Costs of climate-proof housing market manageable for now, but divisions are looming

• Climate change and climate-related policies will make housing a lot more expensive going forward

• Costs will be manageable and climate-related risks can be absorbed by Dutch society at large, but it’s a different story for the individuals and regions affected

• For resilience to more extreme climate-related scenarios after 2100, it’s imperative that we make plans and take measures now to ensure climate-proof living

• The costs of making homes more sustainable and of post-damage remediation may, if nothing is done to address this issue, create a divide between have and have-not households

• Prevention starts with reliable information at the level of the home. Compulsory uniform climate labels could better reflect climate-related risks in property values

• These are the findings and conclusions of the Chief Economists at ING (Marieke Blom), Rabobank (Ester Barendregt) and ABN AMRO (Sandra Phlippen) in their joint report on a climate-proof Dutch housing market

• The researchers emphasise that major issues are afoot for homeowners, and that clearer standards and information should help everyone living in the Netherlands navigate this transition

Impact of climate change manageable but requires urgent action

The impact of rising sea levels on the Dutch housing market will be pricey until the end of this century, but still manageable. Based on the latest climate scenarios by the Dutch meteorological office KNMI, an acceptable level of investment should be able to protect the country against the effects of climate change. But the Netherlands needs more than reinforced dikes alone: climate-adaptive construction must become the norm. What’s more, specific locations are likely to see multiple issues accumulate, such as extreme water stress, heat stress and damage to house foundations coupled with financial vulnerability of households. Near-term action is needed to share the burden fairly: between today’s homeowners and future buyers, and between high-income and low-income households. The situation after the turn of the century is highly uncertain, though. A plan to climate-proof the country for the longer term is imperative, say the Chief Economists at major banks ING (Marieke Blom), Rabobank (Ester Barendregt) and ABN AMRO (Sandra Phlippen) in their report ‘Climate change and the Dutch housing market’, out today. They emphasise that the housing market is in for a bumpy ride and that some homeowners will need help to get through the transition.

Climate change threatens to further fuel inequality in the housing market

“By far the biggest expense will be making our housing stock more energy-efficient, adding up to around 1% of GDP every year until 2050 (for all owner-occupied and rented homes collectively). For houses with poorer energy labels, you often recoup the investment through lower energy bills and a higher property value, but people find it hard to wrap their heads around this issue and all the hassle involved in improving their energy labels. And often, it’s simply not viable to make a home completely energy-neutral,” ING’s Chief Economist Marieke Blom observes. “One risk is that ever-higher energy taxes will be a relatively heavier burden on lower-income households. And the second big expense will be adapting the urban public realm to water stress, drought and heat (around 0.2% of GDP every year until 2050). The third biggest expense is the repairs to house foundations that sink or rot due to drought and subsidence (less than 0.2% of GDP per annum until 2050). Planned dike reinforcements against flooding when a dike fails are – contrary to what’s often believed – the least expensive (around 0.1% of GDP every year until 2050).”

Depending on their location, property values may fall as the risks of damage are priced in, but they may also go up as a result of climate-adaptive construction. “And this is where the spectre of climate inequality looms,” Rabobank’s Chief Economist Ester Barendregt warns. “That’s because buyers with less money to spend are more likely to buy in neighbourhoods where house prices are lower, possibly without realising they have a higher incidence of water stress or foundation damage. And neighbourhoods of cash-richer homeowners may take adaptive measures that then push up property values. All of this will further fuel inequality in the housing market.” The three economists also flag the risk that the cost of climate adaptation and damage to homes will be left for the next buyers to address – frequently young adults. Lack of information may see them pay too much for their first home.

What needs to happen

“Our teams have put together a range of recommendations drawing on our analysis and consultations with academics, policymakers and real-world experts,” ABN AMRO’s Chief Economist Sandra Phlippen observes. “If we’re to keep housing affordable for everyone in the short term, we’ll have to 1) ensure correct pricing; 2) provide support where needed; and 3) impose standards rather than rely on pricing, to prevent energy bills from shooting up. Plus which, we’ll need to prevent these adaptations from pushing vulnerable households into vulnerable locations – which we see happening in many other countries.”

Buyer beware

Government, mortgage lenders, insurers and property appraisers must build and share information about climate-related costs and risks at the level of individual properties. This should help in designing a uniform climate label that potential home buyers can factor into their purchase decisions. Properties that come with major foundation risks will then fall in value, which can help buyers to finance repairs.

Expanding support for foundation repairs

It would be advisable to expand the Fonds Duurzaam Funderingsherstel (‘Sustainable Foundation Repair Fund’), so that it covers the entire country as well as multiple types of costs and damage. This would be a source of assistance to homeowners in the event of climate damage, when needed.

Imposing standards rather than price-setting

Meanwhile, the government has the important task of imposing standards on how we can make new and current housing stock in the Netherlands climate-proof and energy-neutral. Introducing a sustainability duty when purchasing a home will not push up energy bills and will ensure that the cost of making a home sustainable is better reflected in its purchase price.