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Making the Dutch housing stock more sustainableMaking the Dutch housing stock more sustainable
Sustainability and energy saving is becoming increasingly important for consumers and Dutch mortgage investors. This is fueled by the increasingly alarming messages related to the climate crises but especially now that energy prices are rapidly increasing. In this article we review the options that consumers have to make their homes more sustainable and all the ways in which the government and lender are promoting sustaiability.
Climate change is becoming an increasingly urgent problem. Temperatures are increasing more quickly than expected and many countries are facing extreme weather conditions more frequently. Also in The Netherlands, we are experiencing more extreme weather events due to climate change, like the 2021 floodings in Limburg [1].
More research reports underline the urgency of the climate problems that we are facing. In the most recent report from the Intergovernmental Panel on Climate Change (IPCC), they argue that the goal to limit the temperature increase to 1.5 degrees Celsius is getting out of sight if no immediate and far-reaching measures are taken [2]. This contributes to the awareness of consumers and businesses that we all need to take measures to reach these goals and protect the planet. Considering that, investors and mortgage lenders are also looking to make their portfolio more sustainable. In this article, we focus on the measures that consumers have available to make their homes more sustainable, what investors are doing to facilitate this and how many greenhouse gas emissions we can prevent by making the Dutch housing stock more sustainable.
More sustainable housing stock
Multiple measures are being taken to promote homeowners to make their homes more energy-efficient. For example, the Dutch Climate Agreement stipulates that by 2050, seven million homes should no longer make use of natural gas for heating. An intermediate goal on the way to the 2050 goal is to have made one and a half million existing homes more sustainable by 2030.
To reach these goals, the government provides favorable subsidy schemes such as:
- Homeowners energy-saving subsidy (SEEH) [3]. This subsidy can be used to request advice on how to make the property more energy-efficient, isolate the property, and get advice on charging stations for electric vehicles (currently only available for owner's associations, housing associations, and housing cooperatives).
- National Energy Savings Fund [4]. The fund provides energy-saving loans of up to €65.000 to private homeowners and apartment owners. The interest rate is usually tax-deductible.
Historically, other subsidies have also been available, such as the Sustainable Energy Investment Subsidy (ISDE) [5].
In addition to these subsidies, home buyers can borrow additional money for energy-saving measures when taking out a mortgage, such as:
- Increased maximum LTV. Usually, a maximum LTV of 100% applies but in case a borrower wants to finance energy-saving measures, an additional 6% of the collateral value can be borrowed. This 6% does need to be used to purchase the energy-saving measures.
- Increased maximum LTI. In case you purchase an energy-efficient home or you plan to take energy-saving measures, you are allowed to borrow an additional €9,000.-. In case the house has an energy performance coefficient smaller than or equal to zero, an additional €15,000.- can be borrowed. If you purchase a home that produces at least as much energy in a year as it uses (NulopdeMeter-woning), a borrower is allowed to borrow an additional €25,000.-. These measures only apply if the combined income of the borrowers is more than €33,000.- per year.
The rationale for allowing a higher LTI for borrowers in case of energy-saving measures is that the additional loan costs are offset by the lower energy costs. This effect has become much stronger over the past months with energy prices skyrocketing. Consider the following calculation example:
- Collateral: corner house, not isolated (label G)
- Mortgage rate: 4.00%
- €9,000.- used to isolate:
- the roof (€4,500.-), saves 800 m3 per year [6]
- the walls (€2,400.-), saves 800 m3 per year [7]
- the floor (€1,500.-), saves 260m3 per year [8]
- the gas price is €2.32 per m3 as of June 20th, 2022 [9].
Based on this pricing, the annual cost for the additional loan amount is €515.61. The gas that is saved on an annual basis has a total value of €4,315.20. Given the current gas prices, this is extremely profitable for borrowers, while at the same time saving 3,348 kg of CO2 emissions per year (1.8kg of CO2 emissions per m3 gas) [10]. For a more conservative scenario, we use the long-term gas price expectation from the Planning office for the living environment (Planbureau voor de leefomgeving) of €1.00 per m3. This results in an annual cost saving of €1,860.00 and a net saving of €1,344.39. That means that even at long-term prices, financing energy-saving measures using a further advance on your mortgage loan is very attractive. It should be noted that this is a very extreme scenario for a G-label house, which has the most to gain. For houses with a higher energy label, the saving will be less. In addition to that, it is likely that a combination of the energy-saving measures, as is assumed above, does not result in the sum of the savings for each individual energy-saving measure.
In the situation where a property with a B-label is upgraded to an energy-neutral property, PBL concluded that it is not possible to achieve the same energy savings in terms of cost as the financing costs of the measures [11]. In that case, monthly expenses will go up for consumers. As this does not promote the purchase of energy-saving measures, this could potentially harm the energy savings goals. It should be noted that this study was performed before the recent gas price increases. However, it is unclear how long these high energy prices will persist.
In addition to saving on energy expenses, investments in sustainability can also increase the value of the property and lower the selling time of a property [12]. Research from Calcasa has shown that similar houses with a higher energy label generate a 4% increase in house prices [13]. However, it should be noted that the state of the house is not accounted for in this analysis. It is likely that houses with a low energy label generally are less well maintained which could also explain part of the value difference.
Mortgage rate discounts
Investors are increasingly looking to report on and lower the carbon footprint of their portfolios. Eighteen Dutch financials have joined forces in the Partnership for Carbon Accounting Financials (PCAF) to develop a standardized method for determining the CO2 emissions of their investment portfolio [14]. This initiative was started in 2015 during the climate summit in Paris. Since then, regulation concerning sustainability has been released in the form of the Sustainable Finance Disclosure Regulation (SFDR) which is part of the Action Plan for Financing Sustainable Growth of the European Commission. The SFDR focuses on improving the provision of information to investors relating to the effects of the investment policy on sustainability.
In the Dutch mortgage market, we see more investors implementing policies to improve the carbon footprint of their portfolio, for example by offering rate discounts for homes with a high energy label, or when a borrower improves the energy label of the property after purchasing the house. Since September 2016, the number of products in the market that offer these kinds of sustainability discounts has increased to over 20 products in the market as of June 2022, see Figure 1 below.
Figure 1: Number of active products in the Dutch mortgage market that offers any form of discount for sustainable or energy-efficient homes or products that exclude properties that are considered non-sustainable or not energy efficient. Source: Hypotheekbond, LoanClear, June 2022
As a percentage of the total number of products in the market, as of June 2022, about 23% of all products have some form of discount or special criteria for energy sustainable housing. Lenders that offer these kinds of sustainability discounts offer up to 35 bps rate discount for sustainable houses versus houses with a low energy label.
Conclusion
Given the situation with rapidly increasing energy prices, investments in energy-saving measures are becoming more and more attractive, especially given that the government and lenders are actively rewarding sustainability initiatives. For the environment, the high energy prices can therefore be a good thing as this might accelerate the need for energy-saving measures and sustainable energy sources. However, to reach the energy-saving goals, also the higher energy label houses will have to become more sustainable. For this group, investments in energy-saving measures are much less attractive. To promote this, either more subsidy schemes will have to be put in place or larger scale projects such as sustainable heating networks should make these investments more cost-effective. After all, the housing stock is responsible for 15% of the greenhouse gas emissions in The Netherlands [15] (excluding electricity usage), which is a significant share. So the potential gains in this sector are very large as well.
References
[4] - https://www.warmtefonds.nl/
[5] - https://www.rvo.nl/subsidies-financiering/isde/woningeigenaren
[6] - https://www.milieucentraal.nl/energie-besparen/isoleren-en-besparen/dakisolatie/
[7] - https://www.milieucentraal.nl/energie-besparen/isoleren-en-besparen/spouwmuurisolatie/
[8] - https://www.milieucentraal.nl/energie-besparen/isoleren-en-besparen/vloerisolatie/
[9] - https://www.overstappen.nl/energie/gasprijzen/ (last update as of Monday june 20th 2022)
[10] - https://vandebron.nl/blog/co2-compensatie-hoezo-eigenlijk
[11] - Schilder, F. & van der Staak, M. (2020). Woonlastenneutraal koopwoningen verduurzamen – Verkenning van de effecten van beleids- en financieringsinstrumenten
[12] - Aydin, E. & Brounen, D. (2016). Het Debuutjaar van het Definitieve Energielabelonder de Loep
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