New Finance Scheme for Greater Energy Efficiency in Privately Rented Dwellings

In 2023, residential buildings in Germany accounted for 11.6 per cent of the country's greenhouse gas emissions, mostly due to inefficient heating and inadequate energy efficiency. To achieve near-zero emissions by 2045, some 23 million dwellings require deep energy performance renovations. However, a large proportion of these dwellings are owned by small private landlords, most of whom only invest in piecemeal renovations in order to keep the effort and costs manageable – and are generally faced with the challenge that the investments don’t usually amortise through savings in energy costs alone.

Dr. Steven März, Senior Researcher in the Urban Transitions Research Unit at the Wuppertal Institute, and Dr. Ray Galvin from the University of Cambridge have developed a novel savings and loan scheme that has certain similarities to a building savings contract as a possible solution for financing energy performance renovations. In their article "A finance scheme to help Germany's small private landlords sharply increase their buildings’ energy performance: Tapping into the banking system", recently published in the journal "Energy Research & Social Science", the researchers explain how banks could help finance energy performance renovations. 

The proposed savings and loan scheme envisages landlords saving a part of their monthly rental income with a bank, which, at the end of a short savings phase, is then used by the banks as collateral for loans at favourable rates. These loans could then be used for energy performance upgrades without the need for state subsidies. For landlords, this would mean saving up equity in the first few years with fixed monthly amounts and paying off loans in subsequent years – also with fixed and predictable monthly amounts.

The authors conclude that this model could create a win-win solution for everyone involved: Landlords could renovate their buildings to make them more energy efficient without taking on major financial risks, while the banks would benefit from granting loans. The model could also make a significant contribution to achieving the climate targets in the building sector while sharply reducing energy costs for tenants.

The paper can be downloaded free of charge via the link below.