Landlords face €8bn bill for rental home energy upgrades, study finds
The ESRI estimated a cost of about €43,000 to upgrade a G-rated property to a B, while it would cost just under €30,000 for a C-rated property,
Retrofitting all the homes in Ireland’s private rental sector could cost as much as €8bn, but many landlords are unlikely to be able to afford the investment, new research has found.
The study from the Economic and Social Research Institute (ESRI) suggests there are “complex challenges” if landlords are to invest in energy efficiency upgrades for homes they rent out, as nearly one in two would not have the funds to cover a €25,000 investment.
Furthermore, introducing minimum standards could lead landlords to reappraise the “attractiveness of investment” and perhaps even leave the sector.
The research found four in every five rental properties in Ireland have a building energy rating (Ber) rating below B, which equates to between 240,000 and 260,000 homes in Ireland.
For individual homes, it estimated a cost of about €43,000 to upgrade a G-rated property to a B, while it would cost just under €30,000 for a C-rated property.
While retrofitting all these homes could cost as much as €8bn, retrofitting the lowest efficiency rentals rated E1 or below would cost as much as €2.3bn.
“Our research considers not only the scale of investment required to increase energy efficiency in the rental sector, but also considers how such investments can be financed, in particular by household landlords,” report co-author Dr Conor O’Toole said.
The ESRI said improving the energy efficiency of Irish homes is seen as a key element towards meeting carbon reduction targets, but the challenges in doing so become “more pronounced” in the rental sector due to the “split incentive” issue.
This is where landlords face the investment cost but tenants receive the benefit in terms of energy efficiency.
The ESRI said as Ireland’s rental sector is predominantly made up of household landlords who own fewer than three rental properties, understanding their financial capacity is important when considering how homes will be retrofitted.
For example, it said older landlords would have a smaller time window to recoup savings from their properties through retrofitting.
“This provides fewer years to recoup the investment cost,” the study said.
“However, this must be considered against any allowable increase in the rent if the upgrades occur.”
Furthermore, some landlords are unlikely to be able to obtain sufficient finance from typical sources like banks to cover investment gaps.
The ESRI also said landlords would likely have “competing needs” for their funds, such as retrofitting their own home.
“Willingness to invest may be an ongoing challenge,” it said.
On minimum standards in terms of energy ratings for rental homes, the ESRI said it could act as a lever to elicit investments and raise the overall energy efficiency of the sector.
“Conversely, they may lead to a reappraisal of the attractiveness of investment, and even divestment, among some owners,” it said.
