Energy renovation: Costs and interest are slowing down the market in Germany

Highlights: Only 0.7 percent of residential buildings in Germany will have had their facades, roofs or windows spruced up in 2023. A report commissioned by the Federal Ministry of Economics in 2022 stated that 1.7 to 1.9 percent of all residential buildings would have to be renovated for energy efficiency every year. The German Economic Institute (IW) also put the necessary renovation rate at around two percent. A rate of two percent means that it would take mathematically 50 years until all of the houses in the republic were thoroughly renovated.

New windows, insulated walls and roofs: energy-saving renovations are important for climate protection. But according to a new study, Germany is making little progress here. The federal government's goals are becoming more distant.

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Renovation of the building envelope: The new heating often has priority

Photo: Andreas Arnold / dpa

2023 was a lost year for the energy-efficient renovation of houses in Germany. This is the result of an evaluation by the market research company B+L Marktdaten from Bonn on behalf of the Federal Association for Energy-Efficient Building Envelopes (Buveg).

According to the calculations, it is estimated that only

0.7 percent

of residential buildings in Germany will have had their facades, roofs or windows spruced up in 2023. The rate is not only below the previous year's figure of 0.88 percent, it also falls well short of political goals.

A report commissioned by the Federal Ministry of Economics in 2022 stated that

1.7 to 1.9 percent

of all residential buildings would have to be renovated for energy efficiency every year so that the real estate stock in Germany can become climate-neutral by 2045. The German Economic Institute (IW) also put the necessary renovation rate at around

two percent

. A rate of two percent means that it would take mathematically 50 years until all of the houses in the republic were thoroughly renovated.

The Research Institute for Thermal Insulation (FIW) Munich calculates what this means in absolute numbers. Accordingly, around 270,000 residential units – i.e. apartments and single-family houses – were renovated on the building shell in 2023. In order to achieve the goals, around 460,000 residential units would have to be renovated in 2025 and even 730,000 in 2030, according to the FIW.

“The gap between actual and target in energy-efficient renovations is getting bigger and bigger,” says institute director Andreas Holm. “We run the risk of no longer being able to achieve the envisaged climate and efficiency goals.” Holm contributed to the 2022 report.

The study is not the first warning signal for the federal government. In the building sector in Germany, more greenhouse gases have been emitted in each of the past four years than the target paths set out in the Climate Protection Act. Many older houses only meet the standards of the lowest energy efficiency classes G and H. When sold, more energy-efficient properties have recently been significantly more stable in value than unrenovated properties.

The CO2 balance of buildings can be improved in two main ways: by replacing climate-damaging oil and gas heating systems, for example with electricity-powered heat pumps - and by making houses more energy efficient. The state promotes both paths, but the second has noticeably stalled.

For the evaluation, B+L determined how the markets for various materials developed over the past year. For example, this involved the sale of roof tiles and shingles, facades and windows - each for the renovation of existing single-family and multi-family houses, not for new construction. For this purpose, the authors interviewed, for example, roofers, window makers and painting companies, but also architects, dealers and industry experts; B+L also used public statistics.

The renovation of facades has fallen particularly sharply. The renovation rate in this segment was only

0.54 percent

. This means that 0.54 percent of all exterior walls of residential buildings in Germany were renovated last year - measured in terms of the number of square meters.

Similarly, B+L has a share of

0.72 percent for roofs and

1.23 percent

for windows

. This means that last year, window replacement was the most popular renovation measure in this country. It is easier to implement than facade or roof renovation.

Focus on heat pumps instead of insulation

The authors attribute the reluctance of property owners to “the various crises,” “particularly triggered by the war in Ukraine.” Not only have material prices and energy costs increased, but also interest rates for financing property purchases and renovations.

According to the study, this was different in the past: as energy prices increased, so did the demand for energy-saving renovations. “This time, however, the high inflation rates are leading to a decline in demand,” says B+L: in some cases households have to save, in others they would rather spend their money on a new heating or solar system.

The evaluation also states that, at least in people's perception, government funding focuses on building technology, for example on heat pumps or solar systems; However, the insulation has “moved out of the homeowners’ focus.”

For the current year, the authors predict that the renovation rate

will stagnate at

0.69 percent

. The assumption behind this is that fewer new residential buildings will be built this year. This means that fewer people move - and therefore less renovations are carried out, "since larger investments in energy-saving renovations are often made when moving," says B+L. Landlords of smaller properties often renovate after a tenant has moved out.

However, experts expect that the real estate market could pick up again over the course of the year due to rising rents and falling building interest rates. Maybe there will be more renovations again.

Energy renovation: Costs and interest are slowing down the market in Germany

Focus on heat pumps instead of insulation

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