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Zero carbon and affordability, the twin challenges for resi

The residential sector may have the wind in its sails, but there is no room for complacency, experts agreed at Real Asset Media’s European Residential & Affordable Housing Investment Briefing, which was held online recently.

“It’s too easy to think that resi will always do well,” said Xavier Jongen, managing director European residential, Catella. “We must acknowledge the challenges ahead.”

Hilke Nijmeijer, Portfolio Manager, CBRE Global Investors

One challenge is climate change and its costs for the sector, as certification and good ratings have become essential. “The key question is how much it will cost to get to zero carbon by 2050 and how it will be funded,” said Jongen.

The drive towards sustainability also opens up opportunities to innovate, improve the use of technology and combine green credentials with positive social goals such as delivering affordable housing.

“Sustainability and improving people’s well-being go hand in hand,” said Hilke Nijmeijer, portfolio manager, CBRE European residential impact fund, CBRE Global Investors. “Better quality housing in well-connected locations will combine affordability with lower energy bills.”

Earlier this month Catella’s European residential fund III acquired the first energy-positive Elithis tower near Lyon in France. It is the first in a planned €2 billion investment programme of 100 residential towers across Europe, aimed at providing affordable and sustainable homes.

Energy-positive building costs comparable to conventional space

Elithis, a French engineering company, is responsible for the energy-positive building concept, which includes photovoltaic panels and a bioclimatic design. From the outset, the towers produce more power than they consume, at a cost comparable to standard buildings.

“The towers are a blueprint for the future of affordable and sustainable residential living in Europe,” said Jongen. “Investors don’t need to sacrifice returns for a sustainable and low-risk stable income product offered at an affordable rent, while the lower costs of energy means you can increase the purchasing power of households in a material way. It’s a win/win for everyone, including the planet.”

New, sustainable residential buildings also help to reduce the vast gap between supply and demand that exists across Europe. But it doesn’t address the challenge of existing buildings that need to be brought up to standard.

“Retrofitting is really important in residential and indeed across commercial real estate,” said Samantha Kempe, chief investment officer, Immo Capital. “A lot of residential is not fit for purpose, the quality is shockingly low and needs to be improved.”

In the UK, 10% of carbon emissions comes from construction, so upgrading existing buildings has a positive impact on the environment. It also makes sense, given the shortage and cost of land.

“Recycling existing stock in good locations also meets the challenge of affordable housing,” said Kempe. “Instead of building poor-quality housing in a cheap location far away on the fringes, you can have good quality homes in existing neighbourhoods and safeguard the diversity of the community.”