Testing integrated financing models for social housing in Vienna

Penzig district - May 2013 - 14

Building refurbishment represents a major challenge in the transition towards low-carbon European cities. However, renovation works are not cheap, whether for private residential, social housing or public buildings, and innovative business models are needed to share this cost among the different stakeholders. Currently, grants and soft loans are the most frequently used instruments for residential and commercial buildings while ESCOs and third party financing are more common in the public sector, according to the Concerted Action on the Energy Performance of Buildings Directive. However, these instruments are not always the most appropriate for social housing inhabitants.

Innovative business models to tackle energy poverty

In view of renovating several social housing buildings, the city of Vienna developed an integrated business model for energy efficient retrofitting in the framework of the EU-GUGLE project. Due to the limited resources of the buildings’ inhabitants, the City wanted to minimise the cost of the renovation to the tenants. Therefore, to finance part of the refurbishment new apartments have been created using the former attic spaces. Additionally, 20% of the rental contracts have been converted into ownership contracts. As a result of the sale of 30% of the buildings’ apartments, the city of Vienna and the social housing companies have been able to limit the rent increase for the remaining tenants. In the fight against energy poverty, this achievement represents a big step towards affordable comfort in social housing.

Space optimisation and stakeholder engagement: the two pillars of success

The key challenge in the implementation of this financing model was first of all to make sure that the sale of 30% of the apartments could cover both the construction of the new dwellings and the refurbishment of the building. This type of financing model can be rather risky for the investor and finding the right balance between the sale of apartments and the increase of monthly rents can sometimes be challenging. Additionally, raising the rents beyond the legally defined rates had to be approved by 100% of the tenants in Vienna. This means that stakeholder engagement is a crucial element in the success of cost-sharing business models because both tenants and future apartment owners have to be convinced of the benefits of renovation before work can begin.

Even if stakeholders are willing to pay for the refurbishment, “before you start discussing with the tenants, you have to figure out whether enough new apartments can be integrated in the building to implement this cost sharing model” says Dr. Michael Heidenreich, from the University of Natural Resources and Life Sciences. Due to the analysis work that has to be carried out beforehand and to the necessary involvement of tenants, the implementation of this type of business model is time consuming in comparison with other financing instruments. Nevertheless, once this innovative model has been tested, the tenants can witness the benefits of refurbishment in other buildings and thus maximise the replication potential of the model on similar buildings. In Vienna for instance, this model could be applied to 400,000 additional social housing dwellings.