Net zero fuels crash in German house prices as old homes shunned

‘Prices for old buildings needing renovation are likely to drop even sharper than the market suggests’

A PUSH to make homes net zero compliant is fuelling a house price crash in Germany as buyers shun older properties due to costly improvements.

Analysts have warned the price gap between properties with good and poor energy labels is widening with sharp drops on those in need of renovation.

The price of a German property with an energy label H was on average 45pc lower than that of a residential property with an A+ energy label in 2023, according to Dutch bank ING.

Under rules introduced on January 1 this year, every new heating system installed in new development areas in Germany must now use at least 65 per cent renewable energy. For existing buildings, the requirement will come in from January 2026 or 2028, depending on the size of the municipality.

Franziska Marie Biehl, economist at Dutch bank ING, said: “Prices for properties with lower energy labels have fallen more significantly than prices for those with a good energy label.

“The price gap between properties with good and poor energy labels is widening and, in our view, prices for old buildings in need of renovation are likely to drop even sharper than the current market environment would already suggest.”

Only 3pc of current German housing stock has been built since 2011 and therefore is likely to require renovation to hit efficiency targets.

Refurbishments are expected to cost between €400 and €600 per square metre, leading many to opt to sell rather than make the changes, said Michael Heming, managing director of Heming Immobilien estate agency. “People are very afraid because when they buy a house you pay €300,000 or €400,000 and then have to build in heat pumps that they cannot afford.”

A survey by estate agent Mcmakler in 2021 found 10 per cent of German properties built before 1979 are classified as A, A+ or B. While for residential properties built from 2010 onwards, the share is more than 70 per cent.

The environmental considerations are one element of a perfect storm for the German housing market. House prices fell 9.6pc in the second quarter of the year and 10.2pc in the third quarter of 2023, compared to the same period last year.

The country’s property market has also been rocked by a sharp increase in borrowing costs leading to a drop in demand from buyers.

Just over half of adults rent, making homeowners the minority. By contrast in the UK around 62pc of adults own their residence, according to official figures.