What is the cost of the Renovation wave for social hosing providers in Europe?

Housing Europe members’ investment needs and opportunities to finance the Renovation Wave.

In our September episode of Housing Exchanges, the Housing Europe webinar miniseries organised for our members, we came together to discuss the funding gap that different public, cooperative and social housing providers face in decarbonising their building stock and the potential impact that the ‘Renovation Wave’ will have on the affordability of housing, retrofitting and new construction.

Social, public and cooperative housing providers are front-runners in the transition to an energy-neutral building stock. They operate on the nexus of ‘social’ and ‘green’ policies and are therefore key actors for making the ‘Renovation Wave’ a success.

The raison d’être for social landlords remains offering housing which is affordable for those on low and moderate incomes. This implies that at least part of the investment in upgrading the energy performance of buildings cannot be earned back by increasing rents. This funding gap poses a challenge for the financial position of Housing Europe members and their ability to invest in decarbonised homes.

In the Netherlands, AEDES (the Housing Association for Housing Corporations) conducted a study together with the national government to analyse whether social housing providers have sufficient financial means available to build, improve and make enough homes sustainable in order to meet their ambitions. This study reported that by 2035 the funding gap in this regard will be € 30bn.

This is reminiscent of the experience of many British social housing providers back in 2012. The ‘UK Green Deal’ shows that the Renovation Wave may eventually become an overly complicated process leading to poor quality work.

In May 2020, the political parties in Denmark agreed to allocate DKK 30bn (€ 4bn) from the National Building Fund (NBF) to renovation of social housing during the period 2020-2026. DKK 18.4bn (€ 2.4bn) will be used to renovate the 72,000 social housing dwellings already in the fund's support queue ‒ many tenants have waited for up to 10 years for renovations, since the annual need for renovations has consistently been larger than the annual financial resources allocated by the public authorities. B.L (the National Housing Federation in Denmark) played an essential role in the negotiations of the scheme.The remaining DKK 11.6bn (€ 1.5bn) will serve future renovations until 2026, with a focus on the green transition.

In Austria, most homes were built before 1980 and a total of 1 million homes are in need of renovation or re-construction (42%). Of the social rental stock owned by the members of GBV (the Austrian Federation of Limited-Profit Housing Associations), 96% of the buildings have already been renovated, re-built or are only newly constructed. Renovation is a key part of GBV’s business model thanks to GBV’s Renovation Fund (EVB: Erhaltungs- und Verbesserungsbeitrag) where part of tenants’ rent goes into a deposit fund dedicated to building renovation. The fund is allocated depending on the age of the building and it prevents rent increases due to renovation.

In early September, the French Government presented their National Recovery Plan 2021-2023, a mechanism which has to be adopted by all EU member States by October 2020. The French Recovery Plan involves € 100bn to support green policy, competitivity and social cohesion - 40% of which will be financed by the European Union.

According to VVH estimations on the investment need for renovation for 2020-2024 in Flanders, € 970mn would be needed for the replacement construction of 6,853 homes and €1.5bn for energy renovation works on 33,110 homes. This amounts for a total of € 2.7bn together with other smaller renovation works. One of the solutions that Flemish social housing is putting forward to bridge the gap between social rents and renovation costs is the so-called ‘Split Incentive’ model, a self-financing mechanism to become more independent from public subsidies.

The draft of the Renovation Wave will be published on the 14th of October, representing the flagship of the ‘EU Green Deal’. The European Commission has increasingly shown its interest in the renovation of social housing in this regard.

Overall, the Renovation Wave is being closely watched by many sectors, with a strong push for more obligations (renovation rates and standards) in recognition of the key role that buildings have to play in meeting the climate and environmental goals. However, little consideration has been given to the social impact and the burden that this might have on some sections of society.

Investment in social housing can achieve many goals: it can generate jobs, it can address fuel poverty, as well as meeting climate goals and the sector is willing partner in this, fully aware of its responsibilities.

The European Commission as a public entity has to consider both the social and environmental impact of its work.

We are still in a situation where long-term public funding is needed for the renovation of the building stock and to play a counter-cyclical role for the economy.