Who Pays for Heat in Housing Markets?
When energy prices soared following Russia’s invasion of Ukraine, heating bills became a major strain for millions. A study by Prof. Francisco Amaral and his colleagues reveals who really shoulders the burden – tenants or landlords – and how rising costs deepen housing inequality. Text: Francisco Amaral
Across advanced economies, energy costs have taken up an increasingly large share of household income, rising much faster than rents in many places. When prices surge, however, not every household is affected in the same way. In an old, poorly insulated building, the heating bill can double almost overnight, while newer, efficient homes barely notice the difference. In theory, that should make inefficient homes less attractive – fewer tenants would want them, and rents would fall to compensate. But does this really happen in practice? A study by Prof. Francisco Amaral and his colleagues investigated whether higher heating prices are passed on to tenants or shared by landlords.
Evidence from Germany’s rental market
Drawing on over one million rental listings from Germany’s 30 largest cities between 2015 and 2024, the study combines detailed property characteristics with energy performance data (kWh/m²a) and time-varying heating prices in order to estimate each unit’s heating bill. To capture how tenants respond to rising prices, they studied user behavior on Germany’s largest real estate platform, ImmoScout24, using application data to measure how renters respond to changing prices.
The findings reveal a stark divide. In the most affordable parts of the rental market, where competition among tenants is intense and housing supply is scarce, renters have little bargaining power. Here, higher heating bills simply add to their existing monthly payments, with tenants bearing nearly the entire burden. In contrast, in more expensive segments where landlords compete for renters, higher heating prices are partially offset by lower net rents. As a result, higher-income tenants effectively share the burden with landlords, while lower-income households face steeper increases in their overall housing costs. Following the invasion of Ukraine, for example, renters in the affordable segments saw their housing costs rise to roughly three times the increase faced by renters in high-end markets.
Implications for housing and climate policy
These dynamics are not unique to Germany. Across most advanced economies, income distributions are heavily skewed – many households earn modest incomes, while only a few have very high ones. As a result, demand is concentrated in the affordable segments of the market, where landlords face little pressure to adjust rents when energy costs rise.
The findings suggest that the social impact of energy price shocks depends critically on housing market structure. For countries like Switzerland, where most households rent rather than own their homes, this issue is particularly relevant from a policy perspective. Policymakers seeking to decarbonize the housing sector should therefore complement CO2 pricing with measures that expand affordable, energy-efficient housing. Without such support, well-intended climate policies risk amplifying existing inequalities rather than reducing them.
Francisco Amaral is an assistant professor of real estate finance at the Department of Finance UZH, member of the Center for Urban & Real Estate Management (CUREM) and co-founder of the German Real Estate Index (GREIX). His research explores how housing market structures shape price dynamics, returns, and urban inequality.
Text: Francisco Amaral, Source: Oec. Mag. #24
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