Do housing rental and sales markets incentivise energy-efficient retrofitting of western Germany’s post-war apartments? Challenges for property owners, tenants, and policymakers

A post-World War 2 building boom in western Germany (the original Bundesrepublik) produced a cohort of some 8 million apartments, built in 1946–1979, that are relatively homogeneous in design and materials. On average, these apartments are very energy-inefficient, consuming around 147 kWh of heating energy per square meter of floor area per year (kWh/m(2)/y). Retrofitting them to about 50 kWh/m(2)/y is necessary to meet Germany’s climate goals. Considerable skill and infrastructure have developed to attempt to achieve this, but it is expensive. This study investigates whether sales and rental markets disincentivise property owners from retrofitting these apartments to high energy efficiency standards. Data from sales and rental advertisements in 2019–2021 in Germany’s largest online housing advertisement portal, Immoscout24, were used to estimate market sales and rental premiums for energy efficiency in these apartments. For property owners who retrofit apartments then sell them, sales premiums for energy efficiency generally fail to compensate for the retrofit costs, unless the renovation is subsidised. Meanwhile, for purchasers, the reduction in energy costs due to higher energy efficiency does not compensate for the higher purchase price. Likewise, for landlords/landladies who retrofit apartments then rent them out, the rental premiums due to higher energy efficiency are nowhere near sufficient to compensate for the retrofit costs. Tenants, however, can often offset the rental premium through energy savings. In all four cases, there is regional variation. Based on a detailed investigation of this market for energy efficiency, this study suggests specific policy interventions to compensate for these market anomalies.