This dissertation examines the landlord-tenant dilemma impeding energy efficiency retrofits in the rental housing sector and offers policy recommendations to resolve it. Split incentives for landlords to retrofit and tenants to behave energy consciously weaken the retrofit incentive in the rental sector; a large share of rental housing thus impedes energy efficiency retrofits necessary for climate change mitigation, as can be observed, for example, in Germany. Existing literature conflates the primary landlord-tenant dilemma (rent control weakens the retrofit incentive) and the second-ary dilemma (rental markets undervalue energy efficiency). This dissertation separates these two concepts and focuses on the primary dilemma that can be addressed through tenancy law. The three constituent papers each explore two of the following three research questions: What are the fundamental effects of tenancy law on landlords’ retrofit investment decisions and on tenants’ energy consumption? How do several hypothetical allocation systems for retrofit and energy costs incentivize different behavior by landlords and tenants? And how do tenancy law, carbon pricing, and subsidization in the German context affect these incentives? The first paper develops a modeling framework to analyze the incentives of tenancy law. It exam-ines seven allocation systems. It finds that optimal incentives for landlords to invest and tenants to behave energy-consciously occur when the incumbent tenant pays for energy consumption plus either the retrofit’s costs or the projected energy savings. The second paper models the interaction between the German modernization surcharge (Sec. 559 BGB) and subsidies (Sec. 559a BGB). Currently, subsidies are deducted from recoverable costs. The paper, contrary to earlier studies, shows that deductible subsidies can raise, but sometimes reduce, the landlord’s optimal investment. This ambiguity highlights the unstable incentives created by the surcharge and supports the case for replacing it with a better-designed tenancy law regime. The third paper simulates rent in combination with retrofit and energy costs over 20 years for four allocation systems, five example buildings, and four retrofit options each. It finds that the “rent-independent modernization apportionment” and the “demand-based partially inclusive rent system” reliably induce retrofits by yielding the landlord greater payoffs than by maintaining the status quo; but, lacking overall profitability due to insufficiently internalized climate damages, at tenants’ expense. The dissertation recommends implementing the novel “demand-based partially inclusive rent system” in Germany. Relying on demand-based energy performance certificates, the system can induce optimal retrofit and consumption behavior with reasonable regulatory effort. The regulator should balance incentive efficiency, practical feasibility, and distributional concerns. Further theoretical, empirical, and legal research should be conducted to support the implementation.
Leo Florian Reutter (Thu,) studied this question.