CAN THE LUXURY
INDUSTRY BE SUSTAINABLE?
Liam Bailey
Partner, research
About 18 months ago, luxury developer Mike Spink had an unusual meeting with a wealthy young European client. “We spent hours discussing their project’s mechanical and electrical services specification, which they’d read cover to cover,” Spink says during a recent phone call. “They were incredibly engaged in the detail, and from the outset had demanded that sustainability was the top priority. The issue of cost wasn’t even raised.” The meeting was unusual because for the past 25 years Spink’s clients have rarely shown much interest in the sustainability credentials of their homes. On the odd occasion when they did mention it, the steer would be to do something sustainable provided the cost was paid back in lower energy bills. Yet in the past two years, Spink has noticed more of his clients seeking to ensure their homes have a significantly reduced impact on the environment. Anecdotes don’t make for data, but in recent weeks during conversations with close to a dozen of the world’s top architects and developers I’ve heard similar stories. There is a growing, committed pool of buyers asking questions spanning energy efficiency, embodied carbon and the sustainability of materials.
This is welcome, but the timing demonstrates how slow luxury residential property has been on the uptake. Commercial developers have been under intense pressure for years now from investors, occupiers and regulators to embed environmental standards into the bricks and mortar product as part of wider environmental, social and governance (ESG) investment criteria.
The residential world has not come under the same pressure. Affordability trumps all other concerns in the wider housing market, and for wealthy buyers who often own multiple properties, location, design and detailing are the focus. Some developers, like Spink, have innovated and installed heat pumps and other green infrastructure anyway, but there has been little push from purchasers until now. The government’s confusion over how to approach the issue means there’s been little regulatory impetus either.
Yet a reckoning may be coming, at least if the Paris Agreement climate goals are to be taken seriously. A 2021 report from the Hot or Cool Institute confirmed that high-income countries must reduce lifestyle carbon footprints by 93% by 2050, with even middle-income countries needing cuts of up to 80% to meet targets. It’s impossible to square this with the current rate of change, leaving governments with few choices but to begin turning the screw.
Luxury consumers have developed a taste for green products but meeting climate goals set out in the Paris Agreement may prompt a political response that few in luxury industries are prepared for
The form of the political response will depend on whether global governments can work together to form a unified strategy. Some of the most radical solutions are also the simplest – if there is a finite number of tonnes of CO2 the world can emit, then every tonne of emissions one person consumes means someone else needs to reign in their emissions to compensate. This is where ideas like personal carbon trading come to the fore, whereby governments place a ceiling on the carbon available for individual consumption.
“There is a sense that at some point the tax system needs to be more effective in taxing carbon consumption and until now politicians haven’t been prepared to go down that route,” David Gauke, Lord Chancellor under Theresa May and now Head of Public Policy at MacFarlanes told me in a conversation late last year. “I don’t expect that to change imminently, but if opinion continues to move in this direction then I think the case for carbon taxes becomes stronger.”
The benefit of a carbon tax is its neatness. For home buyers looking to do the right thing, it provides a mechanism to answer key questions such as whether to prioritise minimising the annual energy consumption of a home or the embedded carbon in the building itself. A properly designed carbon tax should help to signal where effort is best directed.
As Gauke says, “it’s a broad-based, consistent and unified system,” but it’s unclear whether it is achievable. There is still no agreement over the unified carbon pricing that would be required to make this kind of policy truly effective, and a key takeaway from COP26 was that there is little hope that major emitters like China will sign up any time soon.
All this points to more fragmented policy-making. In the US, for example, there would need to be a rapid shift to smaller homes in denser settlements if the country is to meet its climate obligations, according to recommendations in a 2020 study published by the US National Academy of Sciences (NAS). That has obvious implications for luxury homes.
Does this route lead to frequent flyer taxes, mansion taxes or land value taxes to encourage the occupation of “minimal” space, or even bans on multiple home ownership? The UK already asks you to confess to existing property ownership when buying an “additional property”, so why not simply say you can’t buy another?
In the absence of coherent policy, purchasers such as Spink’s clients will be the main driver of change and on that front change appears to be afoot.
Spink welcomes the shift in priority but says there needs to be much greater urgency to drive change at scale both by lowering carbon output and, even more so, by making buildings that will stand the test of time. He recalls overhearing conversations among the wealthy about optimising wealth preservation.
“Imagine if you replaced that with obsessing over your carbon footprint,” he says. “You’d need to see that level of enthusiasm to really move the needle.”