Heating transition and energy costs are transforming rural areas into redevelopment deserts

Ever since the Ukraine war raised concerns about rising energy prices and the Economics Ministry led by Robert Habeck (Green Party) has been converting Germany from an oil and gas heating country to a heat pump and district heating nation, some real estate has developed from safe investments to problematic cases: the prices of poorly insulated houses are falling because whose owners will have to put a lot of money into heating costs or renovations in the future. Even old buildings in prime metropolitan locations sometimes find hardly any prospective buyers, report realtors. Rural areas are in danger of becoming a redevelopment desert.

Up to half the value of the unrenovated apartment

The problem begins with the growing impact of energy efficiency on a property’s value. In the past, heating costs hardly affected the value of a house, real estate agents report. Especially in old buildings, high ceilings, beautiful floors and lavish stairwells compensate for high energy expenditure. Now buyers are rethinking.

Poorly insulated houses lose dozens of percent in value: In metropolitan areas and large cities, the prices of properties with energy efficiency class H are around a third lower than with class A. In rural areas it is around half. In the first half of 2021, the discount was between five and a good 30 percent.

Buildings with energy classes G and H are currently finding “practically no buyers”, quoted the Handelsblatt Roman Heidrich, Director of Valuations and Transactions at international real estate services firm Jones Lang LaSalle. “Anyone who buys now deducts the foreseeable energy-related renovation costs one-to-one from the asking price – and it can quickly add up to five-digit sums.”

Losses in value hit over 20 million properties

These losses in value affect the majority of German property owners:

• Almost a fifth of all 26 million properties in Germany belong to energy efficiency class H.
• Three quarters of all properties fall into the five worst energy efficiency classes, which are worth at least a quarter less than class A everywhere.
• Only around five percent of all properties are in class A or A+.

More than 20 million properties in Germany are tearing holes in their owners’ balance sheets due to the increased importance of energy-related renovations. So far the beginning of the problem.

Location as the most important criterion and the threat of redevelopment deserts

This problem burdens all homeowners because, despite the increasing importance of the energy class, the location remains the most important criterion in property valuation. In very attractive locations, a poorly renovated property keeps its value much more stable than a well renovated property in an unattractive location, says Mathias Wahsenak, spokesman for the management of LBS Immobilien in Potsdam

The renovation of poorly insulated houses is therefore much more worthwhile in metropolises and large cities than in rural areas.

• In Munich, Hamburg and Berlin, the market offers owners enough incentives to renovate real estate. Anyone who catapults their house from energy efficiency class H to class A will receive a value that justifies the investment through the increase in value. Tenants can also look forward to low heating costs here.
• In the country, especially in areas with weak demand anyway, renovation costs the same as in the city, but increases the absolute value of the property significantly less. This threatens to discourage many owners from investing. If a detached house is only worth 100,000 euros – not uncommon in the East German countryside – a complete renovation is almost never worthwhile. Apartment buildings suffer from the same dilemma.

Country houses already have significantly worse insulation than all other areas. This difference threatens to increase. At worst, this dilemma devalues ​​areas with low real estate prices into redevelopment deserts, where owners delay repairs for as long as possible or sell rather than invest. When this happens, the gap between attractive city apartments and scorned country properties widens.

The federal government can counteract this with funding

The federal government could counteract this development by providing more funding for refurbishment in rural areas. If there are two identical houses, one in Munich and one in a Thuringian village, the Munich owner earns more from the repair than the Thuringian, despite the same renovation costs. However, both make the same contribution to reducing CO2.

Compensating the Thuringian by means of a higher subsidy could well be considered more social support, like the Greens and SPD they demand. So far, however, both parties have insisted on subsidizing low-income owners more, regardless of the situation.

Die FDP demands that no one should lose their home as a result of the obligation to refurbish it. This requirement most likely includes the disadvantages of rural property owners: If politicians don’t want to drive anyone out of their own four walls, they can hardly force them to make a loss of tens of thousands of euros.