07.07.2025Sustainable Real Estate?

Francisco Amaral joined our Department in 2024 as Assistant Professor of Real Estate Finance. His research interest lies at the intersection of financial and urban economics, with a particular emphasis on the market microstructure of housing markets and its influence on the spatial distribution of housing prices and returns.

Dear Francisco, thank you very much for taking the time for this interview. To start off, could you tell us what motivated you to study real estate management?

Real estate is fascinating for two main reasons. First, real estate markets are central to our lives. Either as a renter or an owner, 99.5% of the population is directly connected to the real estate market. This is way more than the stock market or even the labor market. Second, from an academic perspective, real estate markets are unique. Houses are an investment and a consumption good. And, if you buy a house, it's probably the most important financial decision you'll ever make. Housing markets are at the intersection of financial and consumer markets, which makes them very interesting to study from an academic perspective.

"From an academic perspective, real estate markets are unique. Houses are an investment and a consumption good." -Francisco Amaral

What's the current state of sustainability in real estate markets?

Sustainability is a very important topic in real estate markets. According to estimates from the United Nations, around 40% of global CO2 emissions originate in the real estate sector because people consume a lot of energy inside their homes. Policymakers and the industry have incentives to improve the energetic efficiency of the housing stock.

Starting with policymakers, how has the regulatory landscape evolved?

Within the European Union and including Switzerland, rules for new construction have become more restrictive, with special attention to energy efficiency. If you want to build something new in Switzerland or Germany today, you have to comply with very high energy standards.

How does this impact the housing market?

Imposing lots of regulation on new construction makes it more expensive. This can cause housing prices and rents to rise. Policymakers face this trade-off: They want climate-responsible policies, but being too strict might reduce new construction and cause social unrest as housing becomes unaffordable. Recently, we've seen governments in Germany slightly backtracking on the regulations.

What are the main obstacles to improving energy efficiency in real estate?

The biggest problem is that the housing stock, especially in European countries, is rather old. Looking around Zurich, we have many houses built 50-60 years ago or even earlier. These were built when energetic standards were different, and it's quite expensive now to renovate them to conform to current standards. The question becomes: is the investment worth it?

And, is it worth it?

Our research finds that house prices and rents do reflect different energy standards. When comparing houses with the same characteristics but different energy certificates - say an A-rated versus D-rated property - we see that the A-standard house is slightly more expensive. However, there are vast differences across market segments. When energy prices rise, rents in the more expensive segments of the market tend to adjust downward for less energy-efficient housing, indicating that landlords and renters share the burden of higher energy costs. In contrast, rents in lower-priced segments remain unchanged, meaning that lower-income renters typically bear the full burden of increased energy expenses.

Looking to the future, what risks are investors considering?

Real estate is a very long-term investment, and investors are taking climate considerations into account. At industry conferences, one of the biggest concerns is how future changes in temperature and sea levels will affect real estate values. Both in the US and in Europe, developers and investors are increasingly taking flood maps into consideration, leading to reduced investment in coastal regions. At the same time, in places like southern Spain—where it is already very hot and expected to get even hotter—investors worry that if people no longer want to live or visit, their assets could become virtually worthless.

"Policymakers face a difficult trade-off: they aim for climate-responsible policies, but being too strict could reduce new construction and drive up housing costs—risking social unrest as affordability declines." -Francisco Amaral

What is next on your research agenda?

I'm working on understanding how rising energy costs affect housing markets, especially as policymakers discuss increasing CO₂ prices. In particular, I am interested in who ultimately bears the energy costs and whether this has implications for inequality.  I'm also working on a project examining how mortgage lending - which is very localized - affects bank performance when banks specialize in specific regions and thus become exposed to local housing markets.

Dear Francisco, thank you very much for your time and the insights into your field of research!

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