- Climate protection plan should not be allowed to endanger economic viability
- Tighter construction standards defeat the aim of building affordable housing
- Newest catalogue of measures makes property a less secure long-term investment
In Paris towards the end of 2015, Germany joined 194 other countries in committing itself to achieving greenhouse gas neutrality by 2015 and doing everything in its power to keep global warming below 2°C. As part of an ongoing consultative process, the Federal Ministry for the Environment, Nature Conservation, Building and Nuclear Safety (BMU) has just held its second forum for German municipalities and associations. This series of dialogues will end with the production and adoption of an ambitious Climate Protection Plan 2050. What does this mean for the real estate industry? Read on to find out more.
Only a small number of isolated voices in Germany would attempt to argue that climate protection is not one of the defining challenges of our age. The need to cut greenhouse gas emissions, and thereby limit global temperature increases, is something scientists and politicians of nearly all ideological and political persuasions have come to accept. Objectives and targets may have been pushed further into the future and commitments may have been watered down in order to secure as wide a consensus as possible, but it is clear that the way we live, work and build in Germany is going to have to change if the country is to meet its legally binding international commitments.
Reaction from the real estate industry
Of course, the federations, associations and bodies involved in the consultation process have included a number that represent the real estate industry. The reactions so far have generally followed the same pattern: climate protection is important and we want to play our part in achieving these targets, but not at any cost and not without some degree of protest. The measures will make it increasingly difficult to build affordable housing, which will lead to an ever higher housing cost burden for low- and middle-income tenants and potentially destroy any dreams normal Germans may have of owning property to provide them with security and peace of mind in their retirement.
According to Dr. Andreas Mattner, President of the ZIA German real estate federation, “A number of aspects pose not only significant risks to the industry, but also to private investors and savers. The costs of these measures will be felt along the entire real estate value chain, from developers at one end, to tenants at the other.”
Climate protection targets should not be allowed to endanger economic viability
It is being proposed that the subsidies and tax benefits targeted at supporting housing construction should be tied to the environmental friendliness of the building materials used. Only projects that use particularly sustainable materials would be eligible for government support in the form of tax benefits and/or zero- and low-interest loans.
The first major issue with this kind of regulation is that a large number of development projects depend on direct and indirect financial support. If this support is only available to the most sustainable of building projects, there are only two possible outcomes: the price of building new apartments will be pushed even higher (hitting developers and tenants) and the amount of housing being constructed will fall (again hitting developers and tenants). The main beneficiaries would be the developers of high-end apartments and condominiums, and the tenants and buyers who can afford them.
At a time like this, when more investment in housing is needed, this kind of regulation would achieve exactly the opposite and drive investors away.
Tighter construction standards defeat the aim of building affordable housing
The cost of building housing in Germany has already increased by around 28% since 2000. The last tightening of building energy standards alone increased building costs by up to 8%, which has the knock-on effect of pushing up condominium and house prices and driving rents in new apartments ever higher. So, on the one hand, there are not enough new apartments being completed to satisfy accelerating demand. On the other hand, the apartments that are being built are more expensive than ever before. Many would be forgiven for calling for a new cost-benefit analysis when they hear that the latest EnEV standards will deliver a carbon dioxide reduction of just under 0.02%.
The different iterations of the EnEV regulations have already delivered buildings with significantly higher energy efficiency standards than ever before, but plans for the next 15 years would push housing developers towards “Energy Plus Houses”—i.e. those that aren’t just energy-neutral, but actually produce a surplus of energy.
Real estate industry figures have not been slow to point out that the need for affordable housing is more pressing than the need for plus energy houses.
Newest catalogue of measures makes property a less secure long-term investment
As energy efficiency standards become stricter, the costs of maintaining property are also driven higher: heating systems have to be replaced with more energy-efficient models; a building’s envelope has to be fitted with more efficient insulating materials (which may cut down on heat energy loss, but are not always better for the environment in other ways); new windows and doors need to be fitted, and so on. Each of these measures would require substantial investment. Property owners who thought that their final mortgage payment was a thing of the past could be forced to take out new loans in order to finance refurbishments to bring their property into line with the latest energy efficiency standards. It remains to be seen whether banks would be prepared to change their lending practises in order to include older borrowers. It also remains to be seen what challenges would be mounted by homeowners if any future regulations are deemed to interfere too drastically with constitutional rights of ownership.
As Dr. Andreas Mattner recently said: “Home ownership has long been regarded as an important element of long-term financial planning.For example, owning your home offers security against spiralling rents. The idea of forced refurbishments, as contained in this catalogue of measures, jeopardises the ability of real estate to provide a secure retirement investment. This would have a sizeable impact on a large section of the German population.”
Should energy performance standards for buildings be kept as they are for now (at least until the housing market can cope with demand), or is more expensive housing a price we will have to pay to limit global temperature increases? Let us know what you think in the comments below.
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