How institutional investment in Single Family Housing is raising sustainability standards

SFH is a key component of the UK housing mix, reaching £2.5 billion in investment volumes in 2024. This milestone reflects a 20% increase from the previous year, driven by a surge in new capital inflows.

Beyond financial metrics, this influx of institutional investment is reshaping the sector, not only fuelling its growth but also setting higher benchmarks for sustainability and design excellence. Integrating environmental and social sustainability design principles in SFH is more than a trend, it’s a strategic move to enhance asset value and resilience against future market shifts. 

What is being done?

Enhanced sustainability features are being prioritised, with improved levels of insulation and air source heat pumps being mandated, which, together with electric vehicle charging points, form minimum requirements for some investor’s funds’ green investment criteria. Some will only acquire sites which solely use electricity rather than gas, futureproofing investments against the cost of decarbonisation measures.

Traditionally housebuilders in the buy-to-sell market had little incentive to go beyond minimum sustainability standards. However, with the SFH market looking to attract and retain tenants and avoid potential longer term retrofitting costs, sustainability features are now increasingly being factored in to the value of assets for investors.

 What are the options?

The Future Homes Standard (FHS):  Set to be implemented in 2025, the FHS will become part of the UK Building Regulations and establish the new minimum compliance standard for new homes. In practice, this will mean enhanced building fabric performance and the adoption of low-carbon, fossil fuel-free heating systems. The aim is to futureproof homes, ensuring they won’t require any energy related retrofits as the National Grid decarbonises. Details are still to be confirmed, but housebuilders should expect to have to include more insulation, heat pumps and potentially rooftop solar panels.

Octopus Energy ‘Zero Bills’: This energy company’s initiative offers new homes equipped with solar panels, domestic scale batteries, and heat pumps, guaranteeing zero energy bills for at least five years. This tariff leverages green technology to eliminate energy costs, making sustainable living more affordable. Estimated additional costs are between £10,000 - £20,000 per unit to fund  heat pumps, batteries and solar panels.

Passivhaus Standard: This rigorous, voluntary standard for environmental quality in buildings, provides assurance of health and wellbeing while reducing energy consumption. It results in high levels of internal comfort and constant fresh air, delivered using very little energy and therefore resulting in lower bills. Key features include high levels of insulation, airtight construction and mechanical ventilation with heat recovery.

Although some housebuilders state a 10-15% cost premium, this usually reflects pricing in inexperience and risk, rather than additional materials and time. For developers accustomed to building to Passivhaus standards, the premiums are typically around the 5% mark and sometimes less than £10,000 per unit.

Return on investment

Homes that use less energy will require less power from the National Grid, meaning smaller and cheaper grid connections. Properties which incorporate higher sustainability performance standards will also be cheaper to run, key to attracting tenants, and may also result in higher rents, over and above the energy savings alone.

A growing number of Octopus Zero Bills homes are being launched by SFH investors and early letting evidence suggests that the achieved rents are higher than standard house types. With the cost of living crisis continuing to dominate residents’ concerns, it’s easy to see how homes with improved sustainability performance will be of greater interest to the SFH investment industry. 

Further information

Contact Dan Jestico and Piers de Winton

Spotlight: UK Single Family Housing 2025