Government must provide the framework to make homes more sustainable
The Dutch Cabinet has decided that Dutch households have to switch away from gas heating their homes. Therefore, improving the energy-efficiency of homes as a first conditon is high on the energy transition agenda. Recently, another urgent reason to make homes more energy-efficient has presented itself: sky-rocketing gas prices. This seems to have given the process of making homes more future-proof even more momentum. Professor Dirk Brounen, Professor of Real Estate Economics, is not surprised that the move towards more sustainability is suddenly accelerating. ‘Behavioral Economics has shown us that financial incentives affect people's behavior.’ But it should not be up to citizens alone. ‘The initiative should come from the politicians.’ Dirk Brounen has lots of ideas on how to give impetus to improving the energy-efficiency of homes.
Dirk Brounen has always been interested in financial issues. His father was a banker, so it is probably something he picked up at home. But he did not see himself as a banker: he was mainly driven by curiosity. That’s why he felt really at home at university. He completed his studies in Financial Economics in Maastricht without a hitch, to his own surprise, because his dyslexia had given him a lot of trouble in school. His time as a student was so enjoyable that he sought to ‘extend’ it with PhD research. He was encouraged to do so by Piet Eichholtz, Professor of Real Estate and Finance at Maastricht University, who became his PhD supervisor. He also suggested that Dirk specialize in real estate issues which, at the time, was still unchartered territory. His research includes among other things the added value of sustainable retrofitting of real estate and the importance of financial literacy of decision makers.
Research into the sustainable retrofitting of real estate clearly touches on practical dilemmas in society. It is therefore not surprising that Dirk is an advisor to pension funds, investors, ministries, and supervisory authorities, among other organizations. He also enjoys giving lectures on his research at various platforms. He is the driving force behind TIAS’ VastgoedLAB, in which he makes the real estate debate accessible for a broad audience, together with various partners in the market, by means of videos, podcasts, webinars, etc. ‘Sharing your knowledge is the logical thing to do. It is simply part of my job. I am studying very practical issues, and then it's very easy to share that knowledge with a wider audience.’
Many surveyors do not think that sustainability raises the value of a property
‘Let me give an example. In collaboration with the Ministry of the Interior, we are now conducting a series of exploratory studies on improving the energy-efficiency of homes and we involve the entire chain of professionals from the housing market. There is not a lot of collaboration in that chain. For instance, it struck me that the surveyors were completely unaware of the research that is being conducted in the field of valuing energy efficiency. Many of them do not think that sustainability raises the value of a property, even though research has shown that there is definitely an effect if you look at the transaction price.’ For that reason, Dirk decided to develop the Green Space Configurator (Groene Ruimte Configurator, in Dutch). ‘By green space I mean the scope to get a more favorable mortgage deal from the bank if the property to be mortgaged has a better energy performance, lower utility bills and a higher resale value.’ The green space configurator helps surveyors, mortgage providers, home buyers, and other stakeholders to calculate the exact green space for a particular property.
Solar panels and insulation are hot at the moment. All of a sudden, people are prepared to make their homes more sustainable. No doubt the latest rise in energy prices has something to do with it. Apparently, people do not worry about the sustainability of their homes until they feel the pinch, even though the need to save energy with a view to the climate has been emphasized for years and years. This does not come as a surprise to Dirk. ‘Behavioral Economics has shown us that financial incentives affect people's behavior. People tend to make short-term choices that may not be in their long-term interest. I have conducted research into energy labels for twelve years now. In the beginning, there was hardly any interest, but now it has become relevant to everybody.’
According to Dirk, this is mainly inspired by fear, by the way, fear of a high energy bill. ‘Loss aversion is a much stronger incentive than hope of gain. I have been telling people for years how much money they can earn, but it does not seem to sink in. However, when I tell them how much money it is going to cost them if they continue to do nothing, they are suddenly interested. Potential loss is more likely to spur people into action than hope of an additional windfall.’ But apparently the fear of 2°C of global warming is not an incentive. ‘That’s too abstract, too far into the future, even though it is much on the minds of young people rather than of older people.’
The objective should be to upgrade every home to at least energy label B
‘I think we need to carefully think what incentives would be effective and what is required to implement them. A logical step would be to take the energy label and the mortgage standard into account when a house is sold. At the moment everyone gets the same mortgage, whether or not the house is energy-efficient. Why not make a list of the monthly costs of heating the property and of upgrading to a B label. This should be a standard topic of discussion with the mortgage broker. If the property already has an A label, you should be able to get a better mortgage deal, because you need to spend less on making the property sustainable and you have lower heating costs. In fact, the objective should be to upgrade every home to at least energy label B and it should be clear for every property on the market what it costs to upgrade it to that level. If we are constantly talking about it, it may ultimately become a point to be considered in a sale.’
Role of the government
In 2019, the Nibud (National Institute for Family Finance Information) conducted a study exploring the reasons why people fail to make their homes more sustainable. The first reason was that people do not want to pay everything out of their own pockets. They are counting on government subsidies. ‘People do have savings, but they don’t want to spend them on cavity wall insulation,’ says Dirk. ‘They did some quick math and came to the conclusion that it wasn’t cost-effective. But when there is news saying that sustainability is both necessary and profitable, all previous counterarguments evaporate and they are prepared to take action. We need to approach the issue from a psychological angle and think of ways to persuade and stimulate people.’
In the Netherlands, we have this odd culture of tolerance and seeking consensus, with lots of leeway but sometimes someone has to put his foot down
Dirk strongly believes that it is up to the government. It will have to steer and exercise more authority. ‘In the Netherlands, we have this odd culture of tolerance and seeking consensus, with lots of leeway but sometimes someone has to put his foot down.’ In Dirk’s opinion, the government must provide the framework. A case in point is the office market. From 2023, no office space can be rented out unless it has energy label C or higher. This affects almost half the office space available in the Netherlands. Of course landlords are going to make their properties more sustainable now, because they don't want to be faced with the situation that they are going to lose income later on. ‘Unless the government points the way, people will argue endlessly until the plans are cancelled and they don’t need to take any action. We are a stubborn people, and that doesn’t help in these discussions. Vaccination is a case in point. Lots of people are in doubt: they sit on the fence and fail to act, do not take any initiative. And so nothing changes. Many seem to think that those who continue to stoke up their fires to keep warm in winter are not contributing to a growing problem. But of course they are: if you do nothing, you are part of the increasingly bigger problem. Often people are not even aware of this. This government is saying it does not want to put its foot down, but if they don’t who will? We need a government that is clear and consistent on this issue. That is part of the solution.’
A big problem in making homes more energy-efficient is that it leads to inequality. People who are renting and low-income home owners cannot always afford to take big steps. It is people with high incomes who have money to spare to make their homes more energy-efficient. How can we bridge this gap? In Dirk’s opinion, we need to help the people who are struggling. ‘Not a blanket subsidy: you have to make a distinction. Subsidies now often end up with people who don’t really need them, highly educated people with higher incomes. They know what to do to tap into subsidies.’ According to Dirk, we need to target potential recipients.'
Subsidies should only be available to groups who really need them
For instance, Dirk thought it was not a good idea to given everyone € 400 in compensation for the high gas prices. ‘Give a higher amount to people who really need it, or even better: give them the money to make their homes sustainable, to structurally reduce their heating costs.’ There are a lot of alternatives to just giving overall subsidies, but they require political courage. ‘I see that politicians are still very reluctant to do so. Depending on the support base and the coalitions, the idea terrifies them. But still it is the direction into which we must be moving. And I also think that it is feasible. I am convinced that you can persuade people who are well off that, in the future, subsidies will only be available for small groups who really need them. As long as you explain it. Good communication is everything.’
And so we have circled back to where we started: Dirk will talk to anyone, from bankers to politicians and policy makers, and from estate agents and surveyors to home buyers, to share his insights into making the housing market more sustainable.
About Dirk Brounen
Dr. Dirk Brounen is Professor of Real Estate Economics at the Tilburg School of Economics and Management of Tilburg University. His research interests include the international real estate sector and in particular the risks of and return on real estate investments, the added value of sustainable redevelopment of real estate, and the importance of financial literacy of decision makers. He also teaches various financial courses on real estate at TIAS and he is the author of the book Nooit Meer Slapend Arm.
Date of publication: 29 November 2021