'No chance' of climate goals being met without major new housebuilding

The only way Germany is going to come close to meeting its ambitious climate targets over the coming years is by embarking on a programme of large-scale new construction supported. by private capital, according to a comprehensive new study produced by Swiss asset manager and developer Empira, which calls for "more honesty" in the whole climate debate.

The research compares the energy footprint of both new and existing buildings in Germany and Europe, and concludes that there is no chance of the official goals being met unless there is a lot more new housing built by the private sector.

The EU-ordained 'wave of renovation' envisages a reduction between 1990 and 2030 of CO2 pollution of at least 65%, to which most political parties in Germany have subscribed, and have committed to a programme of state-subsidised modernisation under the general banner of climate protection.

However, the study's author, Prof. Steffen Metzner, calls for a complete re-think of the "primacy of building preservation", which grossly over-estimates the amount of energy that can be saved through the refurbishment of existing buildings.

Germany's existing housing stock, in particular, is much older on average than the housing stock across the EU, with only 13.8% of the nation's residential buildings new or completely refurbished. 

The study demonstrates that, even with a complete refurbishment, only 24% on average of energy can be saved on a building compared to unrefurbished, while on a new building savings of up to 41% can be achieved. Firstly, it should be questioned far more often "whether energy modernisation, for example of qualitatively simple buildings from the 1950s and 60s, is actually desirable." And secondly, whether the option of demolition and new-build should not be considered much more often.

The study also examines the physical make-up of the German market, including factors such as the building type (single-family, two-family, and multi-family homes), new construction activity, climate, and the use of space in terms of their impact on energy demand.

According to author Prof. Metzner, who is also the head of research at Empira, the role of private capital will be critical. “New residential construction has substantially greater potential for conserving energy and cutting emissions than renovating existing buildings. However, Germany continues to trail its ambitions – including compared to other European countries. For Germany to catch up, the considerable potential especially of larger professional real estate companies equipped with extensive private capital must be tapped. These will continue to play by far the most important role in residential construction in Germany in the future,” he says.

In other words, Germany can only achieve its climate targets in the building sector if it relies on a lot of energy-efficient new construction by private investors. The target rate can "never be achieved" through renovation, even with public funds, as the study demonstrates very persuasively.

While energy consumption in German industry and commerce has fallen by 14.9% and 22.6% respectively since 1990, it has only fallen by 2.6% in the private housing sector. The substance of most building is simply not very energy-efficient when it comes to heat. 

An unrenovated building in Germany consumes an average of 151 kWh/m2 of heating energy for space and water heating each year, with the unrenovated building segment alone accounting for 36% of the German residential building stock. 

Partially refurbished buildings - defined by the implementation of at least one and at most three energy-saving measures - which account for 50% of the stock, consumed only 5% less, at 143 kWh/sqm. Fully renovated residential properties brought about a reduction in consumption of up to 24%. to 115 kWh/sqm. 

However, the best results were achieved by new buildings built according to modern technical standards. The study includes properties built from 2002 onwards, with an average heating energy consumption of 89 kWh/sqm , which make up 59% of the 'unrenovated' buldings. 

Still, fully refurbished and newly constructed residential buildings together only constitute 13.8% of the building stock in Germany. By contrast, 49% of Germany's housing stock was built between 1945 and 1979, a share of 49% compared to the EU average of 42%. The share of buildings constructed from 1980 onwards is 26%, compared to 46% in Finland, for example.

Compared with other EU countries, Germany performs poorly in building new housing (3.47 dwelling units/1,000 inhabitants in 2018). For instance, in relation to the population, Austria built much more housing than Germany (6.48 units per 1,000 inhabitants) in the past few years. Belgium, France, and Poland also build more housing units, while the Netherlands is comparable to Germany in construction activity. At the slower end, the Czech Republic and Italy (1.35 units/1,000 inhabitants) trail the other EU countries by some margin.

Geographically, too, there are big differences in the location of most new construction, with most new housing being constructed primarily in the in-demand major cities. In Frankfurt am Main, around 8% of the housing stock was newly built in the period from 2011 to 2019 alone. Munich’s rate is equally high at almost 8%, while Hamburg added more than 6% to its housing stock. Cologne, Stuttgart, Berlin, and Düsseldorf each have new construction rates of between 4% and 5%. 

These rates highlight the increased attraction of Germany's big cities for creating new jobs, providing new housing, and improving the quality and sustainability of the housing stock. But it has still not prevented a housing shortage in the most popular population centres.

And the figures in the study merit closer scrutiny based on the different building types predominant in the individual German states, with their differing population and demographic structures, which lead to big differences in average energy consumption depending on building 'type'.

For example, the significant divergence in the share of one-, two-, and multi-family buildings respectively explains Brandenburg’s energy consumption of 35 gigajoules (GJ) per inhabitant, which is nearly double that of Berlin (20 GJ/inhabitant). Multi-family properties use 9.6% less heating energy and 42.0% less electricity than one- and two-family buildings. Just slightly over 40% of the housing stock in Berlin consists of one- and two-family buildings, whereas this category makes up more than 80% of the housing stock in Brandenburg.

Nonetheless, the overall take-home message of the study is unequivocal. Lahcen Knapp, the chairman of Empira, said of the findings, “The numbers are crystal clear. Germany and Europe urgently need to build more new housing more quickly, particularly in the major cities and their immediate vicinity. The public sector must pick up the pace in designating more land for construction. Institutional investors increasingly value the positive climate and energy footprint of residential development projects explicitly in addition to their attractive risk-return profile.” 

The Zug-based Empira currently has about €4.2 billion of assets under management, scheduled to increase to nearly €6bn over the coming year. Its main focus is on residential and office properties, equity and debt financing and its own construction and project development.