Last year, greenhouse gas emissions in the building sector fell by almost 3.5 million tons, as the German government’s climate protection report shows. Compared to the base year 1990, emissions even fell by 41 percent, which corresponds to almost 500 million tons. Nevertheless, the real estate sector is still a major contributor to global warming. In 2020 alone, buildings in Germany blew 120 million tons of greenhouse gases into the air.
This means that every eighth ton of climate pests that were directly emitted in Germany can be traced back to the building sector. According to the Climate Protection Act, the value should drop by 67 million tons by 2030. After the 43 percent reduction achieved within 30 years, there should now be a further 55 percent reduction in a much shorter time – an enormous challenge both technically and financially.
One thing is clear: in the interests of climate protection, the building stock in Germany must be completely renovated. This applies above all to the thermal insulation and heating systems. Because around two thirds of direct emissions result from the provision of heat. While new buildings are usually very energy-efficient and therefore resource-saving, older houses often look very different. More than every second building in Germany was erected before 1978, i.e. before the first thermal insulation ordinance came into force.
So it is good if the share of renovations in total construction activity increases and, according to industry estimates, can increase to up to 50 percent by 2024. At the same time, the renovation rate is still too low to achieve the climate targets. So what to do
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There is no question that financial incentives and reliable political framework conditions can make a significant contribution to increasing the pace of renovation. Banks are challenged here, for example through interest rate advantages on loans for renovations or specially designed financial products. But politics, too, can and should do more.
The coalition has welcomed goals
If you take the coalition agreement as a yardstick, the new federal government has set itself ambitious and generally welcome goals. 400,000 new apartments are to be built every year in order to calm the tense situation on the market in many places. In addition, the six pages that the 178-page coalition agreement devotes to the topic include measures for affordable construction and more digitization. One reads the words “sustainable” and “climate protection” particularly often.
If implemented consistently, many of the instruments agreed by the traffic light coalition can help to accelerate the renovation of the buildings – for example by reducing bureaucracy or strengthening so-called serial construction. Last but not least, it is to be welcomed that there is now, for the first time in 23 years, an independent Ministry for Building and Housing. This corresponds to the eminent economic and socio-political dimension of the topic.
Precisely because the need for investment is so great, it will be important to make all climate protection measures practical and financially viable. Only then will they be implemented across the board. The main focus should be on actually saving emissions. In the medium term, it makes sense to orient the energy saving law, i.e. regulations such as the Energy Saving Act, the Energy Saving Ordinance and the Renewable Energies Heat Act, on the CO2 emissions of buildings. Which way is then best suited to achieve the savings targets depends on several factors.
Because the building stock in Germany is very different, starting with the real estate situation over the existing building fabric up to the actual use of the living space. A “one size fits all” solution is therefore not possible when it comes to climate protection either. A blanket solar obligation for commercial properties, for example, which already exists in some federal states and which is also found in a weakened form in the coalition agreement, makes little sense. If even the associations of the solar industry speak out against it and instead recommend targeted funding through financial incentives, Social Democrats, Greens and Liberals should not ignore this.
There is no one golden solution
In terms of thermal insulation, a distinction must be made between residential and commercial buildings. In contrast to apartments, greenhouse gas emissions from businesses are mainly caused by the electricity required for ventilation, cooling, lighting and other building technology. So just looking at the building envelope would not be expedient.
Both examples show that there is no such thing as “one golden solution”. In order to reduce the greenhouse gas emissions of the building sector decisively, it will be important for the concrete implementation that politicians, scientists and practitioners stay in close contact and shape the concrete path. Especially since there is a conflict of goals between consistent climate protection on the one hand and possibly sharply rising housing costs on the other, particularly when it comes to the energetic renovation of residential buildings.
Real estate is a particularly capital-intensive and at the same time long-lasting economic and investment good. When investing in climate-friendly real estate, the role of banks can therefore go far beyond providing the necessary financial resources. Weighing up and managing risks and opportunities – the core competence of banks – is of great importance here.
After all, climate change and other ecological challenges are also changing the risk position of real estate, just think of the destroyed infrastructure and the severely damaged residential buildings that are temporarily or even permanently no longer habitable after the flood disaster in the Ahr valley and the surrounding regions.
What about the stability of real estate investments?
But what happens to properties that do not meet the stricter energetic standards? What happens if they can no longer be rented because of this, or if their owners can no longer find financing due to stricter lending requirements? Are there any threats of large-scale stranded assets emerging here? And what consequences would that, in turn, have for the stability of real estate investments, which have so far been an important building block for reliable income, not least for insurance companies, pension funds and other old-age provision institutions – especially in view of the low interest rate environment?
All of this shows: When it comes to real estate or, more generally, to building and living, the lives of many people are influenced, if not even shaped. The effects and interactions are diverse. Because that is the case, the six or more pages of the coalition agreement should now be put into practice as quickly as possible – and many actors have to pull together in the same direction.
The author: Sascha Klaus is CEO of the real estate financier Berlin Hyp.
More: The seven greatest challenges in building and housing policy