Social Housing Decarbonisation Fund (SHDF) Wave 3

By Luke Beard · 23 May 2024

The draft guidance has landed for wave 3 of the Social Housing Decarbonisation Fund (SHDF). Eligible landlords will be able to access the funding to help improve the energy efficiency and carbon footprint of its stock. The bigger prize being lower fuel costs and better living conditions for tenants. It is estimated that the £1.25bn earmarked will help to retrofit up to 140,000 social homes.

Here are my big takeaways from the draft guidance:

1. Delivery Timescales – since the start of the SHDF rounds, there has always been a condensed window for delivery. Seeing that the delivery window has widened and will now run until March 2028 is pleasing. It should allow clients to adequately plan their programmes and more importantly enable the procurement options to be fully assessed. I am hopeful that with a longer commitment, the supply chain can start to leverage better material purchasing, engage with the community more meaningfully and invest in local skills and training initiatives to build some capacity and resilience.

2. Property Eligibility – one of the major factors in the delivery of SHDF has been the inaccurate data which has led to properties achieving higher than the existing EPC leading to change requests and property dropouts. This is due to a number of reasons, with a key one being the investment activities undertaken following an EPC being produced i.e. boiler change after a void period. Wave 3 funding is aimed at properties at EPC band C (10% of application only) and below, this brings in a larger pool of properties to select from and enables a greater emphasis on whole-street refurbishment which was restricted when looking at EPC band D and below properties previously (infill properties is still a thing).

The balance is that although EPC C properties can now form part of a bid, landlords must still focus their attention on the worst performing stock. There is a moral point that customers in those houses with EPCs below C should still be where the funding is intended to be aimed at. I wouldn’t want this to become a numbers game whereby landlords take the easier wins and leave poor performing stock.

The last point I would make is that although some properties outperform their EPC when reassessed, there is a rump of EPC band C properties that have evaded landlords’ reviews since any of the funding has been in the market. The ‘overestimate’ of properties at EPC band C could be as much as 20% which means that this could be an opportunistic time to review the EPC C properties to understand their real rating.

3. Application Route – it’s pleasing to see the two ‘new’ routes to access funding. The Challenge Fund and Strategic Partnerships route.

The Challenge Fund will benefit the majority of bidders and be a real opportunity for organisations to improve their housing stock – with all applications that meet the minimum standards of the scheme awarded funding (subject to the volume of successful applicants/value). There is a minimum number of 100 homes, unless the landlord owns less or manages less than 1000 homes overall, then there is no minimum number of homes that they can apply for.

The Strategic Partnership route requires a bidder to have a proven track record of delivery at scale and with a large volume of stock in their bid. They will need to have been a grant recipient or a consortium member in one of the previous SHDF rounds.

We think that where established partnerships are working, long may they continue. However, for smaller organisations, there is a real opportunity to collaborate within your local areas to form new or join existing partnerships. This will provide additional support and technical know-how as smaller landlords start to shape up their programmes.

4. Co-Funding & Grant Caps – interestingly the cap under this wave is £7500 for eligible measures with at least a 50% co-funding contribution. The additional low carbon heating funding and the Gas Grid Incentive Offer can help boost the total amount of grant funding if measures are configured correctly and meet the required standards.

5. The issuing of draft guidance – this is a good move and allows landlords some comfort to start to prepare for a wave 3 bid. It signifies a clear marker to landlords to start to prepare and engage with its key stakeholders at the outset. This may be its consultant team, its procurement approach and its customer engagement approach which is vital to help shape programmes, engagement plans, service design and procurement routes.

At ARK, we are passionate about strategic asset management and a smart approach to investment. One whereby the landlord understands its asset performance, understands the impact of additional investment and importantly understands the data quality and confidence levels for which they are basing important investment decisions on.

We take pride in our sector support and unparalleled experience across various projects, offering expertise across the entire housing sector. If you would like more information, simply get in touch and we can offer our support.

Luke Beard, Assistant Director – lbeard@arkconsultancy.co.uk