Investing in Residential Energy Efficiency
Over the following guest, Joachim Ramakers, project manager at Habitat for Humanity Europe, Middle East and Africa, describes some of the key challenges associated with energy renovations of multi-apartment buildings, particularly in Central and Eastern Europe.
In Central and Eastern Europe, much of the housing stock dates back to socialist times, 1960s-1970s, when energy prices were not a concern. Today, these countries face a dilemma either to subsidize utilities or to allow homeowners to default on the arrears with the market rate prices.
Across the region, governments choose the former. However, this model is hard to maintain due to the lack of public funds in the time of economic downturn. Subsidies prevent reforms and development in other areas too. If the funds are invested elsewhere, it creates jobs and more economic opportunities.
Large scale investment in energy efficiency of multi-apartment buildings is an effective way to reduce fuel poverty and create savings for people on small incomes. With energy upgrades, monthly payments for families can go down up to 22%, according to the white paper on energy and CO2 savings in the EU.
Ability to make collective decisions and joint finance of energy renovations are a major challenge for energy projects in multi-apartment dwellings.
On the one hand, a “wait and see culture” still persists among the homeowners, due to a history of public institutions taking responsibility for maintenance, which was a practice in Eastern Europe until the privatization in the 1990s. This is slowly changing and homeowners are increasingly taking responsibility for the state of their buildings.
On the other hand, there are no clear legal mechanisms to deal with the situation when one or more apartments object to the works. It is often enough to have one “blocker” to demotivate others from renovating the building. This is changing slowly too. Some countries have adopted laws on condominium management that help enforce majority decisions. However, in many places it is still a problem.
In addition to that, lack of suitable finance holds back action. Associations of homeowners are haunted by a poor track record of collecting maintenance fees and inability to provide collateral. As a result, these units are not recognized as reliable borrowers. Our experience in several countries of the region, Macedonia, Poland, Romania and Bulgaria, however, indicates the opposite. Homeowner associations are more than willing to contribute to the renovation fund and pay the fees, once they see work is being done. Renovations also increase market value of property for the owners.
However, we have to take into consideration heterogonous socioeconomic conditions of households in Central and Eastern Europe. Following the fall of communism, people had different economic opportunities and show different income levels today. As a result, when deciding on the financing mechanism, households have varying ability to contribute. Sometimes, individual owners, who we think need support, may not require any. I have an example of a pensioner in Bosnia. He asked his son in Germany, who ultimately inherits the apartment, to cover his renovation costs.
A project on residential energy efficiency, Residential Energy Efficiency for Low Income Households, implemented by Habitat for Humanity with funding from USAID, aims to demonstrate sustainable models for continued investment in energy efficiency in Bosnia-Herzegovina and Armenia. In particular, it looks at activities that improve common spaces, roofs and basements, and envelope insulations and works with the homeowners to navigate them towards a common decision to renovate their building.
A common solution?
In reality, complete large scale energy efficiency renovations in apartment buildings are expensive. They are hard to finance, even when loans or individual subsidies are applied, states a report of the Buildings Performance Institute Europe (BPIE). There are a lot of subsidies available for specific tasks already, like window insulation or roof renovation. Specialized and tailor-made subsidies are one-time benefits required at the start as opposed to the contentious energy benefits.
Though some subsidy programs are viewed as successful, we understand very little about why they reached certain buildings but, perhaps more importantly, why they did not reach other buildings. We need a better understanding of the overall environment and existing subsidies concludes the BPIE report. It can be the case that large scale renovations of the buildings are not necessary and with smaller, tailor-made subsidies we can complete works in more buildings. On the other hand, if all existing individual subsidies, for windows, roofs, doors and foundations, are coordinated and combined, buildings may be able to afford even complete renovations.
Habitat for Humanity and the Metropolitan Research Institute in Hungary are putting together a regional comparative analysis of the existing subsidies. It looks at the situation in Poland, Slovakia, Hungary and Romania. Combining insights from the regional research with our practical experiences from the work with homeowner and municipalities in Bosnia and Armenia we want to develop a mechanism for carrying out and financing energy efficient renovations.
At the end of the day, these renovations help solve fuel poverty problems for many families on low incomes and even allow them to increase their income by saving on energy expenses.