Are Tenants Willing to Pay for Energy Efficiency?

Small-scale analysis shows that although there is a price premium for energy efficiency for rental flats in Wuppertal, it is very low

  • News 02.02.2022

By 2050, all buildings in the European Union (EU) are to be climate-neutral. This is the goal set by the Commission in its "Fit for 55" package. Therefore, housing in Germany should be renovated so that it consumes less energy. The Wuppertal Institute's future impulse "CO2-neutral buildings by 2045 at the latest" has already shown that Germany's owners are only modernising one to two per cent of their homes. In order to achieve the German government's 1.5-degree target, at least three percent of rented flats would have to be renovated in an energy-efficient way. In this way, energy costs can be reduced, living comfort can be increased, property values can be secured and a valuable contribution to climate protection can be made.

But why do many landlords shy away from climate-friendly refurbishment of their flats? Often, such investments are only worthwhile for them if they have a financial and economic benefit and make a profit. An important point here is the level of tenants' willingness to pay for energy efficiency. This is analysed by Dr. Steven März, Researcher in the Urban Transitions Research Unit at the Wuppertal Institute, Dr. Franziska Stelzer, Senior Researcher in the Innovation Labs Research Unit at the Wuppertal Institute, and Ines Stelk, Urban Research Officer at the University of Wuppertal, in their paper "Are tenants willing to pay for energy efficiency?" for the Wuppertal city region. The data sets come from the German internet real estate platform The result is disillusioning: Tenants' willingness to pay for energy efficiency exists, but is very low. Therefore, according to the authors, it currently makes little economic sense for landlords to invest in energy efficiency, because other flat features such as a fitted kitchen, balcony, etc. are rewarded much more by tenants.

Overall, the analysis underlines that the rental housing market alone has so far not provided sufficient investment incentives to achieve the political goal of a climate-neutral building stock by 2050. An adapted policy framework is necessary to promote investments in energy efficiency. This could include regulatory measures, such as a refurbishment obligation. In this way, the lack of market incentives identified in the analysis could be overcome, and the energy retrofit rate significantly increased. The analysis also supports the current discussion about a ban on the installation of fossil heating systems, because the data show a higher willingness to pay for renewable heating systems. However, a stronger obligation of landlords will only increase renovation activities if the investments can be refinanced, according to the authors' assumption. Therefore, the subsidy rates should be increased and, in the current low-interest phase, the subsidy should primarily take the form of a grant. For a fair participation in the refurbishment costs, a three-way cost sharing between landlords, tenants and the state is also a possible option.

The article "Are tenants willing to pay for energy efficiency?" was published in the journal "Energy Policy" (Volume 161) and can be found in the following link.

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