During the past few weeks, I’ve been offsetting the carbon credits earned with my “green” research by making two trips to Europe. In the U.S., many seem to believe that Europe is leading in cleantech, “green” investments, and actual energy efficiency, and although there is no solid academic evidence to confirm that, my experiences suggest that there is indeed some positive movement at the other side of the ocean.
In the U.K., for example, the government has mandated and implemented the Carbon Reduction Commitment, a non-voluntary carbon cap-and-trade scheme for all property investors that consume more than 6,000MWh per year. The threshold is low enough for the scheme to affect most of the larger property investors (including public and private funds) and it essentially puts an additional price on the carbon externality. An important and beneficial side-effect of the CRC is that to be able to report on total energy consumption, property investors are now forced to rapidly install smart meters and other measurement tools. And “meten is weten” (to measure is to know): establishing a benchmark for current resource consumption will allow property investors to improve the bottom line and to pick the low-hanging fruit of energy efficiency improvements.
The property sector is getting nervous, as personally witnessed in presentations at the Better Buildings Partnership (BBP), an investors lobby group consisting of the most important property investors, and at a meeting of Dutch institutional property investors. Last week I attended the Financial Times Commercial Property Conference, where the most discussed topic was, again, “sustainability.” The panel I moderated included representatives from CBRE, Climate Change Capital, OVG (a Dutch property developer) and the UNEP FI, and the panelists challenged my admittedly slightly skeptical view on the topic ferociously - how dare I question the returns on green? (I don’t…)
Besides talking about green stuff, I also visited Berlin, the wild capital of Germany. This is an extremely interesting city for an exploring real estate economist, as the population has been shrinking ever since reunification (exactly 20 years ago by the way), in combination with a strong exogenous shock following the merge of the rich western and the poor eastern part. It is amazing to see how the young urban professionals have invaded the eastern neighborhoods: Prenzlauerberg is now a posh area for 35+, whereas Friedrichshain is the place to be for 35-. Not everybody is happy with the gentrification of formerly cheap neighborhoods, as the lower income households are driven out by rising rents and property prices. It seems like Kreuzberg and Alt Treptow are next on the list, even though current residents try to scare away the richer citizens by regularly burning (nice) cars and writing all kinds of nasty messages on walls…
The evasion of residents has had a severe impact on the city: lots of empty commercial buildings, former warehouses transformed to hangouts for anarchists, but also fantastic urban additions, such as the former Tempelhof Airport, which may become to Berlin what Central Park is to New York. My friend and colleague Thies Lindenthal is doing great research on demographic changes and the Berlin housing market. (See for example this paper.)
This week I’m back in the Bay Area. The United Nations Principles for Responsible Investment hold their annual conference in San Francisco, which is of course reason for another panel on “ESG” in real estate investments. I look forward to seeing the representatives of the main global institutional investors - APG, CalPERS, CalSTERS, PGGM, TIAA-CREF, etc. will all be there - and to get “green” mainstream in their property portfolio.