While our own Government continues to tentatively encourage homeowners to carry out energy-efficient measures, they will no doubt be eagerly watching what is happening across the channel to European house prices.
To that end, we are starting to see the impact of energy efficiency legislation play out across Europe’s housing markets.
The German Building Energy Act (GEG), for example, which came into effect in January, stipulates all new buildings located in new developments must be heated by at least 65% renewable energy.
In existing buildings and new buildings outside of development areas, the requirement will come in from 2026 or 2028, depending on the size of the municipality, with no more fossil fuels at all allowed for heating from 2045.
The measures are being attributed to some of the recent house price falls in lower-rated properties. According to research from ING, the price of a home with an energy label H was on average 45% lower than that of a residential property with an A+ energy label in 2023. In 2022, the difference was 36%. Even those with an energy label B were worth 28% less in 2023, it says.
It is anticipating a greater widening of the house price gap occurring as buyers favour energy-efficient, ready-made properties instead of the cost and time taken to retrofit.
Affordability constraints
Given the EU Commission is aiming for all residential properties to carry an energy label of D by 2033, this equates to 64% of the entire German housing stock needing to be renovated within the next 10 years.
Of course, there are two schools of thinking. While Germans have decided it may be easier to buy ready-made, in Belgium, it appears to be a different matter. While Belgians were once of a similar mindset as the Germans, rising interest rates, house price falls for energy-inefficient homes and affordability constraints are leading to an increasing number of people being open to buying a home in need of renovation in Belgium, ING analysis shows.
While a year ago, 49% of respondents said a poor Energy Performance Certificate (EPC) score was a breaking point when buying a house, only 38% do today.
Energy targets in Belgium are set at a regional level. ING highlights that since the beginning of 2023, in Flanders for example – the largest region accounting for about 63% of the number of real estate transactions – a renovation obligation has been in place where buyers of a home with an EPC score of E or F are obliged to renovate it to at least label D within five years.
This, it says, has led to energy-efficient homes rising in price much faster than their inefficient counterparts. Those with a good EPC score (A or B) were 1.5% more expensive on average in 2023, while the average prices of homes with a poor EPC score (E or F) fell by 1.6%. It also expects this price difference based on energy efficiency to widen in the coming years.
Up its sleeve
Meanwhile, here in the UK, January saw twelve projects awarded a slice of £16m to fund green initiatives through the Government’s Green Home Finance Accelerator (GHFA).
One such firm was mortgage lender, Perenna, which has received £888k to develop a long-term, fixed-rate ‘green mortgage’; designed to incentivise customers to retrofit their homes in exchange for a reduced rate.
Perenna, which entered the mortgage market last November, already offers some innovative niches, such as fixed-rate terms between 20 to 40 years and up to six times a borrower’s income, so it will be interesting to see what it has up its sleeve for the green mortgage market.
Other projects which received funding include those for green loans for homeowners and landlords and a solar panel subscription service
As the situation in countries such as Germany and Belgium highlights, homeowners often feel compelled to act only when definitive legislation is in place. Hopefully, the UK Government can take note and determine the best way to introduce workable measures to achieve the UK’s net zero targets.
https://think.ing.com/articles/green-transition-takes-hold-of-germanys-property-market/
https://think.ing.com/articles/strong-rebound-in-belgian-property-market-in-2024-unlikely/
https://www.gov.uk/government/news/families-to-save-on-bills-through-new-energy-saving-trials
Simon Jackson is managing director at SDL Surveying
First published with Estate Agent Today