The tension between the government’s efforts to re-energise a sluggish economy, and its commitments to setting the UK on the path towards net zero, can be seen across many different areas of policymaking. And, time and again, the need to boost economic growth appears to be winning out.

A recent fast-tracked consultation into the so-called ‘zero emission vehicle mandate’ was widely regarded as a first step towards relaxing annual electric car sales quotas for automotive manufacturers. The government has been forced to deny that a new target of being ‘on track’ for 95% zero-carbon electricity by 2030 represents a watering down of its previous pledge to deliver clean power by the end of the decade. And the plans to finally move forward with a third runway at Heathrow, the centrepiece of the Chancellor’s set-piece speech in late January, has elicited an immediate backlash from environmental pressure groups.

While climate change is rarely front and centre of the public debate around housing, this dynamic is also at play when it comes to housebuilding policy.

Delivering 1.5 million new homes over the course of this Parliament was another key component of the recently unveiled growth strategy. To achieve this, the revamp to the National Planning Policy Framework was presented as something of a silver bullet for expediting a cumbersome planning approval process.

But there are other barriers to increasing housebuilding rates to 300,000 per year – and not just a shortage of skilled professionals, with the Home Builders Federation and the Construction Industry Training Board identifying a shortfall of 25,000 bricklayers for the government to meet its target.

The government’s commitment to net zero is not, of course, just a political aspiration in the form of a manifesto pledge. This is a legally binding obligation that long predates Labour assuming office last summer. At COP29 in November last year, as a key milestone enroute to reaching net zero by 2050, Keir Starmer announced the UK would reduce greenhouse gas emissions by at least 81% by 2035 compared to 1990 levels – an objective in line with our ‘Nationally Determined Contribution’ in the 2015 Paris Agreement. Previously, the UK had committed to a 68% reduction by 2030. The adjustment reflects the need to be bold and go further. In its last annual progress report, the Climate Change Committee (CCC) had warned that “the new government will have to act fast to hit the country’s commitments”.

Yet a surge in new construction activity will drive a proportionate increase in the carbon emitted from building these new homes. And this will be a very material contribution to the UK’s total carbon footprint. The built environment is the largest emitter of greenhouse gases, accounting for almost 40% of emissions globally. ‘Embodied carbon’, i.e. emissions generated by materials and the construction process, makes up approximately 35% of that share. The remaining 65% is made up of ‘operational carbon’ – associated with the emissions produced during a building’s life cycle through ongoing energy consumption from heating, etc.

How, then, does the government balance, on the one hand, the need to lower housing costs and drive economic growth through increased levels of housebuilding and, on the other, the knock-on impact on meeting our climate targets? Will this be another case of growth trumping all other considerations?

We see a narrow path to successfully balancing these two competing, and crucial, priorities.

A drive to speed up planning approvals and free up ‘grey belt’ land for residential use is, to be clear, excellent news. Our structural undersupply of homes inflates housing costs, reducing consumer purchasing power and dragging on economic growth. It also represents a huge source of pent-up demand for skilled labour and high-value assets, which translates into a guaranteed boost for GDP.

However, more needs to be done to incentivise investors and developers to build these new homes to higher sustainability specifications, thereby offsetting the carbon impact of higher housebuilding volumes. That can only be done on a commercial basis if there is a green premium attached to new homes that better help the UK meet its climate commitments. And that requires the end customer – the renter or buyer – to ascribe value to more energy-efficient homes.

Unlike the commercial real estate market, the residential sector remains constrained by the fact that sustainability performance is not a major driver of pricing. Rectifying this will demand promoting public awareness about cost benefits from lower bills, the impact on future re-sale value and even the risk of ‘stranded assets’. It may also require greater regulatory intervention to correct this market failure – even if that runs contrary to lighter-touch, ‘anti-red-tape’ regulatory approach of the current Labour government.

Other environmental considerations need to be carefully balanced alongside the drive to build new homes, beyond legal obligations relating to carbon emissions. The government has identified that environmental impact assessments are often a driver of cost overruns and delays. The industry will certainly be supportive of the proposed streamlined system. But real estate investors’ ESG commitments extend to areas like promoting biodiversity and protecting the local environment, particularly if they’ve raised capital in funds classed as Article 8 or Article 9 under the Sustainable Finance Disclosure Regulation. The details of new proposals like the Nature Restoration Fund, and its compatibility with these pre-existing environmental commitments, will be crucial.

We must also not forget about existing housing stock. Here the trade-offs between economic growth and environmental progress are even more stark. The government’s manifesto commitment to upgrading five million homes over five years, through its £6.6bn Warm Homes Plan, will free up consumer discretionary spending by lowering energy bills and create demand for home refurbishment providers. But it’s unlikely to match a major programme of new housebuilding for economic stimulus.

Nevertheless, this remains a crucial area of focus. The UK’s housing stock is among the least energy-efficient in Europe. The CCC has called for the rate of residential retrofits to rise to one million per year by 2030. While there may be other, notionally more ‘pro-growth’ policy areas where public funds and resources could be devoted, the government must resist watering down this target.

But if the government is to maintain its climate commitments in the housebuilding arena, and even make regulatory interventions to incentivise people to buy and rent more energy-efficient homes, a key question is how best to certify and measure progress in this respect – something I’ll explore in my next piece.