Since a planned EU directive is intended to set a minimum standard for the energy efficiency of buildings, many German homeowners fear losses in the value of their existing buildings. In this article we discuss how justified the concerns about the EU's obligation to restructure are.
Background and content of the EU restructuring obligation
The revision of the EU directive on the energy efficiency of buildings is an essential prerequisite for achieving the goal of climate neutrality in Europe by 2050. The decarbonization of all buildings is a central aspect. After all, buildings not only produce the largest amount of CO2emitters in the EU; they also cause more than a third of greenhouse gas emissions from construction to demolition. They are also the largest energy consumers, accounting for 40 percent of total consumption, with around three quarters of buildings in the EU not being energy efficient.
According to a 2020 report by the EU Commission, renovating existing buildings could reduce the EU's total energy consumption by up to six percent and reduce CO2-Reduce emissions by around five percent. Against this background, the EU is focusing its measures to increase ecological sustainability primarily on buildings with the lowest energy efficiency values.
According to the EU Parliament's proposal, all residential buildings that belong to the lowest energy efficiency class G should be renovated to class E by 2030 and to class D by 2033. However, there is currently a lack of uniform EU energy classes and it remains unclear which buildings would fall into class G. In Germany they are enough Energy efficiency classes for houses for example, from A+ to H. The most serious concern for owners, however, is that they cannot afford the renovation costs. A large proportion of residential buildings in Germany do not meet the strict guidelines. But there have now been changes to the renovation obligation that have brought a sigh of relief in many places.
Average values instead of individual considerations
The EU's originally strict plans for reforming the Buildings Directive have been significantly toned down. Instead of relying on the previously established standards for individual buildings, the EU Commission, the Council and Parliament have now agreed on an alternative solution in which average targets are set for the entire real estate sector.
In each country, the building stock will in future be divided into two categories, with 43 percent with the highest energy consumption being considered the “worst buildings”. The aim is to achieve a targeted 55 percent of energy savings through renovations in this sector. It is not surprising that residential buildings remain the EU's focus, as they alone are responsible for around 40 percent of energy consumption and 36 percent of greenhouse gas emissions in Europe. The potential for savings is therefore considerable. However, the question of who should ultimately bear the costs remains unclear. The same applies to the conditions under which the renovations are to be carried out.
A process based on average values was suggested by, among others, Federal Construction Minister Klara Geywitz. It represents the neighborhood approach required by the housing industry as an alternative to the obligation to renovate individual houses. Accordingly, not a single building should have its CO2-Reduce emissions, but rather an entire district, for example a district. This means: “The well-insulated new buildings in the residential area ensure that the old buildings do not have to be renovated immediately because not every house is considered individually,” said the minister. She also suggests that renovations should first be carried out on a large scale and that public properties should be started instead of small houses. The potential for savings there is significantly greater.
Despite the new version of the EU renovation obligation, property owners cannot breathe a sigh of relief completely. Although buildings are no longer viewed individually and the real estate sector now has to achieve average targets, there remains a certain pressure to renovate.
There is a risk of loss of value in existing buildings that are poorly insulated
The fall in prices for buildings with low energy standards has recently been particularly noticeable in rural areas. The EU plans could further increase this effect, as many questions remain unanswered about the required renovations, which quickly makes properties with poor energy values unattractive for potential buyers. The rising interest rates for financing property purchases also contribute to the fact that many homeowners are comfortable with one Loss of value in real estate have to come to terms with it. So far, only a few buildings have been extensively renovated in order to achieve a better selling price.
In most cases, the costs of renovation measures significantly exceed the increase in the expected sales price. In order to achieve the minimum standard set by the EU, “Haus und Grund Deutschland” estimates renovation costs of 1,000 to 1,500 euros per square meter of living space. This means that a single-family home of around 100 square meters can quickly cost between 100,000 and 150,000 euros. Given the ongoing inflation in craft services and building materials, the costs for modernization work could even rise further in the next few months. Prospective buyers therefore currently prefer properties that already offer a certain minimum standard without additional renovation work. For owners of old buildings that are in need of renovation, this could mean that they will have to accept even greater losses in value in the future. The effect on the real estate sector will be greater the stricter the conditions of the EU directive are for property owners.
Protest from Germany for a long time
The owners' association Haus & Grund assumes that more than seven million homes and around 7.2 million existing apartments in Germany could be affected by the effects of the EU renovation obligation. According to the German Energy Agency Dena, around 60 percent of German residential buildings were built before the first thermal insulation regulations were introduced in 1979, and many of them have to date only been inadequately or not at all renovated for energy efficiency.
The individual costs for homeowners therefore depend heavily on the previous renovation status of their buildings. The state development bank KfW estimates the total costs for Germany at around 254 billion euros. Possible renovation measures could include replacing windows, heating systems or insulation. However, Federal Construction Minister Geywitz has questioned the usefulness of insulation measures, as not every house would automatically increase in value as a result of them, as she emphasized in an interview with the “Neue Osnabrücker Zeitung”.
Nevertheless, a low energy efficiency class could actually have a negative impact on the value, sale and rental of properties, as existing buildings that have been poorly renovated in terms of energy efficiency are already less attractive. If the EU directive is implemented into national law, owners could also face additional sanctions if they do not meet the required standards. This is especially true for owners of old buildings. However, implementation is the responsibility of the individual member states, which will probably act differently here. The draft law currently also provides for exceptions, including listed buildings or smaller structures of up to 50 square meters.
There has been protest against the plans from Germany for a long time. After the debates about the German heating law, homeowners are now faced with further financial burdens. Federal Construction Minister Klara Geywitz expressed concerns about the planned renovation obligation and considers it to be inappropriate. Similar to the Social Democrat, other German government representatives are also critical of the EU's proposals.
Traffic light changes opinion on EU restructuring obligation
The federal government had originally approved the commission's draft. However, the migration-related housing shortage and the growing popularity of the AfD have led to Germany, together with Italy, defused the EPBD draft. Christian Lindner (FDP) saw the original version as a threat to social peace. Klara Geywitz (SPD) rejected the general obligation to renovate by law as “unconstitutional”. This late rethinking is quite logical, considering that the EPBD Directive in its original form would have resulted in mass expropriations, which are in fundamental contradiction to the right to property according to Article 14 of the Basic Law and Article 17 of the Lisbon Treaty. For example, if a retired couple wants to spend their retirement years in their hard-earned home, no bank will grant them a loan to cover the renovation costs. Then there is the risk of an emergency sale and ultimately demolition.
Federal Construction Minister Klara Geywitz also warns about the potential burdens of mandatory renovation for homeowners. She emphasizes that the introduction of a renovation obligation could cause considerable stress, not only financially, but also in the practical implementation of the construction measures. This is particularly the case, for example, with listed old buildings. There are sometimes significant structural restrictions here, which can make renovation work significantly more difficult. The owners may be overwhelmed by the requirements.
Kai Warnecke, President of the Haus & Grund owners' association, also expresses concern about possible dramatic losses in value of older buildings. He warns of a “cost hammer” from Brussels if the European Parliament's radical position prevails in the further legislative process for the EU Buildings Directive. The real estate association Germany IVD fears negative effects on the real estate market in Germany.
What's next?
The plans have not yet been finally decided upon in the vote in the EU Parliament. A compromise still has to be found between the EU states and the European Parliament before the requirements can come into force. The negotiations usually last several months. If a compromise is reached, EU states will then have to implement the rules into national law.
The reform of the EU Buildings Directive also provides for specific dates by which buildings must reach the required energy standards in order to be climate neutral (net zero) by 2050. During the implementation into national law, possible sanctions for property owners who do not achieve these goals in a timely manner will also be discussed.
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