Retrofitting the private rental sector

Janez Kren of the Economic and Social Research Institute (ESRI) discusses the energy efficiency of Ireland’s private rental housing stock, the cost of upgrading it, and the capacity of landlords to finance those upgrades.

The private rental sector has grown steadily over time and now plays a much larger role in Ireland’s housing system. “30 years ago it was under 10 per cent, but now it is 21 per cent of the overall housing stock.”

The profile of renters has also shifted: “In the past it was more of a transitional thing. Renting is no longer confined to younger households, just under half of all households with the reference person aged 30 to 34 are still in the private rental sector. Even when the reference person is 50 years old, still about 10 per cent of these households are in the private rental sector.”

Research shows that rental properties are typically less energy efficient than owner-occupied homes. “The rental sector is consistently less energy efficient compared to owner-occupied housing,” Kren says.

A central issue is the split incentive. “In a typical arrangement, the tenant pays for the energy bills but they cannot upgrade themselves,” he explains. “The landlord will have to pay, but the tenant benefits, and there is no direct incentive there.”

Information gaps also play a role. “Prospective tenants will not really account for or will not know what is the expected bill cost based on the property,” Kren says. In a tight housing market, the ESRI researcher states that “the energy efficiency of the building or the apartment will not be really on the top of the list in terms of what tenants are seeking”.

Assessing rental stock

To estimate the energy efficiency of the rental sector, the ESRI combined census data with Residential Tenancies Board (RTB) registrations and BER certification records. “From 2022 there is a mandatory annual registration of every rental property in Ireland,” Kren says, providing a baseline estimate of the stock.

However, data gaps remain. “Over half of registrations do not have BER information,” he says. As a cross-check, the analysis also uses BER data where the reason for certification is listed as rental, although “both data sets are much fewer observations than there should be, so we have to do some adjustment on that”.

After correcting for missing data and selection bias, the results show a clear pattern. “About 6 per cent of rental housing stock is F or G-rated, 8 per cent is E, and the majority, about 60 per cent, is C or D,” Kren says. “There are about 21 per cent that are A or B-rated.”

Protected structures were excluded from the analysis. “We estimate that about 5.5 per cent of the rental housing stock is in protected buildings,” he explains. “They will have very different costs to upgrade, so we excluded them from the analysis.”

The cost of upgrading

The second stage of the research estimates retrofit costs using data from local authority social housing upgrades and SEAI one-stop shop projects. “What we have is the total cost of the upgrade, the energy efficiency before and after, and some basic characteristics,” Kren says.

Costs rise sharply for the least efficient properties. “If a building is currently G-rated, to get to B will be about €43,000,” he says, emphasising that these are average figures and that “there is lots of variation there”.

Applying these costs across the rental stock produces large aggregate figures. “If you focus on the G-rated properties, which are about 10,000 units, that is about €430 million,” Kren says. “If you put everything together, from G to C, the total cost is around €7 billion.”
A more limited approach still implies substantial investment. “If you just want to upgrade everything that is G, F or E, the total cost is about €1.7 billion,” he says.

Can landlords finance retrofits?

To assess landlords’ financial capacity, the ESRI used household survey data focused on private, household landlords rather than institutional investors. “About 80 per cent of all rental housing stock is with landlords with less than 20 properties,” Kren says.

Many landlords rely primarily on non-rental income. “For 60 per cent of landlords, the rental income is less than 20 per cent of their overall income,” he explains. While median net wealth is relatively high, “most of it is the property itself,” and “only about €30,000 median is in more liquid assets”.

The result is limited capacity to self-finance upgrades. “Half of the landlords would not have sufficient internal funding to cover a €25,000 investment,” Kren says. “Only about 40 per cent of household landlords could directly fund a €10,000 investment.”

Age is another barrier. “Many landlords are 50 or more, which would be another barrier to obtaining bank loans,” Kren explains.

Policy considerations

Kren states that improving energy efficiency in the rental sector will require targeted policy intervention. “Most landlords would not be able to afford outright,” he says. “There will be need for substantial, external financing.”

He also highlights the risks for tenants. “Many with low income are renters,” Kren notes, and “the renters with the lowest incomes tend to live in the least energy efficient buildings because they tend to be the cheapest”. Any retrofit strategy, he argues, must account for “the increased risk of eviction and increasing rent”, particularly for more vulnerable households.

“That is really the challenge,” Kren concludes. “The rental sector is more challenging than owner-occupied housing.”