Rental and sales price premiums for energy efficiency in Germany's pre-War apartments: Where are the shortfalls and what is society's role in bringing fairness?

Increasing energy efficiency in residential buildings brings the social benefits of CO2 emissions reduction, increased energy security, reduced energy poverty and better public health, but is costly. The question arises as to who should pay for these social benefits: tenants, property owners, or society? The issues are complicated by the fact that the direct costs and benefits of energy-efficiency renovation are influenced by real estate markets. These market effects need to be better understood so that social costs, subsidies and CO2 taxes can be more fairly apportioned. As a case study, this paper investigates sales and rental market premiums for energy efficiency in 2019-2021 among the 6 million apartments in Germany that were built in 1800-1945, using a database from Germany's largest real estate portal. These apartments are notoriously energy inefficient, and their architecture and elegance can make energy-efficiency retrofitting difficult and expensive. Using least squares regression analyses, it finds that sales premiums for energy efficiency generally compensated owners who retrofitted then sold, were too low to compensate landlords/landladies for retrofitting, and too high for tenants or purchasers to offset through reduced energy consumption. The study asks how subsidies or CO2 taxes could help correct these market anomalies. Market premiums vary greatly by geography, suggesting that subsidies or taxes would need to vary by region. The relative stability of construction and energy prices in 2019-2021 make this a useful study of how different factors can interact to influence market premiums and set parameters for social subsidy and tax interventions.