Columnists: Adrian Joyce, Renovate Europe Campaign Director
Published on: 16 Mar 2021
Don’t let our most valuable assets crumble away
The buildings that support our way of life are worth trillions of euros yet fears about how to fund energy renovations are stalling the sector’s green progress. There is plenty of cash out there looking for a home, you just need to know where to look, writes Adrian JOYCE, Director of the Renovate Europe Campaign.
It is human nature to look after things that we cherish and find valuable, be it a nice watch, a car or a home. But, whereas motorists are prepared to shell out cash to keep their vehicles roadworthy, building owners hesitate when it comes to maintaining their dwellings and offices.
That is despite buildings being by far the globe’s most valuable asset class, worth some €150 trillion. The vast majority of these buildings will still be standing in 2050 but to make it that far and to ensure our climate targets can be met, they will need serious work.
The European Commission has set a target of 35 million buildings renovated by 2030 but an annual green investment gap of up to €275 billion has left many - including the Commission itself - to wonder where exactly all that cash is going to come from.
Those figures may seem daunting but there is ample money available to renovate our buildings and reduce their carbon footprint and improve human health. Two factors that, now more than ever, are absolutely essential to modern life.
But channelling the available money into building renovation is another story – building renovation may tick all the right boxes, but unfortunately it won’t flow there naturally without a few nudges along the way.
So where to start looking for the cash?
The first port-of-call is EU funding in the form of loans and grants offered by the European Commission under its Next Generation EU programme, which has been designed to help governments drag their economies out of the pandemic-induced doldrums.
Funds will only be dispersed if governments intend to spend the cash on long-term, sustainable projects. The Renovation Wave Strategy is a poster child in that regard, with 37% of the overall budget earmarked for climate goals and ‘Renovation’ recommended specifically as a flagship priority.
Once the cash starts flowing from Brussels later this year, it should create a chain reaction. Next-Generation EU funds will not be enough on their own to get the job done, so anyone that gets a taste for renovation will have to turn to lenders like the European Investment Bank.
This is where the renovation battle can be won or lost. It is of course important to make enough money available but if the beneficiaries do not know how to spend it, then the effort is pointless.
The European Central Bank is poised to play perhaps the most important, yet underreported, role in this green push, as the Frankfurt-based lender looks to chart a more environmental course under its new President, Christine Lagarde.
Nearly €1.8 trillion – much more than the entire EU budget for the next seven years - is available under its Targeting Longer-Term Refinancing Operations (TLTROs), which consist of negative-interest loans.
As part of its ongoing review, the ECB will look at deploying a green TLTRO. It is of paramount importance that the Bank sees the merit in such an initiative and helps unlock hundreds of billions of euros for renovations. The potential is massive.
Regular banks can also get in on the act. Eurozone residential loans amount to some €4.8 trillion, so lenders could start offering bigger or more attractive mortgages if homeowners commit to renovations. This option is particularly good because it would rely on greening existing funds, rather than developing new cash streams.
There is also a source of funding closer to home: personal savings.
The ECB, the Bank of England and other institutions have pointed to the “unprecedented” level of savings that households have achieved over the last 12 months due to the cooling economic effect of the pandemic.
Coronavirus should have taught us by now that long-term thinking and sustainable lifestyles are the smart bet, so anyone fortunate enough to have tucked away a little something extra should seriously consider giving their homes or places of business a little tender loving care.
Please do not misinterpret all of this advice: the task ahead - fuelling cash into renovation projects - is nothing short of Herculean. The buildings sector is a behemoth and the number of moving parts in the financing machine makes the job more complex still.
The bottom line is that it has to happen given the enormous asset value of buildings. In fact the cost of renovation is only a tiny fraction of the asset value, making it a good sense investment. Thankfully, we now have the tools to get it done but we need to find ways of using these funds better.
The investment is, quite simply, worth making.
The EIB is also on an environmental kick and is in the middle of aligning its loan books with the Paris Agreement. While the cash on offer is lower, its loans can come hand-in-hand with perks like technical assistance.