12.5 million chances to go green

Looking at the age of the German housing stock shows that there is a serious need for substantial renovation. The older a residential property is, the more likely it is that fossil fuels are still being used for heating. In buildings completed before 1979, just one in 100 homes are heated with geothermal and other environmental or exhaust air heat systems. By contrast, in homes built after 2011, these are seen in almost every fourth building. In addition, older homes are generally poorly insulated or glazed so energy consumption remains high, and the energy efficiency class is often poor. Unfortunately, only 3% of the current housing stock was completed after 2011.

A survey by the estate agent McMakler in 2021 showed that just 10% of properties built before 1979 are classified in energy classes A, A+ or B. In residential properties built from 2010 onwards, the share is more than 70%. It therefore doesn't come as a surprise that the majority of German residential properties have an energy label of E or worse.

Percentage distribution of efficiency classes by energy demand of the German residential property stock (%)

Plans laid out by the European Commission call for homes to achieve at least an energy efficiency class D by 2033 on a scale that will be standardised at the EU level, ranging from A to G. Based on the current German scale (which ranges from A+ to H), this means that 11 million single and two-family houses as well as 1.5 million multi-family houses – i.e., 64% of the entire German housing stock – will have to be renovated within the next 10 years.

Green comes at a cost

Renovation activity has been limited so far. Renovations that resulted in energy savings of more than 60% were only conducted on an average of 0.1% of the German housing stock each year between 2012 and 2016. In the EU, the rate was 0.2%. For Germany to reach the EU's energy label target by 2033, the pace of green renovation would have to increase 65-fold

It is not only about pace but also about funding. Referring to a rule of thumb among experts, housing refurbishments could cost between 400 and 600 euro per square metre. Full modernisation of a flat would roughly cost 505 euro per square metre. Consequently, the cost of realising the European Commission's target of renovating the German housing stock to energy efficiency class D by 2033 could range from anywhere between 740 billion and 1 trillion euro.

Renovation can be quite economical and usually amortises after 11 to 17 years for house owners, or after about 14 years for flat owners. For most homeowners, however, it will initially mean that new financing will have to be taken out in order to be able to afford the financial challenges of the green transition. In Germany, more than half of all homeowners still have an outstanding loan, which may make it difficult to borrow more – especially in view of the current high financing costs and strict lending conditions