How to get 65% of your house paid with incentives
By: Immo Garlichs
Tags: Mortgage, Tiny Homes, Renewable Energy, Sustainability, Building Construction

Solar panels reducing the construction costs of your future home (Picture from Roy Buri on Pixabay)

Before moving to Frankfurt I grew up in the countryside in a small town in Northern Germany. An area where almost anybody owns a house regardless of their job. It was just normal to build/buy a home. Latest since the financial crisis more and more institutional investors both from inside of Germany but also from around the world piled up investments in German property. While the cost for construction work on a one-family home “just” increased by 34,79% between 2009 and 2019, the cost for buildable land increased by 86,4% in the same period (DeStatis Construction cost index). Given that these numbers are for all of Germany the increase is significantly lower in the smaller cities and there is an even higher price increase of 100% and beyond in high populated areas. So not only in big cities, it became financially more and more challenging to build your own family home but also in the smaller cities. In times where Global Warming was one of the hottest topics talked about before Covid-19 came, many of us also want to do our part by having a sustainable home. However same as buying an electric car, a wood-based heating system, or putting solar panels on the roof comes at an added cost. Supposedly this would get one into the pressing situation where one needs to decide: Do I want to be responsible and put the panels on the roof or do I give my (future) kids an extra playroom?

This article gives you a broad overview of the different regulations existing and the different incentive programs offered by the government. In the last chapter, it describes which different factors to consider if you not only want to build an environment-friendly home but also want to receive as many incentives from the government as possible.

Germany just made this decision a lot easier but no one noticed it

In 1978 the Heating system act (Heizungsanlagen-Verordnung) and with it the first regulation on energy efficiency in Germany took effect. Due to the oil crisis, people started to see that energy is something precious that comes at a cost, at an increasing cost. With the heat protection act (Wärmeschutzverordnung) in 1978, Germany started to regulate the amount of heat energy consumed by a new building. Throughout the year's regulations became stricter and stricter and therefore made buildings more efficient. To just set a limit per sqm would be unfair given that there is hardly anything more individualized than the geometrics of each house. An easy example: A house with no windows will most likely consume less energy than a glasshouse. In order to avoid that regulations would just lead to people building dark cages instead of places nice to live in, a model to make houses comparable was needed.

This lead to the introduction of the “EneV-Referencehouse” in 2001. It sets for Windows, walls, ground, doors, etc. a limit of how much heat energy it is allowed to let pass per sqm of surface in the unit u(Wärmedurchgangskoeffizient/ Heat transfer coefficent).All of the heat lost over a year sums upto the total consumption. As only the sum counts, a better than required insulated part of the building can neutralise the effects of a part which does not fulfil the regulations. For the purpose of this article just see it as a relative benchmark. Nevertheless if you want to know how the exact math works, see this article.These maximum levels have been decreased by 30% in 2009 and in 2012 by 30% again requiring new houses to consume less and less energy. Furthermore besides decreasing consumption, the era of home made energy started with high incentives for early adopters.

The first wave of solar panel installations

If one installed solar panels in 2000 one would receive for the next 20 years 50cents guaranteed for each kWh sold to the grid. At the time buying a kWh as a private household only costed 15cents. As a result, households were keener to sell than to consume the energy produced by the solar panels. Since then the remuneration was decreased down from beyond 300% to around 30% of the price for buying a kWh from the grid. This made new installations of solar panels to sell energy step by step less attractive.

November 2020: Renewable energy is no longer optional

In 2020 the GEG (Gebäudeenergiegesetz) was introduced merging the EnEV and further regulations into one single law. The target to only consume 75% of the benchmarking values set by EnEV-Referenzhaus continue to be the same.

Before we get to the small but deciding adjustment it is important to know the standards from the governmental bank KfW. They are based on the very same “EnEV-Referencehouse”. The naming convention is as simple as the name with the % of the reference house energy demand added to it.Counterintuitively the legal minimum standard is not 100% but 75% leaving a gap of just 20% to the first incentive tier. The actual change which was barely noticed by the public is in §23.2.2 of the GEG. This gap of 20% could so far just be closed by consuming less energy meaning an even better insulation. From a long-term perspective, this additional investment into the insulation of course leads to savings over time but the better the business case is already on day one the more builders will decide to take the incentives. Since November 2020 the law discounts from your consumption energy produced with solar panels to as much as 35%. If you even install sufficent battery storage to store some of the non-used power generated making you a bit more independent from the energy market it goes up to 45% of your consumption.

So in theory a house that was failing to fulfill the requirements because it needed 100% (allowed are 75% of the benchmark) could be bounced down to 55%. If you actually stick to the 75% you already get down to 41,25% (75%*(1–45%). Taking into account the limit in the table shown for KfW40plus of 40%, this means that the gap to receive 30.000€ of incentives for your house is down to 1,25%.

Debt relief based on the energy consumption compared to the EnEV-Benchmark/Reference house

Furthermore it is actually required that 15% of your energy is being produced using renewables such as a wood pellet heating system or solar panels. So this change not only made incentives more accessible but also made regulatory minimum standards and incentive programs complement one another.

This is how it works

As you might have already noticed I called it “debt relief” so you are not receiving it in cash, you just need to pay less back. At the time this article was written they offered a mortgage of up to 120.000€ for a 0,75% fixed rate for 10 years (KfW 153 Energieeffizient Bauen). Depending on the amount of equity you put in there might even be the chance that some bank is offering you an even lower interest rate. However, they will not give you a 25% relief.

Requirements: There is a catch which is not a catch

First of all, you need to reach the efficiency levels described. If you want to know more about how you achieve that, click here. Another mandatory thing to have is a heating system using a renewable energy source. Besides renewable-ready gas heating systems, this could also be a nice pellet stove with a window for you to see the pellets burning. Sure it is not the same as a fireplace but it definitely does give the room something. Also, 35% of the total costs are covered by the BAFA (click here for more info). If you also want to equip your house with a solar thermic panel, the BAFA covers 35% of the cost of those too. For panels and heating system the 35% include both installation costs plus the systems itself.

However, there is one more thing: Your house needs to have a ventilation system. This might sound like a luxury thing which you just add because the program requires you to do so, it actually makes a lot of sense. This is due to the fact that the insulation required by the EnEV (or now GEG) is so strong that the house is having little to no air exchange. In order to get fresh air in, one thinks first of opening the window. While this does solve the problem it is doing so at the cost of the heat of the air (or cold in the summer) in the house. The mandatory ventilation system constantly exchanges the air while, depending on the model, retaining between 95–98% of the cool/heat.

Which characteristics does the most financially incentivized house have?

As discussed there are certain requirements for you to receive support such as energy efficiency, renewable power source&storage so those ones are fixed. Additionally, there are some key characteristics of your “Eigenheim” (self-used house) which significantly shrink or even further boost your support quota beyond the already mentioned.

1. Size

The max support is static so the more m2 you built the less it relatively support you

If your aim is to have a more sustainable home while being supported as much as possible by the government the key factor is to scale down. The requirements to be fulfilled by the law for new buildings are per sqm. If your house is bigger, the total consumption on which the discount of solar energy is calculated based on will be also higher. As a result, the number of solar panels to be installed also increases. All in all, every additional penny spent decreases the relative financial benefit offered via the governmentally owned bank KfW. To bring this into perspective: In 2019 a m2 of home cost on average around 1800€(DeStatis Baukosten 2019).

2. Location (but different)

Weilrod(State Hessen) welcomes you with up to 45.000€ additional incentives

As in any real estate article, location does also play a key role in incentive programs, just the other way around than usual. On a county/Landkreis level, there are programs for villages with a small number of inhabitants who try to attract people to move there. As you might guess: It is usually the place with the least infrastructure. However, are offering you as much as up to 45.000€ support if you build a house there. On a state level, there are programs for solar energy e.g. Rheinland Pfalz which is offering 1000€ for newly installed panels. However, from my own experience of growing up in a rural area of Germany, I can say: Quietness and the freedom of the fields might not be pushing up the price of the property but it does increase a lot the quality of living. I enjoy it every single time I go back to the city where I was born for a visit.

3. Household income

In order to also enable families with a lower income to realize their dream of having their own home, some of the states in Germany offer additional incentives. Given that income and price levels significantly vary depending on the state you live in, the maximum income of households eligible for this program also varies. Rheinland-Pfalz, for example, set the limit to around 60k and offers support of 250€/sqm which based on the average construction cost of around 1800€/sqm means additional support of 13,88%.

4. Kids

Given the low birth rate of only 1,4 kids per couple, there are further incentives of 12.000€ per kid paid out over 10 years called “Baukindergeld”(Baukindergeld(424)). For a kid “to count” it must be born by the time of the request currently latest by end of 2023. So you can buy/build a house now and then receive the incentives based on how many kids there are born until that date. However, you can just apply if you and your partner together earn less than 90.000€ gross/year plus 15.000€/kid.

Summary

A 110qm house for 69.000€ + ground

All in all there is a lot of support however it highly depends on where you want to live, your income and whether or whether not kids are for you in the kids in the near future. Nevertheless if you are able to leverage all of these programs you can get the costs of a house down from 200.000€ to as littele as 69.000€. Receiving a discount of 65% on your own home´s construction cost is definetly a good deal a big support. Even if your income is above the mentioned rates, you still can receive around 40.000€ due to the new option of discounting self-produced and consumed energy as described. A support of this size will be for many of us decide whether we even can financially afford to build a sustainable house.