Does Retrofitting Pay Off? An Analysis of German Multifamily Building Data

Several studies have investigated the relationship between the energy performance of buildings and housing prices. First, this paper identifies a price premium for energy efficiency within the German rental market. Then, the indexed price differences and associated marginal benefits are compared with the marginal costs of energy retrofits. An extensive database of Germany’s largest online platform for housing over a time span from 2016 to 2020 is used in a hedonic regression approach. In addition, to extract the marginal costs of energy consumption abatement, a dataset of 1048 rental units regarding green-retrofit measures is utilized. Although a significant green premium is identified in the rental market, the findings suggest that it is not high enough to compensate landlords for the money they have to spend to retrofit. The marginal costs exceed the marginal benefits by far. Furthermore, it is found that the German government’s recent plans to split the carbon tax between landlords and tenants do not change this because the price per metric ton of carbon is insufficiently high. Limitations with respect to the data basis and consequently to the interpretation of the results exist. Nevertheless, the findings can help both tenants and landlords in their decision-making, as well as policy makers in the implementation of decarbonization efforts.