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The property sector is responsible for a third of Germany’s carbon emissions. Tapping into latent potential for CO2 savings and achieving national and international climate goals requires an urgent upgrade of residential housing stock. In their study, researchers at IW established that previous conditions, including the 2019 package of climate measures, were not enough to incentivize the investment required and achieve climate policy targets in the property sector. With its proposal, Deutsche Wohnen hopes to spark a discussion on how tangible progress can be made on climate action in the property sector.

“Often energy-related upgrades fail due to tenants’ concerns they will no longer be able to afford their own homes. Climate action and living costs shouldn’t be played off against each other – they should be made more socially responsible,” says Michael Zahn, Chief Executive Officer of Deutsche Wohnen SE on publication of the IW study. “We have made a proposal and asked IW to put it through its paces. The findings have encouraged us to move forward with our concept and develop it in dialogue with our stakeholders.”

Specifically, the concept calls for the modernization levy of up to 8% that would otherwise need to be funded by tenants to be partly covered by the Energy and Climate Fund (Energie- und Klimafonds, EKF). From 2021, the fund will receive additional resources from CO2 pricing in the transport and property sector in addition to European emissions trading.

More information on the concept: www.deutsche-wohnen.com/en/about-us/company/sustainability/climate-concept.

Core findings of the IW study on the Deutsche Wohnen concept

Investments

  • In order to achieve a virtually climate-neutral property portfolio by 2050, the refurbishment rate must increase from its current level of 1% to 2.5% per year. The necessary volume of investment amounts to around EUR 498billion by 2050.
  • Around 72% of all properties rented in Germany were built before 1978 and have plenty of potential for modernization. By 2050, in order to achieve climate targets, 1.04 million homes per year need an energy upgrade with insulation measures.

Lightening tenants’ load

  • The EKF funding sought for energy-related modernization solves the dilemma between climate protection and housing costs by making energy upgrades easier and avoiding direct extra costs for the tenant. The EKF model would lighten the load on residents considerably compared to existing tenancy law in the first few years following modernization. Tenants alone would save around EUR 123 billion by 2050, or around EUR 4 billion per year.
  • Huge rent rises and additional living costs would be avoided, which would benefit low-income households above all. Even with a rise in CO2 prices in the years to come, the model will ease the burden on tenants over the course of the EKF funding period.

Environmental impact

  • This wave of modernization would reduce CO2 emissions in the property sector from the current level of 121 million tonnes per year to 74 million tonnes in 2030 and 33 million tonnes in 2050.
  • Savings on environmental costs incurred by the avoidable impact of climate damage that would otherwise be created by generating energy from fossil fuels amount to EUR 179 billion or an average of EUR 6 billion per year.

Summary and recommendations

  • Funding from the EKF and income from CO2 pricing enables a long-term secure return for businesses and the public.
  • At the same time, the IW researchers indicate that full or partial implementation of the EKF-funded approach to energy-related modernization must be integrated into a coherent overall concept for the property sector to achieve its targets. This overall concept must combine a range of different measures in a sensible way and offer key players a reliable framework for investment.
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