BPIE’s Climate Conversations series aims to shine light on a diverse range of perspectives on buildings and climate policies, engaging stakeholders from various backgrounds. We seek to identify solutions and blind spots to key challenges related to reducing the climate impact of buildings and to a just transition to a climate-neutral society.

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In this Climate Conversation, BPIE connected with Barbara Steenbergen, Head of the EU liaison office at IUT, the International Union of Tenants.  The aim of the discussion was to dig into some of the common – and less common – questions on building renovation and social justice from the perspective of those who are not in the driver’s seat when it comes to renovation investments – renters. In this interview, IUT suggests ways how the EED and EPBD can better contribute to housing cost neutrality, how Minimum Energy Performance Standards can be designed in a socially just (and climate ambitious) way, tenure-neutral housing policies and questions of affordability.

Oliver: As the International Union of Tenants, you must have a wealth of knowledge on the split-incentives between landlord and tenant on building renovation, which we know can take different forms depending on the building type, ownership structure and geography. Can you explain the specificities of what the ‘landlord-tenant dilemma’ looks like for residential buildings in Europe? Are there (geographical) areas where the challenge to renovate for this reason is greater than others? And what are some best practices you have seen that help overcome this issue of split incentives? Can they be easily replicated?

Barbara: To start with the most important thing: the energy renovation of the building stock is a task for society as a whole. This means that not only landlords and tenants have a responsibility, but also the state and the EU, which have declared climate protection to be one of their core tasks. For this reason, the state cannot simply leave the renovation to the contractual parties, but must itself actively create the conditions that make this task for society as a whole possible in a socially acceptable and just way.

Energy renovation of the building stock is a task for society as a whole.

Let’s start with the “split incentive”. The common and unfortunately wrong reading of this term is – the landlord invests, the tenant benefits. Why is this wrong? In 21 European countries, the costs of renovation can be passed on to the tenants. This makes it clear that compensation must be created to protect low-income tenant households from being evicted after the renovation.

In Sweden, energy costs are already included in the rent. This model is a massive incentive for landlords to find affordable and effective solutions for more energy efficiency. We think this model is transferable to other countries and a good approach to tackle the split incentives problem.

The “iron law of the housing market” states that low-income and vulnerable households live in dilapidated, unhealthy and energy inefficient housing, while rich households can afford to live in the best buildings. However, we see in the current climate policy of the EU and the member states that no one has the courage to break this iron law and is seriously representing the voice of poor households. This requires legislation that equalizes the different market power between tenants and landlords, not political declamations.

An example at EU level- the EU Commission established the “Energy Poverty and Vulnerable Consumers Coordination Group” in April 2022, but voting members are only the authorities of the member states. Tenants and landlords are excluded and may only participate as observers. This is not how fair and responsible policy at the playing field level works! The 3 key players in climate protection in the building sector should sit at the table on an equal footing.

Oliver: Do the EED and EPBD adequately address the landlord-tenant dilemma? How should the EED and EPBD revision help alleviate barriers of split incentives? Are there other parts of the ‘housing’ ecosystem that need to change in order for building decarbonisation policies to work (rental law, banking requirements, etc.)?

Barbara: The EED and EPBD lack the major solution for the rental housing sector:  the principle of housing cost neutrality after renovation. Housing cost neutrality (entailing rents, energy costs and local taxes) should be the main principle of the Fit for 55 package and the national climate plans. As renovation costs can be passed on to the tenants in most European Member states, renovation often contributes to the displacement of residents and the gentrification of entire quarters. Affordability in renovation means that rent increases are fully balanced by energy savings. The model of housing cost neutrality thus combines social and climate goals in an ideal way and prevents “renovictions” (evictions by renovation). Now, with rising energy prices, it is even more important than before to find a responsible solution. IUT is therefore calling for the reinforcement of Article 22 of the EED. Article 22 creates a new obligation on Member States to take measures to empower and protect people affected by energy poverty, vulnerable customers and people living in social housing.

Affordability in renovation means that rent increases are fully balanced by energy savings.

Member States and the EU need to take responsibility and put money into this overall societal objective for the common interest. Landlords guaranteeing housing cost neutrality should be eligible for zero or very low-interest rates. This scheme can be easily replicated across Europe, despite the differences between Member States.

We need public financing to achieve this goal, combined with more mandatory residents’ participation in major renovations. Grants, subsidies, or very low-interest loans given by the European Investment Bank or by national public investment banks complemented by national and regional climate funds should be further developed.

Look what Denmark is doing- it is the EU’s top runner in both points with a comprehensive tenant democracy and a sustainable state financing of the renovation of public rental housing. Are you curious about how this works? Please check the best practices of the European Responsible Housing Awards: https://www.responsiblehousing.eu/

Oliver: We have found the design of the minimum energy performance standards (MEPS) framework proposed in the EPBD recast to be underwhelming. The unambitious energy performance level (expressed in EPC classes) to be reached and the lack of long-term vision (beyond 2030/2033) implies a potential lock-in, with the risk that dwellings will only be renovated up to class F or E, but not beyond. Considering that a building is usually renovated once every 20-30 years, it is possible that once the performance level and the date set in the EPBD proposal is reached, it will not be touched again. This will leave occupants in (still) badly performing buildings, locked in energy poverty for decades to come. What is your take on this? Do you see this as a high risk for tenants?

Barbara: The IUT is concerned about formulating renovation goals in this way. For us, it is extremely important that climate transformation is carried out in a socially sustainable way and that EU social climate funds mainly offer solutions for vulnerable groups locked up in inefficient buildings. EU financing should add to national funding of climate allowances for people affected by higher renovations costs compared to the achieved energy savings. The goal is to prevent “renovictions”.

In the rental housing sector, Minimum Energy Performance Standards proposed in Article 9 can be a game-changer. However, the IUT asks for a dialogue at the playing field level taking sufficient account of tenants living in energy-inefficient housing, since the tenants concerned can hardly influence the buildings’ energy standard. This can only be done by the landlords. But landlords are not affected by those standards, as costs are passed on to the tenants by rent increases. For this reason we need also legally based positive and/or negative incentives aimed at landlords. For example, a ban on rent increases for homes that do not meet a Minimum Energy Performance Standard. A strategic mistake that the original EC proposal pointing in this direction has been abandoned.

In addition to the risk depicted of renovations ending when set limits have been reached, we are worried that the strong focus on one energy class at a time will make the conversion unnecessarily expensive. Focusing purely on energy class does not take into account the life cycle of each building. When energy efficiency improvements can be coordinated with maintenance needs, measures are ultimately more cost effective, and from an ecological perspective, as resource-efficient as possible.

Oliver: Rising gas prices since fall 2021 have already created shocks across Europe over the past months, and we can only expect this to continue next year, as the EU seeks to quickly break from Russian fossil fuels. Have tenants been affected in particular? And does the European Commission’s proposed ‘toolbox’ of measures to mitigate the effects of rising energy price adequately support home renters?

Barbara: Yes, in many parts of Europe the tenants have been hit the hardest by the soaring energy prices and are the ones with fewer resources and tools to affect the energy needs in their homes. Tenants represent 30% of the European population, and the figures are growing, since fewer people can afford to own a flat, especially after the pandemic and economic crises. Eurostat statistics clearly show that living in rented housing entails more costs than living in an owned flat. This is because governments highly subsidize ownership through tax deductions or allowances, while these kinds of measures are not that common in the rental sector. So, living as a tenant makes you economically more vulnerable as you spend a higher part of your income on housing. 

According to Eurostat, in 2020, 7.4 % of the EU population was unable to keep their home adequately warm and this percentage is expected to increase now. Investment in the recovery and resilience packages should therefore target vulnerable households and less energy-efficient buildings, using renewable energy sources in rental housing, and incentivizing prosumer models.

The Commission’s toolbox was welcome. However, how well it works for tenants is likely to vary between the Member States. It is also extremely important to continue fighting energy poverty broadly and in the long term. Our common goal should be to lead the way to entire green quarters, where housing security, affordability and health of the residents are at the forefront.

Oliver: In addition to energy prices, countries across Europe are also facing affordability challenges due to high rent and property prices. A study published by the European Parliament earlier this year, issued by the Greens, highlights that over 80 million people in the EU are overburdened by housing costs and in the last decade, the number of homeless people in Europe has risen by 70%. The study highlights a trend of large investors driving up housing prices in recent years. According to Preqin data, more than 4,000 institutional investors directed about $3.6tn of their $136tn assets to European real estate in August 2021. Of these, the value of real estate portfolios that include housing was said to be about $2tn. Do you agree that the role of institutional investors is the main problem? What do you believe needs to change to ensure that affordable housing and decent living conditions do not fall into obscurity and negatively impact the social fabric of our societies? Simply put; how do we make affordable – and safe, comfortable, and environmentally sustainable – living spaces a reality for all Europeans?

Barbara: Housing is a fundamental right as citizens cannot enjoy other rights without it. This is particularly stressed in the Sustainable Development Goal 11 and in Article 19 of the European Pillar of Social Rights. However, a “roof over people’s head” simply is not enough to promote social inclusion: housing assistance should be integrated with proximity to other public services at the local level e.g., transport, health care, education, jobs, and training opportunities. Tenants have a weaker market position than landlords. Rent control and rent freezes are indispensable to protect tenants against abusive rent increases, unfair evictions and speculation, first and foremost in the private rental sector. There is simply no functioning market for sufficient affordable housing, which is why regulations such as the rent cap are needed.

We need to ensure that people can remain in their homes, and it is possible only when the overall housing costs are capped and stay the same.

Moreover, it is crucial to stop the sale of social and affordable housing to private investors since this drives prices and negatively affects entire rental markets. Locking out foreign investment and stopping the sale of the social and affordable housing stock are crucial.

In Zurich, as in the whole of Switzerland, a law called “Lex Koller” has been in force since 1983. According to it, neither foreign persons nor companies are allowed to purchase residential real estate or building land. Exceptions apply to EU citizens residing in Switzerland. Thus, foreign investment funds are largely barred from direct access to the housing market. Even though there are loopholes in the regulation – only 16 percent of all investments in residential real estate between 2007 and 2020 came from abroad. In Berlin it was about twice as much, in Madrid even 85 percent.

If you want to use such an instrument as the Lex Koller effectively in overheated real estate markets that are exposed to speculation, you have to close the loopholes. This is a challenging undertaking in the face of the global profit-oriented real estate lobby that wants to open the borders to foreign capital.

The IUT is in favour of tenure-neutral housing policies and a more universal model of affordable housing in the EU and the Member States. All measures in the housing sector must be designed so that in the long term they support the development of a society that is socially, economically and ecologically sustainable.

In particular, IUT strives for the right to affordable housing for all.  We consider this a universal human right that should be legally enforced in the constitutions and legislations of every country.