Kevin Webb is managing director of Legal & General Surveying Services
When we emerge from the current crisis, some of the challenges we faced before will persist. Climate change is not front-page news right now, but will re-emerge as a pivotal business issue.
The lockdown may have illustrated the cost of shutting down parts of the economy and keeping employees at home for weeks, but it has also shone a light on the environmental impacts of our normal way of life.
Every business has a duty to help reduce its own carbon footprint and help clients and customers achieve a similar goal wherever possible.
The Prudential Regulation Authority (PRA) has already asked financial institutions about their responses to climate challenges.
Legal & General Capital recently announced a 36% stake in one of the UK’s largest players in ground source heat pump technology, as it scales up its investments in addressing decarbonisation.
Heating and hot water for UK homes make up 25% of total energy use and 15% of our greenhouse gas emissions. By 2025, the current consultation on new building regulations will likely outlaw fossil fuel heating systems for new builds, presenting a significant opportunity for alternate low carbon heating solutions.
Retrofit also represents a significant market opportunity, with around 23 million homes in Great Britain using mains gas (which is carbon intensive), two million homes electrically heated (which has high running costs) and the remaining two million using heating oil or other fossil fuel systems (both carbon intensive and with high running costs).
In the world of property valuations we will need to understand the ramifications of these things upon value. Equally, current public health and climate concerns are coinciding with a need to reduce the role of physical inspections. Our way of doing things is changing forever.
Digital valuations are already embedded in our business. We have been delivering remote digital valuations using data, modelling, analytics and technology for a couple of years now.
The current working environment has accelerated the growth of remote digital valuation on a massive scale – in the last six months we have conducted over 50,000 – and has the potential to change the way our industry assesses, undertakes and manages property risk.
In this market 20 years ago, valuers drove to properties to assess risk on behalf of lenders and homeowners. For the past 15 years, we have been refining automated valuation models (AVMs) for an increasing proportion of the UK’s housing stock. Now, a blend of automation and local knowledge is key.
We expect our number of remote digital valuations to grow for two reasons: they address the need to use available data and save our lenders unnecessary operational costs, and they fulfil a growing demand to address carbon footprint issues.
I also believe that the lack of precedent for our current market in AVM data will drive more new business over time to a ‘second check’ by a qualified person via a desktop. After all, we should not address one set of risks by creating another in the shape of a total dependency on data that may or may not be timely enough to reflect current market trends.
AVMs are also professional indemnity (PI) backed and signed off by a Royal Institution of Chartered Surveyors (RICS) qualified valuer, whose experience and expertise can leverage the information available in the ‘data lake’ to correctly ascertain the value of a property.
We are certainly not short of technology solutions to access and manipulate the data.
The role of surveyors and valuers is not disappearing. Our panel firm model means we can employ expertise that can match the ebb and flow of lenders’ own businesses.
But the way property valuations are made will continue to evolve to meet the demand for a new balance.
Digital valuations were happening anyway – current circumstances will simply hasten their adoption where and when it is appropriate.
Within Legal & General’s own fast-growing housing platform, which now spans build-to-rent, build-to-sell, later living and affordable housing, as well as modular construction, plans are already underway to make all new housing stock operationally net carbon neutral between now and 2030.
Our mission is to support that and achieve a similar ambition in valuing for our lenders and the housing industry