The Government have stated that “more needs to be done to make enforcement
more efficient and effective”29. Furthermore, they recently commissioned the
Hampton Review to assess how the regulatory burden on business could be
reduced30. Hampton recommended that businesses with the poorest records of
meeting regulatory requirements should face the strictest compliance regime, and
those with the best records, the lightest. This would mean that those companies
that could demonstrate compliance with regulation would face a less burdensome
26
Environmental Audit Committee (EAC) (2004) Corporate Environmental Crime. See:
http://www.publications.parliament.uk/pa/cm200405/cmselect/cmenvaud/136/136.pdf
27
EST (2004) Assessment of energy efficiency impact of Building Regulations compliance. See:
http://www.est.org.uk/partnership/uploads/documents/Houses_airtightness_report_Oct_04.pdf
28
29
Environmental Audit Committee (EAC) (2005) Government Response to the Committee Second Report
of Session 2004-05 on Corporate Environmental Crime. See:
30
Hampton, P. (2005) Reducing Administrative Burdens: Effective Inspections and Enforcement. HM
Treasury. See: http://www.hm-treasury.gov.uk/media/A63/EF/bud05hamptonv1.pdf
enforcement regime than companies with poor compliance records. The
Government have stated that:
Defra is continuing to explore with the Environment Agency and other
stakeholders a more holistic approach to the enforcement of measures
for environmental protection, which will both be fairer to those who
transgress and more effective in protecting the environment by giving
courts a wider range of options for penalties which they are more likely
to be willing to use31.
While these measures have not yet been put into place, they could, if effectively
implemented, plug a much-needed gap in the Government’s approach to
enforcement.
As with all companies, compliance with legislation should be a self-regulating
minimum standard that forms a cornerstone of a responsible developer’s approach
to sustainability.
Are the penalties for non-compliance sufficient to encourage

good behaviour?
Another key gap in regards to enforcement of environmental and social legislation
is that the costs of non-compliance are not large enough or applied consistently
enough to dissuade companies from non-compliance. In 2004, the average fine
handed out to businesses by the courts for environmental crime was just £8,524.
Within the construction sector, fifteen companies were fined over £5,000, to a total
of £46,000. To put this figure into perspective, in terms of Gross Value Added
(GVA), the size of the construction sector was £52 billion in 200332. The impression
that fines are not commensurate to the crimes is not limited to environmental
crimes; the average fine per case prosecuted by the Health and Safety Executive
(HSE) in 2003/04 was just under £14,000.
There have been a number of suggestions as to how punishment could better
reflect the crime committed. In particular:
• The Hampton Review highlighted several measures that could be used to punish
non-compliance, including the suggestion that the Sentencing Guidelines
Council should consider new guidance on fine levels, taking full account of the
economic benefit gained from illegal activity.
• The Government has stated that, in relation to environmental crime, it may
begin to focus on forcing companies to remediate the damage done to the
environment rather than punishing the offender33.
• The Hampton Review also recommended that the government consider the
creation of a robust civil penalty regime as an alternative means with which to
deal with environmental crime. The Government responded to this suggestion
31
32
Environment Agency (2005) Spotlight on Business, Environmental Performance in 2004. See:
http://publications.environment-agency.gov.uk/pdf/GEHO0705BJHA-e-e.pdf
33
by stating that they are assessing the suitability of administrative penalties as
an appropriate enforcement tool.
• The HSE is increasingly looking to prosecute company directors for corporate
manslaughter.
• The Government, through Defra and the Environment Agency, is also looking to
use non-financial penalties such as naming and shaming to punish the worst
corporate offenders, an approach which could be extended to social crimes as
well.
Are there enough benefits to drive developers to exceed

minimum standards?
One of the larger gaps in existing legislation and policy is the lack of measures to
reward good behaviour rather than penalising bad, as exemplified by the approach
to regulation suggested within the Hampton review. The fact that existing
legislation is currently predominately geared towards penalising bad behaviour can
mean that companies are not driven to exceed anything but the minimum
legislative standards, as they perceive that there are no additional benefits in doing
so. However, this may be a gap that the Government is slowly seeking to fill. In
1997, the Government issued a Statement of Intent on Environmental Taxation
indicating that it was committed to explore the scope for using the tax system to
deliver environmental objectives - in combination with other instruments such as
regulation and voluntary action34. It stated that over time it will:
….shift the burden of tax from “goods” to “bads”; encourage innovation
in meeting higher environmental standards; and deliver a more dynamic
economy and a cleaner environment, to the benefit of everyone.
Since issuing this statement, the Government has introduced a number of fiscal
initiatives to promote sustainable housing, and, on the whole, these have been
limited to improving energy efficiency (through measures such as reduced VAT
rates on energy efficient products and the Landlords’ Energy Saving Allowance
(LESA)35). However, many organisations including the Energy Savings Trust (EST),
WWF and Green Alliance feel that the government has not gone far enough to
introduce fiscal incentives. This view is supported by the House of Commons
Environmental Audit Committee (EAC), which reported in 2004 that the Treasury
was “failing to exploit opportunities for imaginative policy initiatives”. Indeed, in
2005, they went further than this in their review of the Treasury’s progress against
the Statement of Environmental Intent stating that:
…revenues from environmental taxes have declined in percentage terms
since 1999 and now stand at their lowest level since 1994. This
demonstrates the failure of the Treasury to carry through the visionary
objective it adopted in the 1997 Statement of Intent on Environmental
Taxation. Indeed, in relation to environmental measures, budgets since
34
HM Treasury (1997) Statement of intent on environmental taxation. See: http://www.hm-
treasury.gov.uk/topics/environment/topics_environment_policy.cfm
35
The LESA was introduced in April 2004. The measure gives an allowance for capital expenditure on loft
and cavity wall insulation in rented accommodation. See:
http://www.hmrc.gov.uk/budget2004/revbn31.htm
2000 have contained substantially more subsidies and tax giveaways
than taxes and charges36.
There are currently no fiscal mechanisms in place to encourage developers to build
to higher standards than those in the building regulations37. However, there have
been a number of reports published that provide a detailed analysis of what
additional fiscal incentives could be introduced by the Government to encourage the
construction of sustainable homes. The most comprehensive of these was the WWF
Report Fiscal Incentives for Sustainable Homes which outlines a wide range of
potential fiscal measures that could be used to drive sustainable homes, mapping
them against their likely impact and political acceptability38.
The report provides a full discussion on what have been identified as the four most
promising fiscal measures:
• Stamp duty rebate on the first sale of sustainable homes and rebate of the
stamp duty paid on land on which sustainable homes are built or premises
which have been converted into sustainable homes.
• Reduced VAT rate of 5% on accredited suppliers.
• Abolition of the zero VAT rate on the construction of new buildings for
residential sale – replace with a reduced VAT rate conditional upon achieving a
certain sustainability rating. New residential build that does not achieve this
sustainability rating would be taxed at 17.5%.
• Capital allowances for expenditure on the conversion of premises into
sustainable residential dwellings for the rental market. This has now been
introduced for energy measures through the LESA (see footnote 22 for more
information).
In a more recent report, Changing climate, changing behaviour, EST focused more
specifically on fiscal measures that could be used to drive greater energy efficiency
in dwellings. EST found that:
• For existing properties, incentives linked to council tax rebates was the most
promising option in terms of the number of households to which the incentive
would apply and in terms of consumer favourability.
• For new build properties EST recommended a two-pronged approach, the
introduction of a Stamp Duty Land Tax (SDLT) rebate of £1000 for the first sale
of new properties and the introduction of the Barker proposed tax on planning
gain modified to reward developers who build to a higher energy performance
standard by an average of £1000 a property.
While EST focuses on the energy performance of dwellings, it is feasible that the
report’s recommendations could be expanded to encompass more aspects of
sustainability than just energy.
The lack of fiscal incentives for house-builders to construct sustainable homes is
now a well-explored subject, with little further research needed. However, it is clear
that such incentives need wider support and implementation.
36
Environmental Audit Committee (EAC) (2005) Pre-budget 2004 and budget 2005: Tax, appraisal and
the environment. See: http://www.parliament.the-stationery-
office.co.uk/pa/cm200405/cmselect/cmenvaud/261/261.pdf
37
EST (2005) Changing climate, changing behaviour: Delivering household energy saving through fiscal
incentives. See: http://www.est.org.uk/uploads/documents/aboutest/fiscalupdate.pdf
38
Is legislation flexible enough in different contexts?
Legislative flexibility is also viewed as a gap in current government policy. Most
legislation is in relation to issues that are not context specific (for example pollution
prevention or energy efficiency). However, some issues against which the
Government may wish to legislate in order to drive sustainable homes require
context specificity in order to be effective and not penalise developers where
certain actions are not possible. It may be better for the Government to move to an
outcome-based approach rather than prescriptive approaches. One example of this
is installation of renewable energy. Different technologies are appropriate on
different sites, and currently on some sites it is not commercially possible to install
such technologies at all. A prescriptive approach would require certain technologies
to be implemented (e.g. photovoltaics), whereas an outcome-based approach
would specify that emissions should be reduced by a certain percentage and how
this is achieved is flexible depending on the attributes of the site. This approach
may also be particularly appropriate on issues such as community communication,
where it has been traditionally more difficult to take a ‘one size fits all approach’.
Will incoming legislation address these gaps?

There are also gaps identified in current legislation that may be filled through
upcoming legislation that has not yet impacted. For example, the Energy
Performance in Buildings Directive which will come into force in 2006 is likely to
drive public awareness of the energy performance of the dwellings they purchase.
Under the directive, all dwellings will be required to provide an energy certificate
covering all aspects of the buildings energy efficiency. The draft certificates for the
UK (example shown in box 6 below) suggest that the environmental impact of the
buildings will also be a key feature of the certificates. Information will also be
provided on what measures occupiers can take to improve the energy performance
of their homes, indicating the likely cost savings and improved energy ratings39.
Evidence from Austria suggests that certification does help to drive public
awareness (see box 7).
Box 6: An energy performance certificate
SOURCE: EST (2005) Consultation on the Energy Performance Certification. See:

http://portal.est.org.uk/uploads/documents/partnership/Current%20version%20
of%20the%20EPC.pdf
39
EST (2005) Partnership Consultation on the Energy Performance Certificate. See:
http://www.est.org.uk/partnership/energy/index.cfm?mode=view&news_id=440
Box 7: Energy certification for buildings
Case study: The effectiveness of energy certification in Austria
In 1998, the regional building administration in Upper Austria introduced the requirement
of mandatory energy performance certification for new heated residential buildings and
for major refurbishments. According to an opinion poll in Upper Austria, 33 % of the
citizens know about the certificate (despite the fact that it is only used on new build
properties).
SOURCE: SAVE Project (2005) http://www.energielabel.at/energielabel/index.php?id=1209&L=1
The most significant piece of non-legislative policy that will affect house-builders is
the Code for Sustainable Buildings (CSB). The CSB is due to be rolled out by April
next year and its implementation will be required on all publicly-funded
developments. While the content of the code is still unknown, there has been a
widespread push from organisations such as WWF, the Housing Corporation,
English Partnerships, and Insight Investment that the standards within the code are
set to at least EcoHomes Very Good (or equivalent). These organisations have also
stated that it is hoped the scope of the code is wider than that of EcoHomes,
helping to drive a range of sustainability issues to be addressed in the design of
developments. This initiative by ODPM could deliver improved sustainability
standards in much the same way as the EcoHomes component of the Housing
Corporation’s Scheme Development Standards.
The impact of the CSB is likely to be significantly different for private and public
developers. For developers using public funding meeting the standards set within
the CSB will become a compliance issue. What is yet unknown is how widely the
code will impact on private house-builders, and whether the code really will drive
the case for sustainable homes. It is widely felt by more sustainability minded
organisations, such as WWF, the House of Commons Environmental Audit
Committee and Friends of the Earth, that the only effective way for the code to
have a large impact is for the requirements contained within it to eventually be
merged into Building Regulations. It is likely that successful implementation of the
code will rely on a range of policy measures, which may include the implementation
of one or more of the fiscal measures discussed above. Public awareness is also
likely to be critical to the success of the code; house-builders are likely to react
more strongly to ‘signals’ from customers that are clear, consistent and often
repeated.
LEGISLATION: DRIVERS IN PRACTICE
CASE STUDY: THE IMPLICATIONS OF THE CONTAMINATED LAND REGIME
FOR HOUSE-BUILDERS
In May 2005 the first ever court case was decided under the contaminated land provisions
set out in part IIA of the Environmental Protection Act 1990. Part IIA provides a risk
based approach to the identification and remediation of land where contamination poses
an unacceptable risk to human health or the environment. The contaminated land regime
has implications for those who cause or knowingly permit land to be contaminated or who
own, or occupy, land that is contaminated.
The case - Circular Facilities (London) Limited v Sevenoaks District Council concerned a
former brickworks site which was later infilled with organic waste. The land was
purchased by Circular Facilities who built houses and sold them to private residents. It
was later discovered that the land was generating landfill gas and the council served a
remediation notice in 2000 under Part IIA. Circular Faculties appealed the remediation
notice arguing that the previous site owner was actually the appropriate person under the
legislation.
The court however held that the council had the right to exclude the previous landowner,
ruling that it was Circular Facilities that had created the “significant pollutant linkage”.
The Court therefore confirmed the contents of the remediation notice.
SOURCE: Regeneration & Renewal (2005)
Summary of key gaps in business case: legislation
business case research/action could be undertaken to fill gaps could lead
Lack of enforcement of Yes - further research RESEARCH: A study that investigates innovative ways in which Consultancy (with expertise in
compliance with regulations. needed regulation within the house-building sector could be enforced. This environmental accounting)
could include an impact assessment of suggested measures such as
Government Bodies (e.g. Defra, the
the Hampton Review. It could also involve a cost-benefit analysis of
Environment Agency)
the impact of the Government focusing more resources on monitoring
and enforcing compliance against the potential environment and social Industry Bodies (e.g. HBF)
benefits of greater compliance.
Penalties for non-compliance No - Government is

are not great enough. seeking to address this gap
through Defra and
Environment Agency
Lack of rewards for developers Yes – no further research ACTION: Campaigns or support for current campaigns to encourage Sponge in association with other
who exceed compliance required, action required greater fiscal incentives identified in earlier research. organisations such as WWF who
standards, particularly in are already campaigning for these
relation to fiscal benefits. measures
Lack of legislative flexibility to Yes - further research RESEARCH: A study to identify key sustainable homes outcomes and to Sponge in association with
allow more context driven needed compare an outcome-based approach to legislation with prescriptive- Government bodies such as Defra
approaches to compliance. based approaches. The study could also examine to what extent this and the ODPM
would drive change.
Still waiting for legislative Yes – further research RESEARCH: Further research to understand developers’ attitudes Sponge
measures such as the Energy required towards the code: whether they are already gearing up to address the
Other NGOs such as WWF who
Performance in Buildings standards set within the code; and whether they feel that it will drive
have established relationships with
Directive and non-legislative the construction of more sustainable homes.
the private sector
measures such as the Code for
Sustainable Buildings to come Consultancy (with specific
into effect. experience in dealing with private
developers)
2.3 Risk management
Summary: Risk management, sustainability and the
business case
Does the case add up? Frequently cited risk management
drivers:
• Operating and Financial Review (OFR)
• EU Accounting Modernisation Directive
• Corporate risk e.g. historical land bank
• Reduced risk of non-compliance e.g. environmental pollution
• Reputation management e.g. reduced risk of direct action
Risk management can take many forms and all of the other business drivers identified in
this report incorporate an element of ‘risk management’, which includes:
• Litigation risk
• Regulatory risk
• Operational risk
• Technical risk
• Brand risk
• Reputational risk.
Therefore, this section of the report addresses the extent to which individual risks add up
to significant medium to long-term strategic risks for developers.
Environmental and social factors can generate each of these categories of risk and thus
need to be quantified and managed just as effectively as more familiar financial and
business risks.
In order to be an effective business driver the sustainability risk must:
• Be understood sufficiently well to enable shareholders, or those with a financial

interest in the performance of the organisation as whole, to make informed decisions
about the businesses long-term prospects. Evidence would suggest that, when
challenged, companies are able to cite examples of medium to long-term sustainability
risks. However, they are not demonstrating an appropriate depth of understanding or
effectively communicating these.
• Be significant enough to warrant a change in corporate strategy. Research
showed that there are a number of significant drivers that would warrant such a change,
but at present it is unclear as to the extent to which developers are factoring these into
their corporate strategies.
• Make a major and sustained impact on the company’s reputation. Reputation
management is discussed in more depth in section 2.6 below. Evidence would suggest
that at present house-builders are not experiencing sustained reputational risk as a result
of poor sustainability performance.
Are companies open and transparent concerning future risks
to the business?
The non-financial risks facing house-builders are well documented. The CIRIA
report Investing in Tomorrow’s Company, lists over 40 issues which may pose both
a risk and opportunity to property companies as a result of either negative or
positive impacts on the environment, economy or society. The majority of these
risks will be shared at a corporate level by all house-builders regardless of whether
they are a public or a private body (with the exception of financial risks which will
differ). It is important to recognise that different companies are exposed to
differing risks. An example of the process a house-builder may go through to
identify and communicate on their key risks is shown in box 8 below. WWF and
Insight Investment highlighted in their report Investing in Sustainability that while
many listed companies acknowledged in discussions that non-financial risks can be
substantial, few companies were able to demonstrate that they had taken a robust
and strategic approach to identifying risk that may affect medium and long-term
business strategy or value.
For listed house-builders, the drivers for identifying non-financial risks are quite
strong following the introduction of the Operating and Financial Review (OFR). From
1 April 2006, all listed companies will be required by law to produce an Operating
and Financial Review, which must identify the principle risks and uncertainties
facing the company, including non-financial risk40. The OFR is yet to fully impact
upon the listed house-builders and it is still unclear how companies will seek to
comply with the requirements of the OFR. The extent to which it will drive
companies to report and act upon non-financial risks is also unknown. Also unclear
is how the Government will interpret the guidelines and decide that a company has
overlooked the inclusion of information on a significant risk, and what measures it
will take to punish non-compliance.
For private house-builders, while the risks are still as great as for listed house-
builders, the external drivers for addressing risk are not always as strong. Larger
private companies will be subject to meeting the requirements set out in the EU
Accounts Modernisation Directive, which has been introduced in parallel with the
OFR. This requires large private companies to include “an analysis of environmental
and social aspects necessary for an understanding of the company’s development,
performance or position”, in an ‘enhanced Directors’ Report’41.
The most significant ‘corporate’ risk housing associations face is keeping up to date
with the requirements of their funding bodies and having strategies in place to deal
with increasing requirements. Anecdotal evidence would suggest that housing
associations are generally well-prepared to meet the increasingly high sustainability
requirements of funding bodies such as the Housing Corporation and English
Partnerships. However, housing associations tend to address risk on a project by
project basis.
40
HM Government (2005) The Companies Act 1985 (Operating and Financial Review and Directors'
Report etc.) Regulations 2005, HMSO. See: http://www.opsi.gov.uk/si/si2005/20051011.htm
41
Defra (2005) Environmental Key Performance Indicators: Reporting Guidelines for UK Business. See:
http://www.defra.gov.uk/corporate/consult/envrep-kpi/envrep-kpi.pdf
Box 8: Identification of key risks and opportunities
House-builder A
Key Characteristics
• House-builder A is a medium-sized house-builder with a
mixed land bank of brownfield and greenfield sites
• Some of the brownfield locations are in traditionally
deprived inner-city areas that suffer from high crime
rates
• The board is committed to sustainability issues and have
a policy of going beyond compliance wherever possible
Hypothetical external context

• In the previous 12 months three NGOs have asked about
the company’s sustainable timber procurement strategy
• Increasingly customers are showing an interest in the
environmental performance of their homes particularly
energy efficiency, linked to the rising cost of fuel
• The UK Government has set a target of 60 per cent of all
new residential development to be built on brownfield
land.
Sustainability communications on risk

House-builder A’s sustainability communications with
investors highlight the following:
• Crime prevention: the company uses the principle of
“secured by design” and meets with police local
architectural liaison officers on all projects.
• Sustainable procurement policy: House-builder A has
a sustainable materials policy which includes timber from
certified sources and preference for recycled timber.
• Land use: House-builder A has a commitment to exceed
the governments target of 60 per cent of new
developments built on previously developed land.
• Customer satisfaction: post-occupancy evaluations are
undertaken, which include energy performance.
Do risks at individual projects add up to a strategic risk to the
company?
Project-specific risk management is a fairly well developed discipline within the
house-building sector. Whilst, much of this literature is not publicly available
anecdotal evidence from developers42 suggests that many have tools and models to
assess and quantify the risks associated with any one project. Many of these risks
are not explicitly sustainability risks, however, they are driven by legislative
requirements and the specific demands of local planning authorities. They do,
therefore, by default cover some, but not all sustainability issues.
While developers are able to quantify such risks (e.g. the cost of remediation) at a
project level, there is less evidence to suggest that the cumulative affects of these
risks is used to inform medium to long term risk management strategies. A good
example to demonstrate this is flood risk; while many developers will be aware of
the risk of flooding on a particular site they are developing, very few (if any) house-
builder will know what the flood risk is on their land bank as a whole.
Another example, is the risk associated with contaminated land. There a number of
significant and inter-related strategic implications of this:
• The complexity of remediating contaminated land is increasing, particularly
as developers are looking to methods other than removal. This means that
developers may have to rethink the whole process for preparing a site for
development.
• The costs of remediation have increased dramatically in the past couple of
years due to the reclassification of waste under the Hazardous Waste
Regulations 2005 and increasing landfill costs.
• The case study on page 40 also demonstrated that house-builders need to
be increasingly aware that the liability for remediating contaminated land
appropriately can rest with them.
In addition to the practical implications of all of the above, strategically this may
affect acquisition and disposal strategies, and will require greater technical skills. A
more detailed discussion on this point is provided in the Morley report43.
42
Such evidence was presented as part of the analysis for the Investing in Sustainability Report. See:
http://www.wwf.org.uk/filelibrary/pdf/investinsustainability.pdf
43
Morley (2005) Building for the Future: Investing for Sustainable Development in the UK Property
Sector.
RISK MANAGEMENT: DRIVERS IN PRACTICE
CASE STUDY: FLOOD RISK AND THE THAMES GATEWAY
In early 2005, the Association of British Insurers (ABI) announced that developments
in the Thames Gateway would be uninsurable unless significant measures were taken
to minimise flood threat. Research undertaken the ABI found that:
One-third of designated development sites (up to 108,000 homes) are
located in the floodplain and 10,000 properties may be built in areas with
significant flood risk (greater than 1.3% annual probability). The total
asset value of residential and commercial properties within floodplain
areas of the new growth areas is around £21.6 billion, with around £19.1
billion attributable to new development within the Thames Gateway. This
represents a 15% increase in flood exposure in London over the £126
billion of assets currently at risk in the Thames floodplain, and a 5%
increase on national assets at risk (£428 billion).
The report recommended three actions for developers who are intending to building in
flood plains:
• Carry out a detailed Flood Risk Assessment to inform the master-planning and
design of any new developments with potential flood issues.
• Where floodplain sites cannot be avoided use variable development densities

based on the level of flood risk, e.g. 75 – 100 homes per ha for low risk areas,
50 – 75 homes per ha for moderate risk areas, and only open-space for
significant risk areas.
• Avoid constructing living space at ground-floor levels in significant flood risk

areas through use of additional storey developments, raised floor levels or
higher-density apartment-blocks.
This problem of flood risk is by no means confined to the Thames Gateway; currently
one in four planning applications objected to by the Environment Agency still go
ahead. The issue of flood risk and insurance is likely to be increasingly felt by
developers as the impact of climate change becomes increasingly well quantified.
SOURCE: ABI (2005) Summary Report: Making Communities Sustainable,

Managing Flood Risk in the Government’s Growth Areas. See:
http://www.abi.org.uk/display/File/Child/554/Making_Communities_Sust
ainable_housingsummary.pdf
Summary of key gaps in business case: risk management
House-builders are not Yes – further research RESEARCH: Comparative analysis of mainstream risk analysis compared Private house-builders
demonstrating that they have required to what are considered to be sustainability risks. This may require asking
Institutional Investors (and in
gone through systematic and a developer to submit a risk assessment for a single development, or
particular socially responsible
robust processes to identify key surveying a range of developers to get an assessment of the general
investors)
medium to long-term risks. approach taken.
A study may also be undertaken to examine the extent to which house-

builders are taking a strategic approach to address medium to long-term
sustainability risks (such as flood risk).
2.4 Gaining Planning Permission
Summary: Gaining planning permission, sustainability and
the business case
Does the case add up? Frequently cited planning drivers:

• Planning Policy Statement 1: Delivering Sustainable Development
• Sustainable and Secure Buildings Act
• Planning and Compulsory Purchase Act
• Sustainable Communities Plan
• Regional Sustainability Checklists (Existing and Forthcoming)
• Code for Sustainable Buildings (Forthcoming)
Gaining planning permission is a key driver for house-builders to incorporate

sustainability principles into their developments. Addressing sustainability may not only
help companies meet planning requirements, but may also ease the process of
planning consent through reducing the risk of third party challenges and planning
enquires (Insight & WWF, 2004). At a national, regional, and local level, developers are
under increasing pressure to address sustainability at the planning stages.
In order to provide an effective business driver for house-builders planning must,

therefore:
• Drive change towards a defined outcome, in this case a sustainability ‘good’.
Research for this project has highlighted that the Government have sought to place
sustainability at the heart of the planning system. Only time will tell how this focus on
sustainability is implemented throughout the planning system, although the early
indications of energy planning policies resulting from PPS22 suggest that these
revisions to the planning systems can make a significant contribution to sustainable
homes.
• Have consistent standards at a regional and local level. The planning system
should be flexible enough to take into account the regional and local context; however,
it should also be consistent to allow developers to take strategic approaches to issues
rather than acting on a reactive basis. Research highlights that, both regionally and
locally, standards in relation to sustainability issues are not consistent. This is
beginning to be addressed through a number of initiatives including the Code for
Sustainable Buildings and the roll out of regional sustainability checklists.
• Reward developers who build to high sustainability standards and have
appropriate penalties for developers who do not meet planning conditions. Research
highlights that developers who build to higher sustainability standards are not
consistently rewarded through the planning system. Evidence would also suggest that
developers not meeting planning conditions, particularly in relation to sustainability
issues, are not being effectively penalised.
Are national planning policies really driving sustainability?
At a national level, Planning Policy Statement 1: Delivering Sustainable
Development (PPS1), the Sustainable and Secure Buildings Act, and the Planning
and Compulsory Purchase Act, as well as the Sustainable Communities Plan all seek
to reinforce the central role that the Government sees the planning system playing
in delivering its sustainable development goals. A range of organisations, including
WWF and Friends of the Earth, have sought to comment upon whether these go far
enough to deliver sustainable housing. The sustainable communities plan in
particular has come in for heavy criticism from organisations involved in the
sustainable development agenda; the Environmental Audit Committee commented
in its review of the Sustainable Communities Plan that:
It is clear that the Sustainable Communities Plan does represent a
positive change in how the Government approaches growth and
regeneration. However, we are disappointed not to see set out explicitly
in the key requirements for a sustainable community the need to
comply with the principles of sustainable development; and we deplore
the absence of any reference to environmental protection, or the need
to respect environmental limits.44
What is clear is that while the Government is committed to placing sustainability at
the heart of the planning system, a more joined-up approach may be required to
ensure that all policies and guidance produced work in synergy to achieve this goal.
However, the review of planning policy since the introduction of PPS1 is still young.
Early indications of local implementation of Planning Policy Statement 22:
Renewable Energy has shown that effective local planning policy to increase on-site
renewable energy generation can drive the delivery of more sustainable homes.
Are there regional differences in the demands to build

sustainably?
WWF and the Town and Country Planning Association (TCPA) undertook a
comprehensive review of the planning system in their report Building sustainably:
how to plan and construct new housing for the 21st century, highlighting where
they felt the gaps existed in the current planning system45. A major gap identified
was that the:
…inconsistent interpretation of national planning policy is hampering the
adoption of such innovation and good environmental designs as the
norm throughout the house building industry.
This is a problem consistently highlighted by developers as well. Anecdotal evidence
suggests that while planners in the south east, and to some extent the south west,
are beginning to place a greater emphasis on sustainability issues, this is not the
case in other areas of the UK. These inconsistencies may be addressed in part by
the initiative currently being undertaken by the ODPM, WWF and BRE who are
working with each region to develop region-specific Sustainability Checklists for
Developments which build upon the existing BRE/South East England Development
Agency (SEEDA) Sustainability Checklist. It is the intention of the ODPM and WWF
44
45
WWF and TCPA (2003) Building Sustainably: How to plan and construct new housing for the 21st
century. See: http://www.wwf.org.uk/filelibrary/pdf/buildingsustainably.pdf
that the Sustainability Checklists for Developments will directly complement the
Code for Sustainable Buildings and Regional Planning Policy to ensure that
developers receive clear and consistent guidance.
Are inconsistencies between local planning authorities

hindering companies’ performance?
A recent report by Upstream, highlighted that the inconsistencies are found not just
regionally but also locally. The research showed that while a growing number of
local planning authorities are viewing sustainability (or aspects of sustainability) as
critical issues in the planning process, there are significant inconsistencies in the
issues local planning authorities are addressing (and indeed the manner in which
they address them). This lack of consistency makes it very difficult for developers
to adopt a strategic approach to issues, as they are not being asked the same
questions by all local planning authorities. An example which exemplifies this is
domestic recycling; developers find it difficult to take a strategic approach to
incorporating domestic recycling facilities into developments as different LPAs have
different collection services with different requirements. It is important that if
developers are to be pushed to address these issues, that they are asked to do it in
a consistent manner.
Does the planning system reward developers who design to

higher sustainability standards?
There are also gaps in the planning system to reward developers who build to
higher sustainability standards. The WWF/Insight Investment report Investing in
Sustainability highlighted that planning authorities are beginning to favour
developers that have a good record on sustainability issues. However, very little
work has been done to quantify the effects of planning rewards in driving
developers to construct sustainable homes. There are a number of ways in which
this could be achieved, which may include:
• The introduction of the Barker proposed tax on planning gain modified to
reward developers who build to a higher energy performance standard by an
average of £1000 a property
• The possible fast-tracking through the planning system for
projects/developers with good/excellent sustainability credentials
• Reducing the cost of applications for developers/development with good
sustainability credentials.
No study has as yet looked at the feasibility of introducing such measures and the
effects it may have on the provision on sustainable homes.
Are planning requirements being properly enforced?

Another frequently identified gap in the planning system is that of enforcement.
WWF highlighted in their report Building sustainably: how to plan and construct
new housing for the 21st century that:
…there is little point in increasing environmental standards for housing if
there is no infrastructure in place for checking whether these have been
met and enforcing requirements where they have not. The general
consensus appears that the enforcement powers given under the
Building Act are adequate, but that the key issue is having sufficient
trained staff to enforce them46.
This underlines the importance of planning departments having adequate training
and knowledge about sustainability issues in order to enforce planning
requirements.
The report also highlights that there is a critical need for better links to be forged
between planning, building control and environmental health structures within local
planning authorities. This would not only reinforce the enforcement regime, but
would also allow local authorities to take a more strategic approach to issues of
compliance on developments. One way of ensuring standards have been met could
be for planning authorities/building control to require post-construction reviews to
ensure that developers have met the requirements set out in planning approval (in
much the same way that English Partnerships requires EcoHomes post-construction
reviews on their developments).
Are developers who fail to meet planning requirements being

adequately punished?
There is also a gap in how planning authorities penalise developers who fail to meet
their planning conditions. The ODPM Circular 10:97 Enforcing Planning Control
contains detailed information on how planning policy should be enforced by LPAs47.
Anecdotal evidence would suggest that LPA enforcement teams act on a reactive
rather than proactive basis, taking action mainly based on complaints from the
general public. This means that lack of compliance on sustainability issues, such as
developers not meeting a given level of EcoHomes as set out in the planning
conditions, may not be picked up on.
While LPAs may take developers who are contravening planning regulations to
court, this will depend very much on the LPA and the resources available to do this.
It is highly unlikely that a developer would be taken to court for not meeting
EcoHomes standards. Therefore, there is a large gap in the current literature to
examine how enforcement teams can penalise developers for not meeting the
conditions set out when gaining planning permission particularly in relation to those
sustainability issues where non-compliance is less visible.
46
WWF and TCPA (2003) Building Sustainably: How to plan and construct new housing for the 21st
century. See: http://www.wwf.org.uk/filelibrary/pdf/buildingsustainably.pdf
47
ODPM (1997) Circular 10:97 Enforcing Planning Control. See:
http://www.odpm.gov.uk/index.asp?id=1144429
GAINING PLANNING PERMISSION: DRIVERS IN
PRACTICE
CASE STUDY: THE PLANNING DEPARTMENT AT THE LONDON BOROUGH OF
BRENT
“Our negotiations on a recent outline application for a major scheme, were greatly
facilitated by the fact that the developer has a reputation for seeking zero emissions
schemes, and is partnered by highly credible consultants with experience in delivering
the first such scheme in the UK. This provided us with needed assurance that the
inevitable information gaps at the outline stage would be detailed to the highest
sustainability standards. In addition, the fact that unlike some other developers, they
were happy for us to impose our (increasingly standard) Conditions and S106 Clauses
to secure the sustainability measures, gave us added 'comfort' that they intend to
deliver onsite. We had no doubts in terms of sustainability/other benefits for the area,
and the profile it would bring to the Borough, about recommending the scheme to
Members for approval."
SOURCE: The Planning Service, London Borough of Brent (2005)
Summary of key gaps in business case: gaining planning permission
Inconsistent interpretation of No – this is being No further research is required until initiatives such as the
national planning policy at a addressed through SEEDA checklists have come into effect.
regional level. initiatives such as the
roll out of
sustainability
checklists
Inconsistency in the Yes – further RESEARCH: A study to examine the extent to which the Consultancy (with
approaches, and requirements research is required emerging Local Development Frameworks have effectively expertise in sustainability
of, local planning authorities in incorporated sustainability issues with a view to discovering and planning issues)
relation to sustainability whether the general trend to publish supplementary planning
issues. guidance (which will be become supplementary planning
documents) is likely to continue.
Lack of incentives to reward Yes – further RESEARCH: Greater research is needed into the incentives that Sponge
developers who build to higher research is required could be used to speed developments through planning. A
Professional bodies (such
sustainability standards. focused debate is needed to examine what incentives could be
as the Town and Country
put in place to provide incentives for developers to build truly
Planning Association.)
sustainable communities.
Planning departments do not Yes – further RESEARCH: Enforcement of planning conditions and post- Sponge
always have sufficient research is required construction reviews, particularly in relation to sustainability
Industry Bodies (such as
knowledge of sustainability issues, is severely lacking. Research to examine what support
NHBC)
issues, which can make and guidance could be provided to local planning authorities and
enforcement difficult. how this could best be delivered. Government departments
(such as ODPM and Defra)
Lack of measures in place to Yes – further RESEARCH: Research what would be the most effective Government departments
penalise developers who do not research is required punishments for developers failing to meet planning (ODPM, and Environment
build to standards set out requirements. The research should address which measures Agency)
within planning conditions. would require the least resources, infrastructure and additional
knowledge to implement.
2.5 Operational efficiency
Summary: Operational efficiency, sustainability and the

business case
Does the case add up? Frequently cited operational efficiency

drivers:
• Landfill and aggregates taxes
• Health & Safety and Environmental Management systems
• Grants for the incorporation of sustainability features
• The wider benefits of building homes to greater sustainability standards
outweigh the capital costs.
There is a significant scope for house-builders to increase the operational efficiency

(social and environmental) of their product both before and after occupation to
maximise development profits. For private developers, their focus will be on
increasing operational efficiency prior to sale, as following sale there is little or no
financial benefit to the house-builder to have greater operational efficiency. For
housing associations and developers that retain an interest in the dwellings during
occupation, there may be a greater interest and financial benefit in increasing the
operational efficiency of the product throughout its lifecycle.
In order to provide an effective business driver operational efficiency must, therefore:

• Have demonstrable financial benefits. Research demonstrates that there are a
few areas, for example waste management, where demonstrable financial savings can
be made through greater resource efficiency. This demonstrates that where the driver
is strong, and where house-builders can see the benefits of addressing an issue, they
can make swift adjustments in the way they operate. However, the research also
demonstrates that the costs of addressing most sustainability issues are not yet high
enough to drive change and innovation in mainstream house-builders.
• Be achieved or supported through the provision of grants and financial
incentives. Research demonstrates that where effectively targeted, grants can drive
developers to adopt technologies which were previously unfavourable due to cost
constraints. However, research shows that nationally very few grants are available for
developers, and particularly private house-builders, to address sustainability issues
(with energy being the most notable exception).
Are the financial benefits great enough to drive developers to
increase the operational efficiency during the development
process?
There are a few areas in which greater (pre-sale) operational efficiency is producing
both sustainability and financial benefits. As a result of increases in the landfill and
aggregates taxes, waste management is currently one of the best examples, with
many companies now viewing waste management as a critical business issue. The
construction industry produces over 70 million tonnes of waste each year, a
staggering 19 per cent of this total, or 13 million tonnes, consists of materials that
are delivered to site and never used. The Environment Agency estimates that in
2004 the industry spent over £193 million on landfill tax alone48. The Government
has stated that the standard rate of tax will increase by at least £3 per tonne in
subsequent years to a rate of £35 a tonne in 2010 (at current levels of waste
production this means that in 2010 the construction industry would be spending
approximately £450 million a year on landfill taxes). Considerable cost savings can
therefore now be made through good waste management by both reducing the
amount of waste produced and the amount of waste sent to landfill.
The WWF/Insight report also highlighted that the use of environmental and health
and safety management systems is also driving operational efficiency, and is
beginning to generate demonstrable business benefits. On the whole, however, the
costs of addressing most sustainability issues are not high enough to drive the
industry to change its approach, particularly to those issues which relate to the
ongoing efficiency of the building where the developer has the least financial
interest in gains in efficiency. The WWF report Fiscal incentives for sustainable
homes identified two measures that could be introduced by the government to
increase resource efficiency: the abolition of zero percent VAT rate on new
residential build and the introduction of reduced VAT rates for accredited
suppliers49.
From a sustainability perspective, the Government’s position on charging VAT on
refurbishments and not on new build acts as a perverse subsidy to the reuse of
buildings, encouraging developers to demolish and replace. According to the Empty
Homes Agency, there are around 700,000 empty homes in England alone. While
some of these are in low demand areas, hundreds of thousands are not and they
could make a sizable contribution to Britain's housing. One of the reasons that
these empty homes are kept out of use may be the current VAT law, which charges
17.5% VAT on the refurbishment of a home, but allows new property to be built
VAT free. While European legislation prevents the Government from removing VAT
entirely, experts state that the rules could allow it to be reduced to five percent in
regeneration areas. In the past, the Government has indicated that it is unwilling to
reduce VAT charged on building renovation. However, it reported that the ODPM
recently contacted the Royal Institution of Chartered Surveyors (RICS) to find out
information on refurbishment costs with a view to assessing the impact of
harmonising the two rates50. This development follows intensive lobbying by a
number of bodies, including English Heritage and the RIBA. The government is
48
Figure taken from the Environment Agency publication: Why Bother? See: http://www.environment-
agency.gov.uk/commondata/acrobat/1201_why_bother_652211.pdf
49
50
Building magazine (2005) Treasury takes second look at policy on new-build VAT. See:
http://www.building.co.uk/story.asp?storyCode=3057239
likely to come under further pressure to rectify the anomaly when Lord Rogers’
reconvened urban taskforce publishes its updated report in the run up to the pre-
Budget report.
As discussed in section 2.2 above, while the Government has introduced reduced
VAT rates on some sustainable products these have been limited on the whole to
energy-saving products. The WWF report51 suggested that reduced VAT rates
should also be available on products such as rainwater harvesting systems,
household water-saving fixtures, low solvent paints, recovered materials and other
certified materials including wood. Lowering of the VAT rate is likely to boost the
market for these products by making them price competitive.
While the Government has made no indication that it is considering these changes,
there are currently a number of initiatives that are likely to increase the supply and
price-competitiveness of sustainable products. The first is the impact of the
Government’s commitment in the UK Sustainable Development Strategy to increase
sustainable public procurement. The Government procures £13 billion of goods and
services every year, and intends to use their purchasing power to drive the demand
for sustainable products. In order to achieve this goal the Government have created
a Sustainable Procurement Taskforce, which is due to publish an action plan in early
2006. This action plan is likely to outline how the highest standards of sustainability
can be integrated within the public sector’s procurement policies. The action plan
may see suppliers graded according to their performance against a number of
environmental and social criteria. It is unclear as yet as to how this will impact on
private developers involved in public sector or social housing provision, but the
recommendations within the action plan may have an impact52.
The other initiative that is likely to have an impact on the procurement of
sustainable goods is the One Planet Products buyers group, coordinated by
BioRegional53. This is a bulk buying initiative which will work to drive down the price
and increase the supply of sustainable buildings products and services. The scheme
is likely to provide the greatest benefits to Housing Associations and smaller
developers who do not have the same purchasing power as the larger private
developers.
Would the provision of grants drive developers to incorporate

sustainability features?
The Government could also incentivise developers to incorporate more efficient
technologies through grants schemes. The Government currently offer grants for
the installation of renewables through the DTI Solar PhotoVoltaics and Clear Skies54
Grants programmes. These schemes have been more successful in driving demand
in the public sector, where the grants are higher than for private developers. On
the whole it has not driven large-scale uptake of renewables in the UK, although a
new low carbon technology grant scheme is due to begin in April 2006. The
Government could look to countries like Germany who have successfully driven
demand and installation of renewables through a combination of policy measures
51
52
Morley (2005) Building for the Future – Investing for sustainable development in the UK residential
property sector.
53
One Planet Products. See:
http://www.bioregional.com/programme_projects/opl_prog/op_products/opproducts_hpg.htm
54
Information on the Clear Skies Programme can be found at: http://www.clear-skies.org/
and clearly defined and attractive feed-in mechanisms; the German ‘feed-in tariff’
offered fixed price payments for renewable energy output. During 2000 alone more
than 8,000 PV systems were approved in Germany with a total capacity of 41.66
Megawatts (MW); it was estimated that by 2005 the total capacity of PV would be
nearly 150 MW55. The success of the scheme can be fully appreciated when this is
compared to the total capacity for solar PV in the UK, which in 2003 was
approximately 6 MW56. There are currently no grants available for the installation of
other environmentally-friendly technologies such as rainwater harvesting and grey-
water recycling.
The Government could also look at providing grants focused at developing the
social infrastructure on developments. While there are a small number of schemes
that have provided funding to developers to invest in social initiatives (such as the
PROJECT scheme which provided grants to developers who wished to integrate art
into their developments57) there are few national grants available to encourage
developers to invest in the social infrastructure on developments. Such grants
could, for example, be targeted at arts and culture initiatives, used to establish
community trusts or community groups, or establish community centres and other
community facilities. The Government needs to ensure that any grants that it does
provide are targeted equally at both the private and public sectors, the former of
which has often been overlooked by Government Grant Programmes.
55
Greenpeace and the European Solar Photovoltaic Association (2001) Solar Generation. See:
http://archive.greenpeace.org/climate/climatecountdown/solargenerationf
56
DTI. See: http://www.dti.gov.uk/renewables/renew_1.3.2.htm
57
PROJECT is a new national funding scheme jointly supported by the Commission for Architecture and
the Built Environment (CABE) and Arts & Business (A&B) aimed at engaging artists in the built
environment. More information on the PROJECT scheme can be found at:
http://www.publicartonline.org.uk/project/index.php
OPERATIONAL EFFICIENCY: DRIVERS IN PRACTICE
CASE STUDY: THE BENEFITS OF EFFECTIVE WASTE MANAGEMENT
The Government provides free information to house-builders about how they can reduce
construction waste, primarily through Envirowise and WRAP (Waste & Resources Action
Programme). These organisations have been working with a range of large and small
house-builders to examine the cost savings of effective waste management. The three
case studies below from Envirowise demonstrate the considerable cost savings that can
be made on a project level:
• Laing Homes, Beckenham - The Laing Homes development in Beckenham is one of
Laing’s largest developments. Cost savings were made through the reuse of roof tiles,
demolition spoil as sub-waste, as well as other measures. The total cost savings were
£525,000 (3.5% of project costs). Waste disposal costs were reduced by £600/per
unit through rigorous segregation rather than reduction of waste.
• Wren and Bell, Edinburgh - Wren and Bell managed a £4.5 million housing project at
Comely Green Place in Edinburgh that consisted of 95 residential flats. Bricks, blocks
and timber waste kept below 1.5% (the industry ‘norm’ is 5 - 10%). Waste disposal
cost was £19,000 (0.42% of the project cost). The full cost of waste, including
procurement and storage costs, was about £200,000. If more usual levels of waste
had been generated, this would probably have been £600,000.
• Pegasus Court social housing project, Oxford - This development of 42 houses and 27
flats was funded through Oxford City Council’s single regeneration budget (SRB), with
additional funding from the Housing Corporation and Ealing Family Housing
Association. Waste minimisation was shown to be efficient and cost-effective, with an
estimated cost saving of 50% (material waste). Costs for materials wasted on-site
were over £46,000 (£700 per unit built) but, on an average site, such costs can be
high as £100,000 (more than £1 400 per unit built).
SOURCE: Envirowise (2005) Saving money and raw materials by reducing waste in
construction: case studies. See: http://www.envirowise.gov.uk/page.aspx?o=178317
Summary of key gaps in business case: operational efficiency
The penalties for not Yes – further RESEARCH: A study to examine what level of costs, as a Consultancy (specialising
addressing most sustainability research is required proportion of development profits, are necessary to drive in technical sustainability
issues are not high enough to improved efficiency. issues)
drive improved efficiency.
There is a lack of fiscal Yes – further action ACTION: The Government needs to drive greater performance by Sponge members
incentives to drive demand for is required house-builders on sustainability issues by driving through the
Industry Bodies
sustainable products. well-established fiscal incentives. Greater campaigning is
needed, within both the industry and the wider public forum. Private and public sector
house-builders
In time it will also be useful to undertake an analysis of the
effectiveness of One Planet Products and the Government’s
Sustainable Procurement Action Plan in driving both demand and
supply of sustainable products.
There are a lack of grants Yes – further A gap analysis examining grants available for private and social Sponge
available for developers to research is needed developers to address sustainability issues in their
address sustainability issues developments. This research could tie any research undertaken
(particularly private into the gaps in Government policy and legislation in relation to
developers). sustainable homes and may provide an insight into areas where
grants may be targeted to address areas of policy which are not
legislated against.
2.6 Reputation Management
Summary: Reputation management, sustainability and the

business case
Does the case add up? Frequently cited reputation management
drivers:
• Boycotts from general public (and NGOs)
• Attracting and retaining employees
• Reducing planning objections through good community consultation
• Attracting joint-venture partners
Stakeholders, including investors, clients, government, local authorities, local

communities, employees, customers and NGOs are all becoming more and more
demanding in relation to companies’ environmental and social performance.
As discussed in the earlier sections of this report, government, local authorities and
investors are placing an increasing pressure on house-builders to deliver a more
sustainable product. This section will discuss the interest other stakeholder groups
have in a house-builder’s sustainability performance.
In order to provide an effective business driver reputation management must,

therefore:
• Play an important role in the perception of the company in the eyes of the general
public. Public awareness of sustainability issues is increasing, and the public is being
increasingly demanding on companies in regards to their environmental and social
responsibilities. However, there is little evidence to suggest that house-builders have
been directly affected by the public perception of their records in relation to
sustainability issues.
• Help attract bright graduates and skilled technical staff, and play a role in
retaining them within the company. There is increasing evidence that graduates are
selecting employers and industries on the basis of their social and environmental
performance. There is little evidence that within the house-building sector
sustainability plays a role in attracting and retaining skilled employees.
• Reduce planning objections. It is suggested that greater community consultation
can reduce planning objections. The research undertaken for this project found that
there is little quantitative evidence to either support or reject this assertion.
• Be attractive to joint-venture partners. Public sector bodies are placing increasing
pressure on the private sector to adopt high sustainability standards on the affordable
elements of developments. Limited research has been undertaken on how private
sector joint-venture partners incorporate their sustainability standards on
developments.
The general public
The public is placing an increasing pressure on companies to take responsibility for
their environmental and social impacts. A survey by MORI (2003) found that 80%
of the public felt that “large companies have a moral responsibility to society”. The
survey also found that when consumers were asked to rate the importance of the
social responsibility of the company whose products and services they were buying,
the proportion who say it is very important to them had nearly doubled in the
period 1998 – 2002, to 44%58. Indeed the total value of ethical boycotts rose to
£3.2 billion in 2004, with a significant increase in boycotts of brands with poor
environmental performance or unacceptable labour practises (Co-operative Bank,
2004). However, there is little evidence to suggest that house-builders have been
boycotted by the general public for their sustainability performance.
Further information on customer demand and sustainability is addressed in section
2.7 below.
Employees
The construction industry is heavily reliant on skilled employees, of which there is
currently a shortage in the UK. There have been a large number of generic surveys
(for example Milkround, 200559; MORI, 200360; Industrial Society, 2003)
demonstrating that employees take sustainability issues into account when
selecting an employer, and in some cases this can prevent them from taking a job
or working within a particular industry. It may be the case that house-builders, by
demonstrating that they are taking a proactive approach to sustainability issues
and looking at innovative ways to achieve their aims, may attract people to the
industry who had not previously considered it attractive.
A recent report by Morley highlighted that turnover of technical staff can present a
huge risk due to the broader skill shortages across the industry. The report states
that:
…finding ways to make key employees feel more valued (i.e. paying
better salaries and involving them in more interesting regeneration
projects) was cited as a key to retaining this competitive advantage.
Indeed, the report found that companies that pay higher salaries are getting higher
trading profits per employee and higher average trading profits in relation to staff
costs than competitors with lower employee costs.
Little work has been done to examine whether, within the house-building industry,
a company’s record in relation to sustainability issues is affecting employee choices
of where to work. However, given the level of skill shortages in the industry, it is
possible that this could have a significant affect on poorly performing companies.
58
Lewis, S (2003) Reputation and corporate responsibility, MORI. See:
http://www.mori.com/pubinfo/sl/reputation-and-csr.pdf
59
Milkround (2005) Is corporate responsibility important to you? See:
http://www.milkround.co.uk/s4/jobseekers/advice/news_views/
60
MORI (2003) The Public’s Views of Corporate Responsibility 2003. See:
http://www.mori.com/pubinfo/jld/publics-views-of-corporate-responsibilty.pdf
Local communities
At a project level failure to engage with local communities can result in
development delays and community disputes. Projects which actively seek to
involve the local communities in the design of the development through ongoing
dialogue are more likely to be sustainable as they are more likely to integrate
within the existing community. However, there is little evidence that a good
reputation in relation to sustainability issues eases this process. A number of
developers are beginning to look at the benefits of good community engagement,
including Countryside Properties through their Quality of Life Project, and within the
construction sector Carillion has looked at this issue in relation to their Heathrow
Terminal 5 development. However it should be noted that there are examples of
where in-depth community consultation has not eased planning acceptance.
Perhaps the best example of this is the Argent development in King’s Cross. The
developers undertook an extremely in-depth community consultation, producing a
document Principles for a human city61 setting out aspirations for the development
which was used to inform discussions with stakeholders. However, the King’s Cross
development Forum (a coalition of local community groups) refused to support the
development proposals in the initial form they were submitted. The development is
still in the planning stages due to these complications.
Joint-venture partners
Joint-venture partners can play a critical role in driving developers to address
sustainability issues. These groups will take differing interest in the sustainability
credentials of their developing partner, depending on their own agendas and
stakeholder pressures.
Joint Venture Partners (Private sector) – The standards of Joint Venture
Partners in relation to sustainability issues is an interesting and little explored area.
Very little has been written on the impacts of Joint Venture Partners having
different levels of sustainability standards, and where the standards conflict, whose
standards are adopted.
Joint Venture Partners (Public sector) – Social housing providers are becoming
increasingly stringent with their standards:
• English Partnerships has already set the standard at EcoHomes ‘Very Good’
and ‘Excellent’ for Millennium Communities.
• SEEDA and the Regional Housing Board in the South East also require
EcoHomes ‘Very Good’.
• By April 2006, all affordable homes being developed with the Housing
Corporation will be required to achieve EcoHomes ‘Very Good’.
However, there is little evidence to suggest that the affordable sector is influenced
by a private developer’s sustainability record when selecting a development
partner. It is unclear as to whether developers with poor records in relation to
sustainability are being excluded from funding by housing association partners or
whether the need for affordable housing is outweighing other requirements. The
affordable sector is yet to take a consistent strategic approach to selecting partners
on the basis of their sustainability performance. There is a real opportunity for
61
The document Principles for a human city is available at:
http://www.argentkingscross.com/live/index.cfm?page=project3
housing associations to use research, such as the Insight Investment/WWF house-
builder benchmarking, to select development partners.
REPUTATION MANAGEMENT: DRIVERS IN PRACTICE

CASE STUDY: COMMUNITY CONSULTATION AND INVOLVEMENT ON THE GRANGE
PARK COMMUNITY PROJECT
Grange Park Community Project was launched in 1997 by Blackpool Borough Council.
Over the last seven years it has developed a coordinated approach to addresses all the
major issues faced by the residents on the Estate. A strategy was created with the
residents, and with input from a wide range of specialist groups including health and well-
being experts, the fire service and local police. The project has also successfully engaged
with local businesses via the Federation of Small Businesses, with housing associations,
the local post office and main contractors throughout the redevelopment of the Estate.
Action on the Estate is initiated by residents, who are fully involved through community
representation on all decision-making panels and steering groups. They have been
involved in the detailed design stages of refurbishing their own properties, and the
building of new properties and community facilities. Some examples of the rich mixture of
projects and initiatives that have been undertaken on the estate include:
• Community safety initiatives include much higher profile policing with a new police
base established nearby. There are now two Community Beat Managers, and five
additional officers providing a high visibility presence. There is strong promotion of
activities with young people - such as the Dream Scheme - a project that rewards
local young people for contributing positively to the community.
• In response to poor educational facilities and low educational attainment, the Local
Education Authority developed a new primary school and a City Learning Centre on
Grange Park. The Estate now boasts two primary schools, a SureStart children’s
centre, a Primary Pupil Referral Unit, youth service, health centre and leisure
services. The City Learning Centre houses a library, IT suite, professional
development centre, adult learning, conference facilities, TV studio and refreshment
area.
Initially the housing association developing the area felt that it could build properties only
to rent; however, as the area has turned itself around, there has been a major increase in
requests for right-to-buy, which demonstrates an increasing confidence in the local
market. A site has now been identified for the building of shared-ownership properties
that previously were considered to be unviable. Another testament to the success of the
scheme was being named overall winner of the first ODPM Sustainable Communities
Award in 2004.
SOURCE: BURA (2005) ODPM Sustainable Communities Award 2004. See:

http://firsthand.bura.org.uk/Page.aspx?SP=22
Summary of key gaps in business case: reputation management
Little evidence that house- Further research is
builders are affected by their addressed in the
reputation in relation to section on market
sustainability performance by differentiation below.
the general public (either in
relation to influencing
customer’s decisions to buy or
through boycotts).
There is little evidence that Yes – further RESEARCH: A study to examine whether employees within the Industry body such as
employees within the research is required house-building industry are influenced by the sustainability HBF and Sponge (see
construction sector are performance of a company. Issues such as health and safety and Sponge Survey of
influenced by a company’s employee relations are likely to be of greater significance than Sustainability in the
sustainability performance. environmental issues, and it may be the case that these are not Construction Sector)
considered significant when compared to issues such as pay and
company culture. The decision of skilled employees about who they
want to work for, and why, could have significant impacts given the
current level of skill shortages.
There is little quantified Yes – further RESEARCH: Research to examine whether improved community Private and public sector
evidence, particularly within research is required consultation procedures have significant financial benefits for developers
the house-building sector, that projects. The research could examine which consultation methods
Consultancy (which
good community consultation produce the best results, and whether there are general principles
specialises in community
can have benefits in the to community consultation that house-builders could use on all
engagement and/or
development process. sites.
master-planning)
Little work has been Yes – further RESEARCH: A study to examine the interactions between joint- Sponge in association
undertaken to understand the research is required venture partners and their sustainability standards. It could with public sector JV
interactions between joint- examine whether the highest or lowest standards are adhered to partners and private
venture partners in relation to (or indeed whether planning dictates). It could also examine how developers
sustainability issues. It is the joint-venture partners ensure that standards are adhered to.
unclear how standards are
decided and how these are
enforced.
2.7 Market differentiation
Summary: Market differentiation, sustainability and the
business case
Does the case add up? Frequently cited market differentiation
drivers:
• Public demand for sustainable housing is strong
• People are willing to pay a premium for more sustainable homes
• People want to live in sustainable homes in sustainable communities
Market differentiation can be a significant factor in driving developers to address

sustainability issues. If there is a demonstrable and significant market demand for more
sustainable products developers will be obliged to provide them. However, the case has
to be strong, and developers have to see demonstrable financial benefits to set against
higher capital costs. Research for the report highlighted that in order to drive market
demand:
• The general public must be aware of the impacts of their homes
• Customers must be able to distinguish a sustainable home from a non-sustainable
home (through better branding, marketing and eco-labelling)
• Customers need to be able to differentiate between sustainable and non-
sustainable contractors (through continued benchmarking and greater marketing of the
findings).
Evidence is emerging that developers are beginning differentiating themselves on the
basis of their sustainability performance.
In order to provide an effective business driver market differentiation must, therefore:

• Demonstrate that there is public demand for sustainable housing and that
customers are willing to pay a premium for these homes. There is a strong and growing
body of evidence to suggest that public interest in sustainable homes is mounting. The
percentage of people saying that they would be willing to pay a premium for sustainable
homes is increasing. However, there is still limited quantifiable evidence that this is
actually being borne out in people’s purchasing.
• Prove that customers would prefer to live in more sustainable homes and
communities. A wide variety of factors influence consumer choice in relation to the
selection of their homes. The research highlights that there has only been limited
detailed research undertaken on which factors influence consumer choice when buying a
home, and it is unclear which sustainability features are attractive to homebuyers, and
which are less attractive.
• Be supported by fiscal drivers to encourage greater demand by the general public.
There is now a large and well-researched body of evidence highlighting which fiscal
incentives would be most popular with consumers in driving the purchase of sustainable
homes. Evidence would suggest that what is still needed is the introduction of such
measures to drive demand.
Is there market demand for sustainable homes and will
customers pay more?
Market differentiation may be the critical element in driving house-builders to build
more sustainable homes, as outlined in section 2.1 above. There are now at least
three surveys in the public domain which indicate that the general public would be
willing to pay more for sustainable homes (undertaken by WWF/CABE and HBOS,
200462; British Gas, 200463; EST, 200564). The most recent of these, undertaken by
EST found that nearly 70 per cent of people surveyed stated that they were willing
to pay more for a sustainable home, with 28 per cent saying they would pay a 10
per cent premium. The surveys indicate that people are beginning to consider
environmental and social factors in their decision making when buying a house.
However, a study by the Co-operative Bank Where are all the ethical consumers?
found that while roughly 30% of all consumers claim to care about companies’
environmental and social track records, only 3% of consumers channel these beliefs
into their purchasing preferences. This ‘value-action’ gap is widely documented in
relation to environmental behaviours and a large body of literature has sought to
describe the behavioural models to describe this barrier. The literature clearly
demonstrates that what people say, and what people do, particularly in relation to
sustainability, is often considerably different65.
There is currently a large gap in existing research to examine whether mainstream
developers are getting a price premium for their product. The only quantitative
research on whether consumers will pay a premium for sustainable homes was
undertaken on BedZED, which found that there was a 15.8% premium for
properties above the local market (see the case study at the end of this section).
However, it is difficult to make the case that BedZED is representative of the
mainstream as it is a substantially different development to that being developed
by larger house-builders.
The recent report by Morley highlighted that a few of the developers they spoke to
had also seen an uplift in prices linked to sustainability, but it was thought that this
was mainly due to the creation of better living spaces (through the regeneration of
an area) rather than because of selling more environmentally friendly housing. A
report by CABE Space, Does Money Grow on Trees? showed that green spaces can
drive up house prices for both homes adjacent to the open space, as well those in
the close vicinity, by up to 34%66.
In general, however, developers remain sceptical that people really are willing to
pay a premium for a more sustainable product. The study undertaken by Morley
indicated that most developers felt that the external pricing pressures on home
owners (e.g. water and electricity prices) were not currently great enough to drive
large-scale consumer demand for sustainable homes.
62
WWF/CABE/HBOS (2004) 87 per cent of people want environmental friendly homes. See:
http://www.buildingforlife.org/pdf/PR_Environmental_Homes.pdf
63
British Gas (2004) ‘Fix the home hassles and we'll pay an extra £21,000' house-hunters tell sellers
http://www.britishgasnews.co.uk/index.asp?PageID=19&Year=2004&NewsID=568
64
EST (2005) Britain's builders urged to take action as buyers demand greener homes. See:
http://www.est.org.uk/aboutest/news/pressreleases/index.cfm?mode=view&press_id=435
65
For detailed information on the value action gap see Darnton, 2004
66
CABE (2005) Does money grow on trees? See:
http://www.cabe.org.uk/data/pdfs/DoesMoneyGrowonTrees.pdf
Recent research by RICS Green Value: Green buildings, growing assets, which
focused mainly on the benefits of occupying commercial green buildings, found that
green buildings can increase the asset value of a building67. However, the general
conclusion of the report was that the extent of the value benefit is hard to quantify,
and whilst there is evidence to show the value benefit exists, the business case
needs improving.
There is, of course, a valid question as to whether customers should pay more for a
sustainable home. It is difficult to decouple this question from other elements of the
business case. For example, in an area where a local planning authority is
particularly attentive to sustainability issues, it is likely that some of the ‘costs’ of
building to a higher sustainability standard have been borne by the developer in
order to gain planning permission and may not be passed onto the customer.
Conversely, a customer seeking to buy a property in an area where the local
planning authority is not so proactive may have to pay for any added sustainability
extras. This raises questions of affordability and equity which are likely to continue
to be difficult to address whilst there is not a level planning playing field. It also
raises deeper philosophical questions about the role of business in society, and
whether or not the private sector should be solely responsible for bearing the costs
of a ‘social good’.
Do homes in more sustainable developments sell faster?

There is currently a lack of information as to whether developments with higher
sustainability credentials sell more quickly than less sustainable developments
(irrespective of whether people pay a premium for these features). It is possible
that this could be an interesting, yet frequently overlooked, benefit of building
sustainable developments. Private developers benefit from faster product sales,
particularly when the developments are sold off-plan, as it releases capital which
they are then able to invest in later phases of the development and/or other
developments. If this proves to be so, it is possible that house-builders would be
more inclined to adopt sustainability in their projects.
Are we overlooking customer choice?

Another critical gap in understanding the demand for sustainable homes is a
detailed understanding of what factors influence a customer’s decision to buy a
home. Despite the fact that consumers state that they would be willing to pay more
for a sustainable home, prospective homebuyers are not faced with a like for like
product. They often see a range of different properties with different features. It
has long been known that location plays a critical role in deciding where people
wish to live, as well as other factors such as the location of schools and local crime
rates. The range of factors that influence a purchaser’s decision can be best
highlighted by research undertaken by Linden Homes and EST. In a survey on 100
of its home purchasers, Linden Homes found that when asked which features they
looked for and valued in a new home, they found that:
• 75% of respondents stated that they looked for ample off-street parking or
garaging;
• 68% percent mentioned security;
67
RICS (2005) Green value: green buildings, green assets. See:
http://www.rics.org/Property/Green%20value.html
• and 66% referred to good architectural design68.
Contrastingly, research by EST found that respondents in their survey mentioned
that the following factors were all influences in people’s decisions to buy a home:
• Low crime rates (57%);
• Local schools and amenities (57%);
• and energy performance (47%).
It is important that further research is undertaken to understand which factors
influence home owners’ decisions to purchase sustainable homes, including
collating information on what other types of properties they looked at, and whether
if faced with the decision again they would buy a similar property. An
understanding of what factors influence consumer choice is critical if house-builders
are to target their product at an interested market.
An important factor in influencing consumer choice is the provision of labelling,
which enables consumers to judge between products. The benefits of energy
labelling in housing was addressed in section 2.2 above. The importance of
consumer awareness of the label and what it means is also critical to its success in
influencing decisions. This issue was raised in relation to the code for sustainable
buildings, but also applies to the most widely-used environmental performance
label, EcoHomes, as well. There is little evidence that the majority of the public is
aware of the EcoHomes standard or asks about it when viewing properties.
Which fiscal incentives would drive greater customer demand?

The introduction by the government of fiscal incentives could be critical to driving
customer demand for more sustainable homes. As discussed in section 2.1 there
are currently gaps in the provision of fiscal incentives by the Government for home
owners to demand sustainable homes. The fiscal incentives found by EST to be
most popular with home owners are the reduction of council tax of energy efficient
homes and the rebate of council tax. This is backed up by research by Linden
Homes which found that 95% of people polled stated that they would be more
committed to embracing energy efficiency if their council tax was reduced. Little
further work is needed to examine which policy measures would be most effective
for home owners. What is lacking is implementation of these measures.
There are also a number of other non-policy measures that could drive the demand
for sustainable homes, in particular green mortgages. Green mortgages can work in
two ways to provide incentives to home owners that buy homes with good
sustainability credentials: the first way is to offer a reduced mortgage rate for
homes which meet certain sustainability criteria, the second way is to offer a higher
lending amount on the assumption that the home owner will have more money
available to pay mortgage payments as their bills will be lower.
Currently there are only a small number of companies offering green mortgages
including the Norwich and Peterborough Building Society, the Co-operative Bank
and the Ecological Building Society. None of the large high street banks and
building societies have yet sought to incentivise home owners through ‘green
mortgages’, which still tend to be widely unknown by the general public.
68
Davies, P. October 2005, No parking here, Housebuider Magazine.
MARKET DIFFERENTIATION: DRIVERS IN PRACTICE
CASE STUDY: INCREASED HOUSE PRICES AT BedZED
The Environment Agency report Sustainable homes – the financial and environmental
benefits highlighted the research by Mulholland (2004) of the premiums that can be
achieved for innovative design and sustainable features, using the example of
BedZED. The table below demonstrates the estimated value of properties at BedZED
compared to the local market prices.
Table: Estimated value of houses built to higher sustainability standards
Unit Type Average market sales % difference
Local Market BedZED
(estimated)
1 bed flat £125,000 £150,000 20.0
2 bed flat £175,000 £190,000 8.6
3 bed flat/terrace £225,000 £265,000 17.8
house
4 bed semi £300,000 £350,000 17.8
Average £206,250 £238,750 15.8
SOURCE: Mulholland (2004) in: Environment Agency (2005) Sustainable homes – the
financial and environmental benefits. See: http://publications.environment-
agency.gov.uk/pdf/SCHO0805BJNS-e-e.pdf
Summary of key gaps in business case: market differentiation
The case has not yet been Yes – further action ACTION: Home buyers will only demand sustainable homes Sponge
proven that there is really required when they are aware of the benefits of new homes (both
Other NGOs such as WWF,
market demand for more environmentally and socially), and how they can differentiate
Greenpeace and Friends of
sustainable homes. between homes in terms of their sustainability. Action is required
the Earth
to make home buyers more aware of these features.
BRE (EcoHomes)
Independent consumer
organisations such as
Which?
Banks and building

societies
There is little evidence to Yes – further RESEARCH: Quantitative research is needed to examine whether Private house-builders
suggest that home owners are research is required developers of sustainable housing are getting a price premium
Independent research
willing to pay a premium for for their product. Ideally this analysis needs to factor in whether
organisation (such as MORI
sustainable homes. the premium exceeds the costs of implementing the additional
or NCC)
features.
Estate agents
It is unknown whether Yes – further RESEARCH: Research also needs to be undertaken as to whether Private house-builders
dwellings in developments that research is required dwellings within developments that are more sustainable sell
Estate agents
have more sustainable features faster. This may or may not tie into research on whether these
sell faster. homes also carry a premium.
Customer choice in relation to Yes – further RESEARCH: Research is needed in relation to customer choice Sponge
homes, particularly in relation research is required when buying homes and particularly in relation to sustainability
to sustainability features, is features. It needs to examine whether these features appeal as a
organisation (such as MORI
not fully understood, and the package, or whether some features are more attractive to buyers
or NCC)
interactions with other issues than others. There needs to be an understanding as to what
is not fully understood. knowledge consumers have in relation to sustainability and
homes (e.g. do they understand why features are sustainable
and what environmental/social/financial benefits they have?).
Such research may also want to grasp what the level of current
consumer knowledge is about labelling schemes such as
EcoHomes, and whether, if customers are aware of such
schemes, this influences purchasing choice. It could examine
whether consumers feel they would be influenced by the wider
implementation of such schemes.
It is unknown whether No – further research

labelling of homes in relation is not required until
to their sustainability features the EPBD is
will drive customer demand for implemented.
sustainable homes.
There is a lack of fiscal Yes – some further RESEARCH: Research on and campaigns at banks and building Sponge
incentives driving consumers research and action societies to understand how they are influencing customer
Banks and building
to want more sustainable is needed choices of sustainability features and whether they are seeking
societies
homes. to drive customer choice through fiscal or other methods (e.g.
through the introduction of green mortgages). British Bankers Association
3 Does the provision of sustainable
homes alter lifestyles?
As outlined in the introduction to this report understanding the gaps in the business
case for sustainable homes does not address whether the provision of sustainable
homes actually drives more sustainable lifestyles. This section explores the extent
to which developers can influence residents’ behaviour through building more
sustainable homes. To this end, only those areas where a developer has a clear
influence over behavioural change have been discussed. In this regard, social
housing providers will have a much greater sphere of influence than private
developers (who usually do not retain an interest in the development after sale) as
they have an on-going interest in the development and residents’ needs. Private
developers will have the greatest influence through the provision of passive
sustainability features which can make a difference without residents necessarily
being aware of the feature.
Understanding the barriers and drivers that surround sustainable lifestyles is critical
to understanding which approaches will drive change. The following section will
discuss in detail a number of these drivers and barriers that can influence whether
sustainable homes can influence sustainable lifestyles. These barriers and drivers
are based on those identified in the analysis undertaken by Andrew Darnton for
Defra.
Low-level behaviours and infrastructure

Low-level behaviours can have a key influence on whether people act sustainably.
Low-level behaviours are taken to be those everyday behaviours relating to
sustainable consumption which are shown to occur at relatively low cognitive level
(for example: energy use in the household such as turning on lights, disposal of
household rubbish). These low-level behaviours frequently act as barriers to
adopting sustainable lifestyles as:
Many environmentally significant behaviors are matters of personal
habit or household routine (e.g., the setting of thermostats or the brand
of paper towels purchased) and are rarely considered at all. Others are
highly constrained by income or infrastructure (e.g., reinsulating
homes, using public transport).”69
However, as this statement highlights, the provision of infrastructure can be a key
driver in behaviour change.
It is through the provision of sustainable infrastructure (e.g. a home with
sustainable features, and within a development which permits sustainable lifestyles)
that developers are likely to have the greatest impact on altering residents’
behaviour. There are a number of studies demonstrating how the provision of
infrastructure can influence behaviour. A frequently-cited example is recycling;
studies show that a kerbside collection service is the principal factor in encouraging
behaviour. Similarly, the installation of a water meter can reduce water use by up
to 30%70. It is likely that more sustainable homes would drive residents to adopt
69
Stern, C. (2000) Toward a Coherent Theory of Environmentally Significant Behavior, Journal of Social
Issues, Fall 2000. See: http://www.findarticles.com/p/articles/mi_m0341/is_3_56/ai_69391495/pg_3
70
OFWAT (2000) Water and You. See:
http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/Content/waterandyoumarch2000
more sustainable behaviour without necessarily being aware that they are doing so.
Indeed, research by Sustainable Homes found that passive features can have
environmental benefits without demanding behavioural changes from the residents.
Examples of such features include:
• Low-flush toilets
• Insulated homes
• Permeable paving
• Sustainable timber
A gap in current research on these matters is an analysis of how the provision of
sustainable features alters behaviour in dwellings. While the study undertaken by
Sustainable Homes partially addressed this issue, it did not look at the behaviour of
residents in any private dwellings and looked at features separately rather than
looking at the holistic impact sustainable homes could have on lifestyles. A more
quantitative approach than that taken by the Sustainable Homes report would
probably be required to draw firm conclusions on the effects of sustainable homes
on altering low-level behaviours.
Willingness to act
Willingness to act is a commonly identified barrier to people adopting more
sustainable lifestyles. It is a common finding in many studies that people are more
willing to change some behaviours than others, with some people saying that they
are not interested in changing their behaviours, or do not have time to do so.
Research by the National Consumer Council found that people feel much more
motivated to act sustainably about an issue that feels relevant to them71.
While the provision of infrastructure may partially address the willingness to act
barrier, it will only ever partially address this issue. Indeed, the research by
Sustainable Homes found that:
…some residents in environmental, low-energy homes that are cheaper
to run opt for increased comfort and convenience rather than savings,
heating the house to a higher temperature because the energy
efficiency of the home makes this affordable. Although they do not
necessarily use more energy than a standard house (because the homes
are more energy-efficient), potential energy and CO2 savings are lost.
There is a key gap in the research surrounding the willingness of occupiers to act
once they move into a sustainable home. There are no studies analysing changes in
attitudes and action before and after a resident moves into a sustainable home.
Qualitative evidence from Sustainable Homes suggests that, within social housing,
residents may be encouraged to live up to the standards set by their environmental
home by carrying on the ‘green theme’72. However, there is a lack of quantitative
evidence to demonstrate that people moving into sustainable homes will increase
their motivation to act.
71
Holdsworth, M. (2003) Green choice, what choice? National Consumer Council. See:
http://www.findarticles.com/p/articles/mi_m0341/is_3_56/ai_69391495/pg_3
72
Sustainable Homes (2004) Green Voices & Choices
Norms and habits
Norms and habits are frequently cited as both barriers and drivers to adopting more
sustainable behaviours. Habits are more frequently associated as being barriers,
while norms are more frequently identified as drivers.
The report Green Choice, What Choice? states that:
..the force of habit is very strong for all groups of consumers – as much
for young people as old, and across all income groups, parents,
workers, people who drive cars and those who do not.
Darnton makes it clear in his analysis that habit represents the biggest barrier
between intention and eventual action. He also highlights that where a habit is
associated by an individual with the experience of pleasure it is particularly difficult
to bring about behaviour changes (which may explain why some people are more
reluctant to give up their cars than others).
Social norms are likely to drive sustainable lifestyles. For example, research has
shown that ‘the norm to recycle’ is a significant factor in recycling. If people are
seen to be undertaking a behaviour (such as recycling) this action in itself can drive
other people to alter their behaviour. It is possible that developments which provide
infrastructure for sustainable behaviours may help break down the barriers of habit
and drive behaviours by making them social norms.
There appears to be little research addressing how the provision of sustainable
housing can influence norms and habits. It may be the case that social housing
developers may be better placed to address these issues than private developers,
as it may require a more targeted long-term and managed approach than just
providing the infrastructure to permit sustainable behaviours.
Convenience
Associated with habits and norms is the concept of convenience. Research by the
National Consumer Council (NCC) has found that consumers sometimes assume
that sustainable products will be more inconvenient, without necessarily basing
their assumptions on experience or accurate information73. Research by Sustainable
Homes found that residents welcome environmental features as long as they are
convenient and easy to use. The issue of convenience may highlight which
sustainability features will be more popular than others. Indeed, Sustainable Homes
found that convenience was one of the three key factors in determining whether
environmental features were popular with residents. More information is needed on
which sustainability features residents find at least as, if not more, convenient to
use than conventional features.
Cost
Cost is frequently identified as a reason given by people for not undertaking
sustainable behaviours. However, other financial factors such as saving money can
act as a key driver. Research by NCC has shown that people’s attitudes to cost can
be complex. It frequently varies according to the type of action being considered,
and can mask other barriers such as habit. Attitudes to costs can vary according to
73
Holdsworth, M. (2003) Green choice, what choice? National Consumer Council. See:
http://www.findarticles.com/p/articles/mi_m0341/is_3_56/ai_69391495/pg_3
consumer groups, with those from lower income brackets assuming that
sustainable goods and services are more expensive74.
Studies have shown that the cost barrier can equally apply to environmental and
social issues; Darnton highlights a study by Whitley which showed that high cost
types of volunteering (such as being a school governor) appeal to a limited number
of people, where high cost is taken to be time intensive. This cost barrier may have
a key impact on the willingness of customers to pay for more sustainable homes. It
may explain (in part) why developers are not getting the price premiums that
people say they are willing to pay. A key way that developers could overcome this
barrier is through the provision of greater information to the general public on the
cost savings that can be made from living in a home with sustainable features.
Cost savings are a key driver to people undertaking more sustainable behaviours,
and choosing more sustainable products, such as housing. Cost savings can be
made in a number of ways. Perhaps the best example of this is domestic energy-
saving. Houses built by a developer to high energy efficiency standards will
automatically cost less to run than an older less efficient property, without any
changes in behaviour on the part of the resident. This cost saving could be further
increased by the occupier changing their behaviour to reduce their energy use.
Darnton highlights in his report that certain limits apply to cost savings: the money
saved must be deemed worth the effort of the behaviour, and the behaviour must
result in a net saving in the (relatively) short term. This could have interesting
implications for developers which has not been fully explored within the literature;
features which developers install for their costs savings for residents may not
actually be that attractive to people.
Fiscal incentives that the Government could use to promote demand for sustainable
homes will act also act as a cost driver. See section 2.7 for more discussion on this.
Information
The role of information in influencing behaviour has been shown to be critical by a
number of studies including Green Voices, Green Choices and Desperately seeking
sustainability both by the NCC. Darnton states in his analysis that:
…delivering the objectives of sustainable development depends in no
small part on getting the public to behave sustainably, the task of
informing the public about which everyday behaviours help deliver
sustainability becomes a priority’.
Darnton highlights in his analysis that research indicates that people clearly require
practical information, for instance what to recycle, how and where. Research has
also shown that there is often high demand for information about local facilities.
The National Consumer Council found that there is a strong positive correlation
between the level of interest in a particular topic and the likelihood of taking
action75.
A key gap, particularly for private developers, is giving proper information to
residents. There is little information available on what type of information is useful
to occupiers and how best this information should be communicated to residents.
74
Ibid
75
Steedman, P. (2005) Desperately seeking sustainability? National Consumer Council. See:
http://www.ncc.org.uk/responsibleconsumption/desperate.pdf
It may be that information within a homeowners pack is considered more useful by
residents than an information leaflet specifically on sustainability, which may only
be read by parties interested in the issues anyway. Research by the National
Consumer Council has shown that tailored advice, offered directly and unsolicited to
consumers may be effective in achieving lasting behaviour changes. It may,
therefore, be the case that a post-occupation visit, where residents are talked
through the features of their dwellings and the development, is much more
effective than hard copy information. The role of sustainability officers (such as
those used at BedZED) should also be examined. Research needs to highlight
whether the same approach would work on all developments, and whether different
approaches would be required for private and social housing where the residents
may have different needs.
Research by WWF/CABE showed that people would like to have more information
about the environmental features of the properties they buy, suggesting that
developers are at a commercial disadvantage by not providing enough information
about the property. These questions all remain largely unanswered by current
research and are critical, particularly for private developers, who do not often
publicise the sustainability features of the developments they build.
Another gap in the knowledge about the provision of information to homeowners is
whether the information should seek to tap into non-sustainability motivations.
Brook Lyndhurst in the publication Bad habitats & hard choices highlight that a key
gap in current knowledge is whether ‘sustainability stealth’ works (there is a
separate question surrounding whether this approach is ethical or indeed
sustainable). Does information that appeals to people’s more immediate self
interest work better than information encouraging people to make good
environmental or social decisions?
Key influences/groups/local community

A frequently-cited driver of sustainable behaviour is community infrastructure.
Community involvement is in itself inherently a sustainable behaviour. Community
groups in which people come together to deliver shared local goals are able to
deliver a better quality of life. Darnton highlights that:
…sources concerning community involvement make it clear that just
participating in a community is inherently of value to strengthening it, in
that participation builds social capital.
Darnton identifies that a gap in this is that the precise role of social capital in
achieving local sustainability is not yet understood. However, it is well established
that groups have a key role to play in supporting the adoption of behaviours for
sustainability and that people find it easier to undertake certain sustainable
behaviours as part of a group. Global Action Plan (GAP) have found that the
collectivist approach used in it’s In and around the home behaviour change
programme helped people to both undertake and maintain changes in behaviour.
Darnton highlights that faith groups can play a critical role in engaging people from
Black and Minority Ethnic Groups (BME) to adopt sustainable behaviours. Groups
can provide individuals with the support and information they need to change their
behaviours, and maintain that changed behaviour until it becomes habit. Often
critical within groups is a “key influencer”. Key influencers spread messages within
social networks. Key influencers can work to spread messages within groups about
sustainability without that necessarily being the object of the group.
A gap in the current literature is how developers can help to establish these
community groups; how they can influence the agendas of these groups to tackle
sustainability; and which types of groups work best in engaging residents and
getting them involved. The way in which this may be undertaken will be different
for private and social developers as their ongoing involvement in the development
is significantly different. It is important for developers to have an understanding in
how community groups can promote sustainable behaviours and how they may
influence quality of life within a development. It is also critical to have an
understanding of residents’ interest in participating in community groups, and
whether this would influence their decision in where to live. It may be the case that
active community groups may actually put some people off moving to a
development. It is worth knowing whether community groups and the provision of
social infrastructure are an important element of where people live.
INFLUENCING LIFESTYLES: DRIVERS IN PRACTICE

CASE STUDY: CAR CLUBS
The implementation of a car club on a development can help reduce both car ownership,
and use, by residents. There are now a range of developments on which car clubs have
been implemented, and a number of examples are provided below:
GRAND UNION VILLAGE Developer: Taylor Woodrow

Car Club Provider: Smart Moves
The CityCarClub at Grand Union Village was designed in right from the start of the
development. All new residents who meet insurance requirements were provided with a
year’s free membership (normally £15 a month). Residents are able to hire cars by the
hour, twenty four hours a day. Members are also able to hire cars from elsewhere in
London, and in other places in the UK.
BedZED also has a car club operated by Smart Moves which is open to both residents and
the local community and which has proved popular since its implementation.
ST GEORGE WHARF Developer: St George

Car Club Provider: Electric Green
St George has provided residents at its St George Wharf development access to an

electric car club. Electric Green is a transport service offering the hire of electric cars on a
daily or hourly basis. The cars are designed for short journey use in London and the
service will encourage residents to be energy efficient and environmentally friendly.
Added benefits include free parking in central London boroughs and exemption from the
congestion charge. The compact cars fit into small spaces making parking easy and more
convenient. The annual membership fee is £30 and cars can be hired for £10 per two
hours.
Summary of key gaps in understanding whether sustainable homes lead to sustainable
lifestyles
More evidence is required to Yes – further RESEARCH: A study to examine for a group of home buyers the Sponge
know how the provision of research is required levels of sustainable behaviour before and after moving into a
sustainable homes alters more sustainable house. It should seek to identify which features
organisation (such as NCC
behaviour in dwellings. are most likely to drive behavioural change and which features
or MORI)
fail to change behaviour.
Public sector housing
providers
It is unknown whether people Yes – further RESEARCH: A study to understand residents’ views and opinions NHBC
who move into sustainable research required on sustainability before and after they move into a sustainable
homes become more willing to home. The study could address whether moving into a more
organisation (such as NCC
act. sustainable home raises awareness of sustainability issues and
or MORI)
whether this increases action.
More evidence is required to Yes – further RESEARCH: Further research on this issue could tie into either of See above
demonstrate that sustainable research is required the studies suggested above.
homes can change norms and
habits driving more sustainable
behaviours.
More fiscal incentives are Yes – further action ACTION: The Government needs to drive greater performance by EST
required to drive demand for is required house-builders on sustainability issues by driving through the
Carbon Trust
sustainable homes. well-established fiscal incentives. Greater campaigning is
needed, within both the industry and the wider public forum. Sponge and other
campaigning NGOs
Developers (and in particular Yes – further action ACTION: A large body of evidence is available to demonstrate Sponge
private developers) are not is required the role of information in driving sustainable behaviours. Action
Private and public sector
providing enough information could be undertaken by engaging with developers to trial a
developers
to customers on sustainability number of different initiatives to engage with customers on the
features incorporated into sustainability features incorporated within developments. Consumer organisations
dwellings. Assessments should be undertaken to see which methods are such as the NHBC
most popular initially, and then after a period (such as three
months), to see which methods would be most effective in
driving behavioural changes.
It is unknown what role Yes – further RESEARCH: A study to identify developers who have Public and private sector
developers can (and should) research is required incorporated community groups into their developments, and developers
play in developing social judge the success of these schemes. The study should seek to
Think tanks (with expertise
capital on a development. categorise what the factors could be behind the successes and
in building social
failures, and whether any general lessons could be drawn out to
infrastructure and
help in future initiatives.
measuring social capital
such as the New
Economics Foundation
(NEF) and Demos)
4 Conclusions and Recommendations
A summary of the key findings of this research has been provided in relation to
each of the business drivers at the beginning of each section. A summary of further
research and action that could be undertaken to address the gaps identified has
also been provided at the end of each section.
The gap analysis has provided an insight into the strength of business case in
relation to each of the business drivers. To summarise, this research has found
that:
LEGISLATION – BUSINESS CASE STRONG

There is now a strong business case due to the large body of sustainability related
legislation, which is both significant and growing. However, the case is weakened
by the low level of enforcement and penalties for non-compliance. Additionally, the
benefits for exceeding minimum standards are limited and not significant enough,
particularly for the private sector.
RISK MANAGEMENT – BUSINESS CASE WEAK

The business case in relation to risk management is weak, particularly in relation to
corporate risk. Companies are yet to demonstrate that they have a full
understanding of non-financial risks, particularly those medium to long-term risks
which could significantly impact, and influence, business strategy. Risks at a project
level are better understood, but there is little evidence that companies are
considering the cumulative effects of these individual risks at a corporate level.
FINANCIAL PERFORMANCE – BUSINESS CASE DEVELOPING

Development profitability – The case is still being built as to how sustainability
affects development profitability. A lot of research has been undertaken to
demonstrate what measures (such as reduced land values) could be implemented
to strengthen the case; however, many of these are yet to come to fruition or be
implemented on a range of projects.
Investment performance – A number of socially responsible institutional investors
(such as Insight Investment and Morley) have tried to quantify the relationships
between investment and sustainability performance. However, research is still
limited and there is little evidence that mainstream investors have yet embraced
the debate.
PLANNING PERMISSION – BUSINESS CASE STRONG

There is now a strong business case in relation to planning, particularly since the
publication of PPS1 which aims to put sustainability at the heart of the planning
system. However, the case is weakened by inconsistent application of planning
policies at a national, regional and local level. As with legislation, it is also
weakened by limited enforcement, particularly in relation to sustainability issues,
and by a lack of rewards for developers who wish to build to higher standards.
OPERATIONAL EFFICIENCY – WEAK
The case is in relation to operation efficiency is weak. Whilst there is evidence that
the case to improve operational efficiency can be strong when the costs are
significant (e.g. waste management), in many cases the cost savings of increasing
efficiency are not significant enough. Additionally, developers are given limited
support through grant schemes to trial innovative initiatives.
REPUTATION MANAGEMENT – DEVELOPING

Stakeholders are becoming more aware of sustainability in general. Stakeholders
still seem unsure as to the level at which their expectations can be set, and the
degree to which they can challenge developers. There is little evidence to suggest
that house-builders have yet been affected reputationally by their sustainability
records. However, the public sector funding bodies are becoming more challenging
to their development partners, and the strength of the case is certainly growing in
relation to this issue.
MARKET DIFFERENTIATION – WEAK

There is frequently-cited evidence that customers would pay more for sustainable
homes. However, there is still limited evidence that this is being borne out in
practise, particularly in relation to mainstream developments. The case is further
weakened by limited public awareness of these issues, and in particular the
EcoHomes Standard, which makes it difficult for home owners to differentiate
homes on the basis of their sustainability credentials.
DOES THE PROVISION OF SUSTAINABLE HOMES ALTER LIFESTYLES?

There is evidence to suggest that the provision of more sustainable infrastructure
(e.g. a home) can lead to behavioural changes. However, more research is required
to examine how specifically the provision of a sustainable home can influence a
range of behaviours (which make up a lifestyle), particularly in relation to
behaviours that would require action on the part of the resident. It is also well
established that cost can play a key role in changing behaviour, and as with many
of the drivers above, more fiscal incentives are needed. In addition, developers
need to provide more information on the sustainability features of the
developments they build, to drive both behavioural changes and demand for these
features.
To conclude, there is a significant amount of literature concerning the business case
for building sustainable homes. This research has demonstrated that, on the whole
the case is well made at a generic level, but when we ‘scratch beneath the surface’
the case is not proven or well evidenced. This is a consequence of two key factors:
• A lack of understanding of those factors that contribute to development
profitability and investment performance.
• A heavy bias towards public sector projects, which in their totality account for
a relatively small proportion of new build, and which are able to use long-term
accounting to make the case add up.
In order to provide a more convincing case for building sustainable homes
(particularly for private developers) a variety of research and action is required to
provide more robust, in-depth and quantitative evidence for the business case for
sustainable homes.
10 key questions to strengthen and drive the
business case for sustainable homes:
• How can legislation and planning be more effectively enforced and

good practice incentivised?
• How is medium to long-term business performance affected by non-

financial risks?
• What would drive investors to mainstream sustainability, apply

increased level of scrutiny, and demonstrate how it effects their
decisions?
• To what extent do land values reflect the costs and benefits of

developing to higher sustainability standards?
• How can we achieve greater consistency, clarity, and application of

planning policies and develop sustainability training to ensure
effective implementation?
• Can grant schemes be expanded to encourage investment and

innovation, and where would they be best targeted?
• How could sustainability provide a means of addressing the current

skills shortage?
• Do sustainable homes create added sales value?
• How can developers make the sustainability features of homes (and

communities) transparent and easily understood by consumers?
• What are the quick wins to drive lifestyle changes?

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The gaps in the existing case for

building sustainable homes to

A report by Upstream for the Sponge

Sponge Sustainability Network

Steering Group members:

Sponge members steering group:

• Penalties for non-compliance with planning conditions, and rewards for

DOES THE PROVISION OF SUSTAINABLE HOMES ALTER LIFESTYLES?:

10 key questions to strengthen and drive the

What do sustainable homes and lifestyles look like?

Box 1: Sustainable communities: Homes for all

SOURCE: ODPM (2005) Sustainable Communities Homes for All. See:

Whilst coming to an agreed definition is a somewhat academic discussion, it is

consumption and patterns of action, where the non-consumptive behaviours (or

Energy use – domestic • Buy energy labelled products

Household consumption– • Shop locally

Housing • Move to a smaller house

Participation • Take part in consultations

Neighbourliness • Meet friends and neighbours socially

Many of the behaviours listed above can be influenced or driven by a range of

What is the Government doing to drive sustainability

The role of house-builders in creating sustainable

• Designing-in measures to create domestic environments where sustainable

Building the Market for Sustainable Lifestyles

Objectives and methodology

• House-builders’ public disclosure on sustainability issues including sustainability

Scope of the research

house-builders)13; secondly, the business case for private developers is less

2 Gaps in the business case for

An understanding of the way in which sustainability issues affect financial

2.1 Financial performance: development

Does the case add up? Frequently cited financial performance

• There are not always greater costs in building to greater sustainability

• Sustainability enhances development profitability

There is a growing body of literature to support the assertion that sustainability

Does sustainability influence financial performance?

Banks Building Societies

Corporate and Interest and

Figure 1: Summary of the factors affecting a private (non-listed) house-builder’s House

Investors Banks Building Societies

Corporate and Interest and

Does sustainability affect house prices?

Does sustainability affect development project profits?

Box 3: Acquiring land at lower than market price – BedZED

commitments results in additional costs, which impacts negatively on the

Box 4: The costs of building to EcoHomes

- £1100 £1975 £2625 Townsend (2005)

Relative costs (% increase in capital costs):

Does sustainability enhance investment performance?

The graphs in box 5 below summarise Morley’s findings.

Box 5: Financial performance and sustainability

Are institutional investors driving house-builders in improving

200320. The 2005 benchmarking exercise Investing in Sustainability found that

FINANCIAL PERFORMANCE: DRIVERS IN PRACTICE

Large private sector

Investors are not doing enough No – further

ACTION: This will depend on the outcome of the research. It

Summary: Legislation, sustainability and the business case

Does the case add up? Frequently cited legislative drivers:

• Building Regulations (and particularly Part L: Conservation of Fuel and Power)

• The Energy Performance in Building Directive (EPBD) (Forthcoming)

• The Code for Sustainable Buildings (CSB) (Forthcoming)