A finance scheme to help Germany's small private landlords sharply increase their buildings' energy performance: Tapping into the banking system

Abstract

Residential buildings were the source of 11.6 % of Germany's greenhouse gas emissions in 2023, emitting around 78 million tonnes of CO2e, mostly due to inefficient heating and inadequate energy efficiency. This needs to be reduced to near zero by 2045. This will involve deep energy performance renovation of some 23 million dwellings, which is expensive and seldom pays back through energy cost savings. Around 43 % of all rental dwellings, almost 10 million, are owned by small private landlords, most of whom show little enthusiasm for deep energy performance investment. Instead, they tend to save small amounts and spend these on piecemeal renovations, while avoiding debt. This study explores the potential of a novel savings and loan scheme that would better accord with their saving capacity, be profitable for banks, and fund large, one-off deep energy performance upgrades. It rests on the fact that the long-term, committed savings of landlords could act as M1 collateral for banks to create large amounts of new M2 money by issuing loans, from which they make reasonable profits. This would enable banks to offer low-interest loans to small private landlords who commit to such savings. These landlords would continue to commit monthly amounts, but these would be savings for only the first few years, then loan repayments. With the savings and loan scheme, we are contributing to the debate on new and creative ways to incentivize specific target groups to accelerate the decarbonization of the building stock.