Climate Policy Reversal in the Housing Sector Requires Billions Annually
In addition to the housing issue, climate protection is one of the key subjects that are at the very centre of the public debate in Germany. That the housing issue and climate protection are closely connected is easily overlooked in the context of the climate debate, which is dominated by the transport sector; yet energy savings in the buildings sector represent a key component in the effort to achieve the German climate targets by 2030 and 2050, respectively. It is intended to ensure that residential buildings use 40 percent less carbon-dioxide emissions by 2030 than they did in 2014, and to achieve carbon-neutrality for the German housing stock by 2050.1 The GdW Federal Association of German Housing and Real Estate Companies estimates that 14 billion euros in annual government allowances will be required to accomplish the climate policy reversal in the residential property sector.2
The fact that government subsidies on this scale are nowhere in sight so far has become a source of growing concern for the real estate industry because it now faces the challenge to commit major amounts of capital for the energy refurbishment of existing buildings in addition to the need to provide affordable housing.3 Indeed, some of the recent legislative measures have caused modernisations to become unprofitable – for instance, the rent increase after renovation was lowered from 11 to 8 percent at the start of 2019 and simultaneously capped at 3 euros per square metre.
The situation is exacerbated by additional regulatory constraints either enacted or planned, such as the rent freeze or the rent cap. Although energy refurbishments are usually exempt from the regulatory measures, these political projects have eroded the faith of investors and are therefore likely to cause investments in the area of energy savings to dry up.4
Lack of Support for Companies
The climate deal that the Federal Government agreed on in September specifies several subsidy programs for the modernisation of residential buildings that point in the right direction, as the housing industry has expressly noted. For example, replacing oil-fired heating systems is to be rewarded, and the serial refurbishment of buildings is to be promoted.
What the industry finds fault with, however, is that only owner-occupiers will be eligible for some of the planned subsidy instruments, such as the introduction of a tax incentive for energy-efficient building refurbishments.5 It probably means that housing companies would not be able to take advantage of these capital allowances, although rental flats alone would require an estimated 6 billion euros in annual subsidies to ensure that the climate targets are met, according to the GdW association.
Industry insiders are therefore concerned that the current plans will not be enough to ensure that both an adequate supply in affordable housing and the climate targets in the buildings sector are secured. In order to be able to cope with both challenges at the same time, government subsidy programs would have to go farther and would be needed by housing companies in particular.