Green homes, opportunities, and risks for housing stock

The issue of energy efficiency in buildings comes into focus. In the week of March 13-19, the European Parliament is scheduled to vote on the text in question. What could happen? What are the risks for the sector?

“The update of the EU Energy Efficiency Directive will significantly impact the real estate sector, bringing challenges for property owners and investors but also opportunities for jobs and sustainable development.” This is the comment of Piercarlo Rolando, managing director of Rina Prime Value Services, on the green light from the European Parliament’s Committee on Industry, Research and Energy to the proposed revision of the Energy Performance of Buildings Directive, which aims to reduce greenhouse gas emissions and energy consumption in buildings by 2030 and achieve climate neutrality by 2050.

According to the text approved in the committee, residential buildings will have to achieve a minimum energy performance class of type E by 2030 and D by 2033 to reach absolute neutrality by 2050, except for buildings of artistic, historical, or religious value, second homes and those dwellings with an area of less than 50 square meters.

What is the Italian reality regarding real estate and energy efficiency?

Divided are those in the sector who recall that the Italian reality is made up of 35.3 million residential units, of which – it is estimated – 26.8 million have poor energy performance. According to Siape Enea data, F- and G-class housing would account for 60 percent of units, while E-class housing would account for 16 percent. Indeed, on the one hand, energy upgrading offers excellent opportunities; on the other hand, it will have a profound impact on the renovation market.

“An analysis carried out by Gabetti’s study office showed an increase in market value ranging between 3-5% for each jump in energy class obtained through a redevelopment,” explained Diego Vitello, an analyst at Gabetti Group’s study office. He added, “To give an example, the redevelopment of a building worth 200,000 euros, which has gone from an E class to a C class, sees a real estate revaluation of around 15 percent, equal to 30,000 euros more than the starting value.”

“Getting to the goals of energy class E by 2030, D by 2033, and zero building sector emissions by no later than 2050 would require very expensive (and often unrealistic, given the property in question and its location) radical renovations on several fronts: façade insulation work, thermal insulation, refurbishment of windows and doors, modernization of boilers, and progressive installation of solar systems,” illustrated Maurizio Fraschini, partner of the law and tax firm Plusiders, who spoke of a nonsensical regulation detached from geographical, economic and territorial reality.

“First of all,” Fraschini said, “it seems unreasonable, under the fundamentalist aegis of the fight against climate change, to provide homogeneous legislation of this magnitude for all properties: from northern Finland to Pantelleria, from Portugal to Poland. And then, Fraschini wonders, how would it be possible to achieve all this in Italy, where much of the real estate heritage dates back, at best, to the reconstruction after World War II, in densely built-up urban fabrics, where it seems unimaginable, for example, to install photovoltaic systems or “coats” to facades? And who will bear the costs of this huge intervention, given that already rising rates will strain real estate financing and many potential defaults?”

What effects might the new legislation have on the Italian real estate market?

Although the directive will come into force with state transposition in 2025, it is already possible to quantify its effects on the Italian real estate market as early as the next few years. In fact, 21.2 million homes will have to be renovated by 2030 and a further 5.6 million by 2033. “Assuming an average amount of a 50,000 euro renovation, to bring the apartment from classes G, F, and E to at least class D, we can estimate a turnover for real estate renovation of more than 1.3 trillion euros by 2033,” Rolando explained.

So what are the risks, in the short term, for individual properties?

“The real estate market could really take a very hard hit, as some properties could not only depreciate but even, in fact, be excluded from demand because they are deemed essentially ‘unrecoverable.’ The banking system, which has been granting very long-term mortgages based on values that could be radically revised, could then lead to a new deep financial crisis,” responded Fraschini, who hopes that both during approval at the European level and during adoption at the national level-radical changes will be made to the regulatory text, which, as it is formulated to date, could result in severe and widespread damage to the entire economic system.

“The value of buildings in classes G, F, and E is set to decline gradually as the 2030 deadline approaches, making it increasingly cost-effective for specialized operators to renovate before selling or purchase residential units or buildings in classes G to E to be upgraded before being re-marketed,” Rolando added.

One thing is sure: “The latest revision of the EU Directive on Energy Performance of Buildings meets a trend already happening in many other sectors. For example, consider the automotive sector, where hybrid models replace gasoline vehicles. So let’s now place the real estate market in the same scenario: homebuyers today know that the energy certification of the property is a priority and will tend to buy new homes or with certification already in line with the regulations; otherwise, they will buy a property that will depreciate for obvious reasons (as mentioned above, ed.),” Vitello pointed out.

Interest in newly built homes

Fabiana Megliola, head of the Tecnocasa group’s study office, confirms increased interest in green real estate. “Over time, potential buyers have become increasingly aware of the importance of living well-being, innovation, regeneration, urban redevelopment, and environmental responsibility. This is a theme that, post Covid, has become more emphasized, leading many to choose certified properties for energy and economic savings. This sensibility is also leading people to buy in more outlying realities such as hinterlands and suburbs, where there are spaces to build,” said Megliola, who then went on to say, “In general, in recent times people are beginning to understand how a property in a high energy class retains value over time, even in a future resale perspective.”

“As the study office of the Tecnocasa group, we have analyzed residential purchases and sales made through Tecnocasa and Tecnorete affiliated agencies in Italy and found that, between 2019 and 2022, the percentage of purchases of homes in energy class A has increased. It rose from 3 to 4.2 percent, although exchanges of class G homes predominate, in light of the age of Italy’s housing stock (still affecting 58 percent of our network’s transactions, down, however, from 59.5 percent in 2019).” Not everyone can afford it, however. “The difficulty that potential buyers are often confronted with is the higher price that needs to be paid for this type of property, so much so that people often buy secondhand and then proceed to redevelopment,” Megliola concluded.

What will be the impact of the new legislation on luxury homes?

“Although making a rough estimate, about 90 percent of luxury properties in Italy are likely to have a low energy class; the new legislation will not greatly impact the luxury segment. This is because most of these properties, which are located in the historic centers of cities, have a historical character, often protected by the Superintendence of Cultural Heritage, which is very attentive to the artistic and historic protection of Italian cities,” said Diego Vitello, an analyst at Gabetti Group’s research office. “The historical centers where most luxury properties are located are zoned as Zone A, which almost completely limits any building activity that would distort their value and historical identity.

The new EU directive must respect these limits rightly imposed to safeguard Italy’s cultural heritage. “On the other hand, as far as newly built luxury properties are concerned, the energy class is an indispensable characteristic guaranteed to the owner already during the construction phase,” Vitello concluded.