Greater regulatory clarity needed to convince landlords of energy-efficiency investments – analysis

Greater clarity on the financial effects of energy efficiency renovations could help increase the rate of refurbishments in Germany's building stock, according to a report by the Kiel Institute for the World Economy. Higher rent prices for more energy efficient homes can be on par with renovation costs as well as the resulting savings on energy bills, the institute found. Tenants correctly internalise savings through lower energy bills when accurate information is available and factor in the financial benefits of refurbishment, it said. "Market participants are willing to pay a reasonable price premium for energy-efficient renovations — but only if the relevant information is transparent," said the report’s co-author, Steffen Zetzmann.

According to the report, rent premiums on average almost exactly reflect the cost of energy-efficient renovations. "Comparing the sales price premium with refurbishment costs suggests that refurbishment is financially viable," the report said. However, this is the case only if properties have a Bedarfsausweis – or energy certificate based on calculated performance – following a detailed technical assessment by an independent expert. If a Verbrauchsausweise – a consumption certificate, which is based on actual energy use in the past three years, and therefore depends on the tenants' lifestyles – is used, achievable sales price premiums are significantly lower.

"When price premiums roughly match the costs or savings of energy-efficient renovations, it is an encouraging result from an economic perspective," Zetzmann said. "Whether an investment will pay off, and whether a refurbishment will yield a positive return, depends on the specifics of each case, as well as on future energy costs," he added.

Researchers analysed sales and rental prices in 19 German cities between 2014 to 2024. They wrote that the results could help increase transparency and contribute to an increase in Germany's refurbishment rate, which currently stands at around one percent per year. The buildings sector accounts for around 30 percent of Germany's annual carbon emissions.