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Policy brief by Francisco Amaral, Assistant Professor of Real Estate Finance
"Energy efficiency in real estate is critical to mitigating climate change. Especially in developed countries (such as Germany and Switzerland), the housing stock is responsible for a large share of CO2 emissions. This is mainly because much of the housing stock is very old and in need of renovation. However, the renovation rate is still very low." -Francisco Amaral
Together with his co-authors, Francisco Amaral, Assistant Professor of Real Estate Finance, published a policy brief about “Green Signals: Energy Efficiency and German Housing Markets”.
Co-authors:
In our project, we adopt an asset pricing perspective to explore the reasons for the stagnation in the renovation rate.
Relevant questions are:
Answering these questions is critical to understanding property owners’ incentives.
In our research, we find that higher energy efficiency is reflected in higher prices and rents, even after accounting for the fact that more energy-efficient buildings tend to be newer. Importantly, the magnitude of this effect can be fully explained by the energy savings gained from moving from low to high energy efficiency, suggesting that the market is appropriately pricing in these future cost savings.
However, we find that market prices only provide the desired incentives when the right signals are given. Sales and rental premiums for energy-efficient buildings are higher when using the energy performance certificate (Bedarfsausweis), which is based on an expert assessment of the property's energy status. However, these premiums are significantly lower when using the energy performance certificate (Verbrauchsausweis), which is based on the energy consumption data of the property over the last three years.
Our analysis shows that the cost savings associated with energy efficient homes are actually reflected in market prices. Consequently, any policy that distorts the price mechanism, such as targeted subsidies or taxes, could unintentionally lead to counterproductive outcomes. Instead, policy makers should focus on improving the institutional framework to remove the existing barriers that reduce the effectiveness of energy certification in the residential market.
Policy recommendation: Improve the quality of energy performance certificates by focusing on the energy demand certificate and phasing out the energy consumption certificate. In addition, compliance with reporting obligations for energy performance certificates should be improved by introducing a sanction mechanism. This will increase transparency and further increase the demand for environmentally friendly housing.
Policy Brief (Download):
Green Signals: Energy Performance German Housing Markets (PDF, 678 KB)
Francisco Amaral, Morgane Soufflet, Jonas Zdrzalek and Steffen Zetzmann
Policy article:
Kiel Institute for The World Economcy (IFW)
Green Signals: Energy Efficiency and German Housing Markets
Die Zeit (online)
Energieeffizienz von Immobilien: Wer Heizkosten sparen will, hat es schwer
19 November 2024 (PayWall, in German)
Handelsblatt
Wie sich die Energiebilanz beim Immobilienverkauf auszahlt
18 November 2024 (PayWall, in German)
Der Spiegel (online)
Institut für Weltwirtschaft beziffert Vorteil von energetischer Sanierung
19 November 2024 (PayWall, in German)
Photo Source: Felix Neudecker by Unsplash
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