Target sustainability measures at financially vulnerable households

This has been revealed by a new analysis conducted by De Nederlandsche Bank (DNB). It is also worth noting that the households that are most affected by high energy prices are disproportionately likely to be renters. Given the scarcity of technicians and resources for boosting the sustainability of the housing stock, it makes sense for the government to prioritise this group.

Households are saving energy en masse

In a DNB survey among nearly two thousand households, 84% said they had saved energy in the past year, mainly by turning down the thermostat or by taking shorter or fewer showers (see Figure 1). In addition, homeowners have invested in making their own homes more sustainable. Around 27% of homeowners invested in small changes such as draught strips, radiator foil and LED lights. About 16% opted for major investments last year, such as insulation, installing a heat pump or solar panels. Soaring energy costs are the main reason why people are making significant reductions in their energy consumption.

Figure 1: How households reduced their energy consumption in 2022

Low willingness to borrow for sustainability

According to DNB estimates, at least 86% of homeowners can pay for significant sustainability measures with their savings or by extending their mortgage. (For details, see our Analysis). Nevertheless their willingness to spend large sums of money in the coming years remains low. This is partly because homeowners are not eager to take on additional debt. About three quarters of people used savings to finance home sustainability measures in 2022, 7% took out a bank loan and 4% borrowed from a fund, such as the National Heating Fund (see Figure 2). Many households may not be familiar with the favourable borrowing terms funds such as these offer, including interest-free loans (subject to conditions).

Homeowners also want to spend a lot less on sustainability measures than they ideally should. Estimates based on data from the Netherlands Environmental Assessment Agency (PBL) call for an expenditure of €24,000 per home to reach energy label B. Only 5% of homeowners are willing to invest more than €20,000 in sustainability measures. The amount households are willing to invest has also not increased compared to mid-2021. This is striking, as higher energy prices make home sustainability measures much more cost-effective.

Figure 2:  How households financed sustainability measures in 2022

Special emphasis needed for sustainability among financially vulnerable households

The analysis also takes a closer look at the group of people who are financially vulnerable to higher energy prices. A scenario analysis reveals that around one million households would face a combination of low income and high energy bills if prices remain high and current compensation measures such as the price cap are phased out. In reality, this figure is likely to be slightly lower as households are also saving energy. Financially vulnerable households are often tenants of housing associations. They also often report having less insight into their own energy bills or the options available to save energy.

Three recommendations for the government

The results of the survey and our research provide clear lessons for government policy to make homes more sustainable. We therefore make three recommendations: focus policy initially on the least sustainable rental properties occupied by financially vulnerable households. This is where the most gains can be made. Next, improve the available information on sustainability options and financing for homeowners. Finally, make sure people understand the current and planned compensation measures for high energy bills – how they work and how long they will last – as this may make homeowners more willing to invest in sustainability.

Recommendation 1: Look at the least sustainable rental properties first

Labour and materials for sustainability measures are scarce, so it makes sense to prioritise the most financially vulnerable households in the least sustainable homes in the rental segment. This can be done, for example, by starting with housing association properties with the lowest energy labels. Our analysis reveals that these vulnerable households are concentrated in certain municipalities. Even with small measures, these households can achieve significant energy savings in the short term. More widespread use of “fix teams” can help in this regard.

Recommendation 2: Improve the information available

The survey results indicate that households are not sufficiently aware of what they need to do to make their homes sustainable and what their options are. This lack of awareness is particularly acute among low-income households. They are less aware of their energy expenses, the energy efficiency of their homes, options for sustainability, costs and financing options. These households have much to gain from better information, for example from energy coaches, as they are the most affected by high energy prices. 

Recommendation 3: Provide clarity on energy prices and compensation measures

Households may be under the impression that there will be government compensation for high gas and electricity prices for a long time to come. An estimated 85% of Dutch households’ energy consumption falls below the price cap, reducing the willingness to become more sustainable. So it is important that the government clarifies who will be compensated after 2023. By making it clear that energy prices will likely remain higher for most households for a longer period than before mid-2021, the willingness to invest may increase. If energy prices remain high, some form of compensation seems inevitable alongside sustainability measures. It is important, however, that support is better targeted to those households that are financially vulnerable and therefore in real need of assistance. This will help keep the government’s compensation measures fiscally manageable and maintain the incentive to invest in sustainability measures.