Builder: Renovation insensible for part of buildings

Apartment buildings.
Apartment buildings. Source: Siim Lõvi /ERR

In areas where there is no market failure, there should be no state subsidies for renovating residential buildings, and residents would do well to consider whether renovation pays off before committing, Kaupo Kolsar, CEO of Astlanda Ehitus and head of the Estonian Association of Construction Entrepreneurs, told ERR.

Estonia should not offer renovation support for buildings in prestigious areas as it manufactures inequality on the real estate market, Kolsar said.

"In a situation where renovation boosts property value by as much as it costs, I see no need for investment support. It would manufacture a lot of inequality on the real estate market. Especially for people about to buy a new and modern apartment or those who have renovated theirs using own resources."

The CEO suggested that real estate should be divided into three groups and only buildings in rural areas, where the property value is much lower than the cost of renovation, renovated with the state's help.

"It is impossible for owners to qualify for sensible loan conditions there and have no real way of offsetting the expense," Kolsar explained.

If a residential building is located in an area with a functional real estate market, there is no need to disrupt the latter using state benefits, he found.

"Buildings in favorable locations, where the investment would hike the property value by as much or more than it would cost, where real estate works as loan security and the end result is a sensible living environment both in terms of energy performance and in general – I would have the owners contribute without state aid."

Belonging to the third group are buildings in the case of which major renovation would be insensible. "I would leave those buildings aside and let them fade away. If all new buildings sported the top energy performance rating, we would hit the average (energy performance rating required by the EU – ed.) without making senseless expenses," Kolsar suggested.

Estonia is set to distribute €80 million in renovation subsidies this spring. To qualify, it must be possible to achieve at least a category-C energy performance rating after renovation. The state's contribution is 30-50 percent of the cost, depending on the apartment building's location and scope of the work to be done. The state's cost-sharing component is higher for smaller apartment buildings or those in rural areas or when an elevator is installed during renovation.

The European Parliament on Tuesday greenlit a plan according to which the energy performance class of all buildings should be at least E by 2030 and D by 2033. This would mean having to renovate tens of thousands of residential buildings in Estonia over the next decade.

Kolsar said that it would pay to carefully consider which buildings should be renovated at all.

"My estimate suggests that the payoff period is around 35 years for a lot of buildings, rendering renovation unfeasible. In other words, we would spend more energy on renovation over a short span of time than it would save over 35 years once the work is finished. The Finns have calculated the payoff period at around 60 years. We should carefully consider which buildings it makes sense to renovate on this level," he said.

Kolsar said that renovation work of any kind results in inconvenience and takes a fair bit of time. Renovation can also be almost as expensive as constructing a new building from scratch.

"If we're talking about a complete overhaul – doors and windows, facade, roof, heating and ventilation, elevators and modernizing all other systems – this would cost pretty much the same as a new building. Considering that the work would have to be done while the building is inhabited, it would be more complicated and time-consuming, possibly more so than a new development. Whereas no one has included the indirect costs this would create for the residents in the calculation," Kolsar said.

Meelis Einstein, member of the board of the Association of Construction Material Producers of Estonia, told ERR that even if Estonia had the money for the support scheme, renovating tens of thousands of apartment buildings in a decade is unrealistic because people cannot afford the cost-sharing component, and Estonia does not have enough contractors or building materials.

"People would still have to pay their part of the cost, which is out of the question for many in the current economic situation. Secondly, we do not have enough construction capacity in terms of contractors. Building materials would be a somewhat less serious challenge, while it still not looking realistic as we would need to hike production volume by many times for a decade and then bring it back down again," he said.


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Editor: Marcus Turovski

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