The findings are set out in a new report – Retrofitting Social Housing: a Funding Roadmap – which has been published by global engineering consultancy Buro Happold in partnership with The Housing Finance Corporation (THFC), a non-profit mutual lender that provides £8 billion of finance to affordable housing providers.

The report is the result of in-depth analysis into what represents the biggest financial and moral challenge facing providers of affordable housing, including housing associations and local authorities: decarbonising existing social housing to address climate change.

The research has been released alongside the launch of THFC Insights, a new knowledge and information hub created to support the UK social and affordable housing sector in key areas including housing investment and funding, ESG and green finance, and housing policy and delivery.

The built environment represents 40% of carbon emissions and is a key area of focus for the UK government as it pursues its 2050 net zero target.

Decarbonisation presents a significant financial challenge for the social housing sector, which has housing stock dating back to Victorian times, and with previous estimates of the cost of making the UK’s social housing stock net zero carbon by 2050 varying from £58bn to £100bn. The UK Government’s current £3.8bn Social Housing Decarbonisation Fund (SHDF) therefore represents just a fraction of the funding required.

THFC and Buro Happold’s research provides a set of tangible recommendations, including financial models which allow retrofit to pay for itself and provide a return over a long period of time. The solution they set out is based around a combination of grant and debt funding that is guaranteed by the UK Government’s balance sheet – similarly to the new build affordable homes guarantees programme currently in existence – along with the application of energy production and storage technologies.

The report lays out a roadmap for funding the retrofit of social housing, covering legislation, retrofit options and financing models. It demonstrates that three things are needed for a retrofit project to become financially viable:

• economies of scale, to reduce per unit capital cost
• matched grant funding, to reduce the housing association’s own cost
• guaranteed debt funding to reduce the cost of borrowing to fund initial retrofit investment

For the benefit to be felt by housing providers and tenants alike, it argues:

• grant funding must be made more accessible and inclusive of deep retrofit projects rather than just fabric first
• a Social Housing Retrofit Guarantee programme should be instigated to ensure housing
• associations can fund the cost of retrofit not covered by grant with the cheapest possible long term debt

Piers Williamson, chief executive at THFC, said: “Net zero carbon is the greatest challenge facing the UK housing sector, and its biggest funding conundrum. However, THFC’s work with Buro Happold demonstrates that there are solutions.

“We’re using the lens of a financing model to shine a light on how you can create economies of scale, and how much money you can save.”