Understanding the impact of public renovation programs in the housing sector is highly relevant for policymakers, especially given the current plans in Europe and the United States to retrofit a significant proportion of their housing stock as part of their energy transition plans. The Renovation Wave program, under the European Green Deal, aims to double the annual energy renovation rate of residential and non-residential buildings by 2030 through an injection of approximately EUR 275 billion per year. Similarly, recent legislation in the US includes substantial public funding to upgrade the energy efficiency of the US building stock.
As these investment programs are significant, it is essential for public authorities to know all the benefits associated with housing upgrades to incorporate them into cost-benefit calculations. While existing evaluations of home energy retrofit programs have focused on household energy savings, the effects on individual well-being and health are still unclear. In a recent IZA discussion paper, Steffen Künn and Juan Palacios present new findings that quantify the health effects of large-scale housing upgrades, using the renovation wave in East Germany in the aftermath of the German reunification as a case study.
Insulation and heating can save lives
Upgrading housing infrastructure through improvements in building insulation or heating systems has the potential to reduce the exposure of occupants to environmental threats associated with increased mortality and morbidity. In particular, building insulation and well-functioning heating and cooling equipment can limit household exposure to extremely cold or hot temperatures, which have been linked to an increased risk of cardiovascular disease and heat stroke. This is exacerbated by the ongoing energy poverty crisis, which limits the ability of households to defend themselves against outdoor temperatures, with many reporting being unable to keep their homes adequately warm.
In the 1990s, the reunified German government dedicated significant financial resources to bring the housing portfolio in East Germany up to western standards, providing subsidized loans and tax credits to the real estate industry to modernize existing dwellings. The KfW weatherization program, the main program, allocated a total of EUR 40 billion over a period of seven years to renovate 3.6 million dwellings in East Germany, which was roughly 50% of the existing stock. The upgrades included improving the building envelopes and heating systems. The new study analyzes the health implications of this program to enhance our understanding of ongoing weatherization programs in western countries.
Housing upgrades reduce the demand for health care
Using population-representative household data (SOEP) and administrative records of hospital admissions, the authors were able to make causal statements and investigate effect dynamics over time, as well as the underlying effect mechanisms. The results show a clear pattern that housing upgrades sustainably reduce the demand for health care among residents by reducing hospital admissions among the elderly population. An increase in subsidized loan take-up by EUR 100 per inhabitant reduced admissions of older patients (45 years and older) to the hospital with circulatory problems by about 2%. This effect resulted in total cost savings of about EUR 180 million due to reduced hospital admissions. The analysis of effect mechanisms supports the hypothesis that the renovation program led to an improved quality of buildings with better protection against outdoor conditions, resulting in fewer hospital admissions due to extreme cold or hot days.
These findings have significant implications for policymakers when evaluating and planning public renovation programs in the housing sector, particularly given recent developments regarding the implementation of large-scale renovation programs within the European Union or the US. Alongside the reduction in greenhouse emissions, the study clearly demonstrates that renovation programs also yield considerable health benefits, enriching the cost-benefit analysis of such programs.