Green homes directive: what changes for the residential sector

With the recent approval by the European Parliament, the green homes directive takes center stage, introducing stricter regulations on energy consumption for residential properties. The goal is ambitious: to transform the European real estate stock into a zero-emission system by 2050.

The dire impact of global warming has become unmistakably evident to all. But while efforts to counteract climate change and promote environmental sustainability are on the rise within various sectors, one stands out as having the potential to yield the most significant tangible difference: real estate.

Buildings are among the foremost contributors to pollution, accounting for over 40% of total energy consumption in Europe and roughly a third of all CO2 emissions. The emissions generated by buildings surpass even those from transportation and industry, as highlighted by the European Environment Agency, underscoring the urgent need for intervention in this sector to champion environmental sustainability effectively.

These are the premises that underpin the recently approved green homes directive in the European Union - an initiatives poised to revolutionize, at least on paper, the European real estate market through stringent regulations aimed at curbing excessive energy consumption in buildings. Beyond addressing climate challenges, this directive also signals the effort to reduce the EU's reliance on external energy sources.

What is the green homes directive?

The green homes directive is a legislative framework establishing specific objectives for all European Union member states to improve the energy efficiency of buildings over the next years.

This poses a particularly challenging task for Italy, given that our real estate landscape ranks among the oldest in the EU, with over 60% of buildings falling into the lowest energy categories (G and F), while only a meager 7.5% hold class A certification. However, it also presents a great opportunity, as underscored in the "The Value of Living" report jointly authored by Cresme, Symbola Foundation, Milan’s Assimpredil Ance, and the European Climate Foundation. This report suggests that elevating the energy performance of homes by two classes could yield a 40% reduction in utility bills and a notable increase in property valuation.

The directive is part of the so-called "Fit for 55" package of reforms presented by the European Commission to reduce greenhouse gas emissions by at least 55% by 2030. This initiative aligns with the overarching European strategy to combat climate change, known as the Green Deal, which aspires to position Europe as the first continent with net-zero climate impact by 2050.

What are the key provisions of the green homes directive?

Here, we summarize the main implications for the residential sector outlined in the directive's text, giving member states a two-year window to achieve compliance once it is officially enacted.

Renovations

Each member state is required to develop a national plan for building renovations, subject to revision every five years. This plan must include provisions for technical assistance and adequate financial support measures, among other requirements

The evaluation of energy efficiency resulting from renovations will not be based on the current classification system used in existing energy certifications. Instead, it will be based on meeting average consumption reduction targets outlined in the directive. Specifically, each state must strive to achieve a minimum reduction of 16% in the average energy consumption of its residential real estate stock by 2030, with further targets of 20-22% by 2035.

Moreover, the directive emphasizes the importance of prioritizing buildings with the lowest energy performance, ensuring they constitute at least 43% of the scheduled renovation interventions. Lastly, it introduces the concept of a "renovation passport," envisioned as a digital roadmap issued by qualified professionals that will delineate the necessary interventions required for each building.

New constructions

New residential buildings will have to be zero-emission by the following deadlines:

• from January 1st, 2028, for public-owned buildings

• from January 1st, 2030, for private buildings

For new constructions, there is also an obligation to calculate the GWP (Global Warming Potential), which quantifies the building’s potential contribution to global warming throughout its lifecycle.

Solar installations

The adoption of solar energy will become the norm for newly built residential buildings, which will have to be "solar-ready," meaning they will have to be designed to accommodate photovoltaic and thermal solar technologies.

Currently, this requirement applies only to new homes, with member states mandated to ensure the integration of these systems by December 31, 2029, whenever such integration is technically and economically feasible.

The end of gas boilers

A significant emphasis is placed on phasing out fossil fuel boilers by 2040. As per the directive, currently, two-thirds of the energy used for heating and cooling buildings comes from fossil fuels. Thus, eliminating these systems constitutes a crucial step towards decarbonizing the sector

Starting from next year, support for purchasing and installing fossil fuel boilers will be discontinued. However, incentives may still be provided for hybrid systems, such as those integrating a boiler with a solar thermal system or a heat pump.

Properties exempted from the green homes directive

Member states may decide to exempt the following categories of properties from the new energy performance standards:

• Historical or architecturally significant properties

• Places of worship

• Second homes used for less than four months a year or with an anticipated energy usage of less than 25% of the consumption typical for year-round occupancy

• Small buildings with a floor area of less than 50 square meters

• Temporary structures, like beach facilities and construction site offices, in use for no longer than two years

• Non-residential agricultural buildings with low energy demand or covered by a national sectoral agreement on energy performance

• Buildings designated for national defense purposes, owned by either the armed forces or the government

Who will pay concretely? 

The European Commission estimates that an annual investment of €275 billion will be required across Europe, with Italy expected to be among the countries facing significant the highest expenses. According to the Italian research institute Scenari Immobiliari, each renovation in our country could cost between 20,000 to 55,000 euros to meet the energy consumption reduction targets set for 2033.

Significant figures for sure, but the encouraging news is that the directive emphasizes that states, in addition to defining the ways for achieving the objectives, will have to allocate resources and provide incentives to promote property refurbishment interventions. To do this, they can draw on both national resources and EU funds like the cohesion funds, the PNRR, and, from 2026, the Social Climate Fund.