Energy poverty – the inability to afford basic household energy needs – affects up to one-third of U.S and European households. The energy transition can be part of the solution, says Clare Taylor. Targeted energy-efficient retrofits and newbuilds for low-income households will cut bills and improve living conditions. This will not only cut emissions, but get the beneficiaries behind wider climate change policies like the Green Deals in Europe and the U.S. at a time where public support for unprecedented change is sorely needed. Taylor points at existing projects and reports that can be used as case studies and policy pathways. But that won’t be enough, she explains. The growing “financialisation” of the housing stock needs to be reversed. The big property funds are outbidding the low-income housing projects. And such funds don’t profit from lower energy bills and emissions, only seeing energy-efficient buildings as an additional cost burden.

On both sides of the Atlantic, basic household energy needs (like heating and cooling) are unaffordable for tens of millions of households. In 2019, 6.9 % of the EU population were unable to keep their home adequately warm; this share reached 18.2 % among people at risk of poverty. These averages mask wide disparities: depending on the definition used, up to 35% of some Member States’ populations are considered energy poor^[1], with Baltic, Eastern European and Mediterranean countries most affected. In the USA, according to the US Energy Information Administration, in 2015, nearly one-third of households struggled to pay their energy bills.^[2]

Kim Van Sparrentak, Member of the European Parliament (Dutch Greens) and rapporteur of a report on decent and affordable housing sees this as an opportunity to merge social and climate policy. “Policymakers have many choices here. To take one example, we can choose to offer subsidies for homeowners to retrofit, or we can decide to help the people who need it the most. If we decide to tackle energy poverty by providing affordable, efficient housing then we can help people and take climate action at the same time,” says Van Sparrentak.

Energiesprong: Netherlands, Italy, France, UK, U.S.

One notable success in tackling energy poverty in affordable housing is Energiesprong, an initiative originating with the Dutch government in 2010 to retrofit social housing to near-zero energy standard. By working with social housing companies to achieve economies of scale, the renovation works are financed by the projected energy cost savings and maintenance budget over thirty years. To date almost 6,000 units have been renovated and upwards of 20,000 more are in the pipeline. Energiesprong is now also active in Italy, France, UK, and the U.S.A.

Examples of European ‘good practice’ programmes for tackling energy poverty have been collected and analysed by the ComAct (Community Tailored Actions for Energy Poverty Mitigation) project. Out of the eight energy poverty programmes analysed, only two (Ireland’s Better Energy Warmer Homes scheme and Lithuania’s Multi-apartment modernisation fund [DNMF]) are identified as both accessible to energy-poor households and triggering deep renovation.

USA: Energy poverty is on the political agenda

In the United States, the provision of affordable, sustainable housing is seen as an increasingly important on the political agenda, and central to achieving a ‘just transition’. “Energy poverty is an issue at the intersection of housing, emissions, jobs, and environmental justice,” says Ted Toon, Director for Housing Efficiency at the White House’s Council on Environmental Quality. “As such, it ranks alongside other clean energy topics and lies at the heart of what this administration wants to address.” Toon cites the recent Justice40 Initiative as a significant driver, as it directs at least 40% of the overall benefits from federal investments in climate and clean energy solutions to disadvantaged communities. Existing U.S. initiatives tackling energy poverty, the Low Income Home Energy Assistance Program (LIHEAP) and the Department of Energy’s longstanding Weatherization Assistance Program, are likely to expand as designated Justice 40 pilot programs.

Toon also highlights the Low-Income Housing Tax Credit (LIHTC) as an example of effective and longstanding government support for alleviating energy poverty. The program authorises $8 billion annually in tax credits for buying, retrofitting or new construction of affordable rental housing. “It’s the largest source of capital for the construction of low-income housing in the U.S. – it has been for decades,” says Toon. The LIHTC is a competitive fund implemented via State-level agencies, and beneficiaries are required to meet stringent energy-efficiency standards. From 1995-2018, the LIHTC has yielded an annual average of 1,400 projects and 106,400 housing units. Lack of access to housing however remains the bigger issue; the National Low Income Housing Coalition estimates a current shortage of 7.2 million affordable housing units.

Efficient and affordable

Energy poverty and housing affordability are different but linked topics, in that low-income households are disproportionately and acutely affected by both. As low household income is a major reason for energy poverty, it is clear that interventions are necessary to reduce energy consumption and improve energy infrastructure, accompanied by coherence between energy and social policies.

For the building stock as a whole, the potential for decarbonisation is high. BPIE’s analysis of the effect of a ‘moderate policy scenario’^[3] estimates 42% emissions reduction (by 2030) compared to 2015 levels. A ‘responsible policy scenario’ (combined policies of deep renovation with clear growth targets for renewable energy) shows an emissions reduction potential of 60% (by 2030) compared to 2015 levels.

Central and Eastern Europe, the Commonwealth of Independent States

Although there are no estimates on the emissions reduction potential of interventions targeting energy-poor households in particular, it is clear that such interventions must be tailored to the local circumstances. For example, the ComAct (Community Tailored Actions for Energy Poverty Mitigation) project is focusing on the high energy poverty level in the Central and Eastern Europe (CEE) and the Commonwealth of Independent States (CIS) regions. In these regions, the housing stock is predominantly privately-owned and characterised by a large percentage of multi-family apartment buildings. This is the result of mass privatisation in the 1990s, along with the deconstruction of the social safety net. Utility and energy costs of the flats massively rose, and the socialist-era collective maintenance mechanisms were abandoned.

ComAct aims at making energy-efficiency improvements affordable and manageable, by working with and empowering homeowner associations, providing financing adapted to low-income families, and optimising technical solutions that provide the most favourable cost-benefit ratio for decarbonising multi-family apartment buildings.

“The energy poverty of people living in multi-apartment residential buildings in Eastern Europe and Central Asia is the poverty and housing issue affecting most people. Our aim is to empower the homeowners to be able to design, finance and implement retrofitting projects by themselves and thereby alleviate energy poverty on a building level,” says Zita Kakalejcikova the project coordinator of ComAct at Habitat for Humanity International.

The EC’s Renovation Wave

More widely across Europe, “the political understanding about the opportunities of building renovation seems to be increasing,” says Rapf. He notes that Member States’ post-pandemic recovery plans include renovation: “Renovation is part of almost all the national Recovery and Resilience Plans though with large discrepancies. The individual commitments have a range of a factor 10, measured on a per capita basis, with some of the poorer EU countries making a significantly higher effort than some of the richer countries.”

Indeed, the European Commission’s Renovation Wave, intended to ‘actively support renovation of worst-performing buildings and tackle energy poverty’, has been favourably received by Member States, notes Van Sparrentak. However, this is not enough to offset the effects of the currently dominant political approach to housing as “a profit-making activity, rather than as a basic human right,” she says.

The Pandemic made things worse

Both Toon and Van Sparrentak cite as yet anecdotal evidence that the pandemic has compounded the problem of energy poverty, with stay-at-home orders necessitating higher domestic energy consumption. Soaring house prices and unemployment are also major contributing factors, increasing the rates of ‘housing cost overburden’ (where housing costs are more than 30-40% of household income), and leaving already vulnerable households less able to afford basic energy needs, let alone undertake retrofits.

Prior to the pandemic, in 2019, 11.8 % of the European urban population lived in such a household, and in the same year 30.2% (or 37.1 million US households) of all US households were spending 30% or more of their income on housing. One in seven U.S. households — 17.6 million in total — were “severely cost burdened,” spending half or more of their income on housing.^[4]

‘Financialisation’ of the housing stock

Along with the decades-long trend of house price growth significantly outpacing the rise in average household earnings, more recently ‘financialisation’ (major corporate investing in housing) has further limited access to affordable housing. Cities are most affected; between 2013 and 2014, corporate buying of larger properties in the top 100 recipient global cities rose from approximately EUR 520 billion to EUR 870 billion. During the same period, foreign corporate buying of properties in Amsterdam/Randstad rose by 248%, and by 180% in Madrid.^[5]

Reform of European capital market rules protecting profit-making on the housing market is badly needed, according to Van Sparrentak. “The priority is to enable the flow of money and ensure investment in Member States,” she says, and this is a barrier to the provision of affordable and sustainable housing. “For example, the European Commission has repeatedly recommended to the Dutch government to reduce social housing capacity, because it’s seen as a distortion of the market,” she says. Sparrentak also cites European rules on state aid that limit the ability of authorities to provide housing for lower middle-income families that can’t afford to rent on the private rental market. “This is an internal market perspective from the European Commission, not a human-centred one,” says Van Sparrentak.

Many major cities are also dealing with the adverse effects of the burgeoning buy-to-let sector, meaning that international cooperation on ensuring housing rights is also needed, reckons Van Sparrentak. “Financialisation is a transnational issue. American pension funds are investing via companies like Blackstone in European residential real estate, and vice versa. Social housing companies simply cannot compete with investment entities on this scale.”

Winning support for the Green Deal

“Focusing on housing will help the Green Deal. Housing is so close to our lives, if we can demonstrate early on that the Green Deal and climate action means positive change for people in their everyday lives, then we will have a lot more political support to fight the climate crisis as fast as we need to,” she adds.

Toon’s perspective is informed by his twenty years of experience in housing, which includes running large-scale programmes on green retrofits of multi-family housing at the U.S. Department of Housing and Urban Development (HUD). He directly links the improvements in today’s building standards to subsidised intervention in the affordable housing sector.

“For the last two decades, the affordable housing sector has led the green housing revolution in the U.S.,” explains Toon. “And it was philanthropic and government funds that did it – by stepping in and providing the capital for deep retrofit on multi-family housing. At that time, private capital wouldn’t touch it, it wasn’t proven enough, the paybacks weren’t proven, and you just couldn’t get a bank to lend on it. Now we can do the same again, with new construction and deep retrofit. We can prove the concept, even if the market is not convinced yet.”

On 23^rd September, Toon and Van Sparrentak will speaking at the webinar How to achieve energy-efficient and affordable housing on the nexus between affordable, efficient housing and a just transition. Register here.

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Clare Taylor is a Brussels-based journalist covering the energy sector

 

REFERENCES

1. Overview report on the energy poverty concept, ComAct, 2021 https://comact-project.eu/wp-content/uploads/2021/05/ComAct-D1.1_Overview-report-on-the-energy-poverty-concept_Final-version_UPDATED-1.pdf ↑
2. 2015 Residential Energy Consumption Survey (RECS) (US Energy Information Administration, 2018). ↑
3. A moderate acceleration of policies and technology deployment compared to the current regulatory framework for buildings. ↑
4. Harvard University’s State of the Nation’s Housing 2020 report. ↑
5. https://urban.jrc.ec.europa.eu/thefutureofcities/affordable-housing#the-chapter ↑