US study: Energy-efficient houses cut mortgage defaults by a third


The risk of defaulting on a mortgage is around a third lower if you live in an energy efficient home, according to the first study attempting to correlate such risks.

“This finding is robust, significant, and consistent across several model specifications,” says the report by the Chapel Hill Center for Community Capital at the University of North Carolina and the Washington-based Institute for Market Transformation (IMT).

“The lower risks associated with energy efficiency should be taken into consideration when underwriting mortgages,” the report’s authors propose.

According to the paper, reduced utility costs from energy saving measures provide home-buyers with enough capital to avoid repayment problems that often result in repossessions. Home foreclosures in the US have soared since the 2008 global financial crisis, whose ripple effects are still being felt in Europe today.

Investments in residential efficiency can often produce higher capital returns than interest rates or other investment opportunities. 

But mortgagees are often deterred from making them by the high upfront cost of home improvements such as roof insulation, heating/cooling upgrades, double glazing, and efficient water management systems. 

To offset this, the study advocates new financing mechanisms such as ‘energy efficiency mortgages’ to nudge first-time and moderate-income buyers towards energy savings measures. At present, these are small-scale are under-subscribed.

Dan Staniaszek, a senior expert at the Building Performance Institute Europe (BPIE) told EURACTIV that efficiency improvements were “not exclusively a rich man's investment at the moment, but of course people with the money to invest are more likely to be able to do so.”

As well as energy efficient mortgages, the BPIE advocates preferential bank loans for building renovations, third party refinancing mechanisms such as Energy Service Company Obligations (ESCOs), and measures such as the UK’s Green Deal which allows investments to be partially offset against future energy bills.

Deeper renovation agenda

The danger of relatively cheap and easy renovations – such as the installation of wool insulation and upgrading heating systems – was that they could raise the price of best-value wholesale refurbishments, which were more expensive in the short term, Staniaszek said.

“We are keen to push a deeper renovation agenda where you look at the whole building holistically,” he said. “It requires a shift in mind-set to renovate with a view to achieving the highest possible performance and integrating other measures later on.”

“If you are upgrading a heating system or rewiring the electrics, you might factor in that at some point in the future you could have a solar heating system on the roof,” he added.

Passive solar heating – in which windows, walls and floors all collect, store and distribute solar energy – is widely seen as the ideal standard but it can initially add a few percentage points to a building’s cost.

Energy savings advocates hope that Europe-wide moves to incentivise these sorts of CO2-saving technologies will be spurred by legislation such as the EU’s Energy Efficiency Directive, which obliges member states to develop building renovation strategies.

The Energy Performance in Buildings Directive also requires that all new buildings in the EU be nearly-zero-emitting by 2021.

EU nations have signed up to a voluntary objective of reducing the EU's primary energy use by 20% by 2020, measured against 2005 levels. Such savings would slash the EU’s CO2 emissions by an estimated 780 million tonnes and save €100 billion in fuel costs.

One of the EU's main policy tools to achieve this objective is the Energy Performance of Buildings Directive (EPBD), which was initially supposed to reduce the EU's energy consumption by up to 6%.

>> Read our LinksDossier: Energy Performance of Buildings Directive

The directive was recast in 2010 to cover residential and non-residential constructions. It provided a common methodology for calculating the energy performance of buildings and covered five main categories of end-uses: heating, cooling, ventilation, lighting, and hot water.

All new structures in the EU were required to be nearly zero-energy buildings by 2021, with a 2019 target for the public sector.

The EPBD was also designed to make energy saving measures in buildings more attractive for consumers by obliging national authorities by ensuring that "energy performance certificates are made available when buildings are constructed, sold or rented out."

However, monitoring and compliance with building codes and standards are lacking, according to the Buildings Performance Institute Europe.

  • April 2013: Member states present their national programmes for the implementation of the Energy Efficiency Directive.
  • 2014: EU pledged to review progress towards energy efficiency 2020 targets and consider binding measures if it is too slow.
  •  9 July, 2015: Deadline for threshold raising energy performance requirement on public buildings to 250m2.
  • 2016: European Commission to review the Energy Efficiency Directive.
  • 1 Jan. 2019: Deadline for all new public buildings to become near-zero CO2 emitters
  • 2020: Deadline for EU states to meet voluntary obligation to reduce energy output by 20%, measured against 2005 levels.
  • 1 Jan. 2021: Deadline for all new buildings to become near-zero carbon emitters

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