1. What drives and what hinders energetic building refurbishments in Germany? Dr. Ralph Henger 20th Annual ERES Conference, Vienna | Austria, 3-6 July 2013 Green Buildings & Environmental Policies, Parallel Session C-24 July 4, 2013, 13:30–15:00, Room 5

2. Content Background Drivers and constrains Profitability of energetic building refurbishments Conclusion Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

3. Germanys climate policy CO2 reduction of 40 % by 2020 and 80% by 2050 (compared to 1990) By 2020: achieve 35 % share of renewables (electricity) The building sector accounts for about 40% of Germanys final energy consumption and about one third of CO2 emissions. Energy Concept 2050: Sectorial (ambitious) targets for the building sector By 2020: minus 20 % of Final Energy Consumption By 2050: minus 80 % of Primary Energy Consumption (near-zero-carbon building stock) Current refurbishment rate of 1 % p.a. is too low to reach the targets, doubling to 2 % is necessary Background Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

4. Source: IWU Gebäudetypologie 2011 Germanys building stock Two third was built before 1978 (1st Thermal Insulation Ordinance) HomesBuildings Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

5. Residential energy consumption for heating per household, depending on age and condition of the buildings Source: ARGE (Arbeitsgemeinschaft für zeitgemäßes Bauen e.V.) 2011 Average consumption: Single-unit house: 172 kWh/m²a Multi-unit house (< 12 units): 145 kWh/m²a Much higher consumption in building stock built before 1978 indicates high energy saving potential (better insulation and heating efficiency) Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5 fully renovated partially renovated not renovated

6. Huge potential for saving energy and CO2 Residential building stock (built until 2001): 34,4 Mio. Source: IW Cologne 2012 based on ARGE (Arbeitsgemeinschaft für zeitgemäßes Bauen e.V.) 2011 Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

7. Final Energy Consumption Target 2020: minus 20% Source: IW Cologne 2012 Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

8. Primary Energy Consumption Target 2050: minus 80% Source: IW Cologne 2012 Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

9. Refurbishment measures Energetic building refurbishment rate (in % of building stock to 2004) Source: IW Cologne 2012 based on Datenbasis Gebäudebestand (IWU / BEI 2010) Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

10. Investments shifting from construction to renovation Investments 2011: 307 Billion into the building sector, thereof 183 Billion into the stock (60%) (German Building Ministry, 2012) Green renovations are becoming more and more popular Investments 2011: 53 Billion (29% of all building stock investments) are energetic refurbishments, thereof 38 Billion into residential buildings (German Building Ministry, 2012) High investments for reaching a nearly-climate-neutral building stock Overall: 838 Billion by 2050 New buildings: 331 Billion by 2050 Maintenance of the building stock: 270 Billion by 2050 Energy efficiency: 237 Billion by 2050 (for comparison: Energy Savings: 361 Billion!) Green Investments are taking place Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

11. Content Background Drivers and constraints Profitability of energetic building refurbishments Conclusion Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

12. Technical Age and condition of the building Building Type (one vs. multi-unit buildings) Potential operational energy saving Influencing Factors Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5 (Socio-)Economic Energy Prices Pay-back time / Interest Rates Property value or rent Location Individual Owner/ Occupant characteristics (income, age, household size, health) Owner/ Occupant motives, awareness and preferences Regulatory Building codes and standards Financial incentives (subsidies, tax reductions) Landlord-Tenant Law Information / Transparency (e.g. Energy certificates)

13. Landlord / Tenant Dilemma Comparison of rent increases and returns Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5 Source: 1,301 objects in the kfw Energy-efficient refurbishment program (Henger and Voigtländer 2011) Rent increaseInitial returns

14. Rational decisions need transparency 2008: Energy certificates Required whenever buildings (residential, non-residential) are sold or rented Information on energy consumption / demand expressed in terms (kWh/m2/yr) Very low acceptance by homeowners and realtors EnEV 2014: improvements Stricter controls (randomly) Obligation to display energy certificates at public buildings More transparency: Energy certificates Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

15. Content Background Drivers and constrains Profitability of energetic building refurbishments Conclusion Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

16. How much energy savings can be realized? Results from some selected case-study calculations Source: IW Cologne 2012 kWh/m²a Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

17. Total costs vs. Energy efficiency costs Results from some selected case-study calculations Source: IW Cologne 2012 Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5 kWh/m²a

18. Does an energetic refurbishment pays off? Results from some selected case-study calculations Source: IW Cologne 2012 Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5 EUR/m²a

19. How important are subsidies (of the kfw)? Results from some selected case-study calculations Source: IW Cologne 2012 Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5 EUR/m²a

20. Total costs differ significantly across buildings and measures However: Total costs can never be paid off with energy savings Energetic refurbishments should not be done outside the renovation cycle of a building Energy efficiency costs lie around 33–50% below total costs Energy efficiency costs can be paid off in one-third of the case-study calculations … with kfw subsidies in two-third of the case-study calculations Energetic refurbishments are financially rewarded within the renovation cycle if… Homes are in a bad condition, i.e. energy consumption is high Government / kfw subsidies can be claimed Investment costs can be shifted to tenants (by increasing rents) Stylized facts Based on 22 case-study calculations (Henger and Voigtländer 2012) Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

21. Content Background Drivers and constrains Profitability of energetic building refurbishments Conclusion Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

22. Main drivers: old building stock, kfw subsidies, homeowners motivation Main barriers: long pay-back periods, landlord / tenant dilemma, transparency Targets for a zero-carbon building stock by 2050 seems to be too ambitious Government has to develop a long- ranging and socially balanced strategy with an effective subsidy and monitoring scheme Conclusion Dr. Ralph Henger, ERES Conference Vienna, 4th July 2012, Session C-2, Room 5

23. Thank you for your attention! Dr. Ralph Henger Cologne Institute for Economic Research, Real Estate Economics +49 221 4981-744 henger@iwkoeln.de www.immobilienoekonomik.de