The hidden value of sustainability efforts in Dutch HOAs

Articles The hidden value of sustainability efforts in Dutch HOAs 13:27 Real estate Sustainability The Netherlands Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Sustainable renovation starts years before construction begins, but efforts made by homeowners' associations to prepare are largely invisible to buyers. In turn, their value is rarely reflected in house prices, and investment incentives remain weak. Closing the gap requires greater visibility, financial support, and targeted obligations Mirjam Bani With almost one in five Dutch homes belonging to an HOA, making sustainability preparation more visible could prove crucial in unlocking investment at scale Preparation for renovation already adds value, but is not priced in The visible lag in sustainability efforts in homeowners' associations (HOAs) isn’t solely down to the lack of financial return, but instead to the limited visibility of progress in the run-up to renovation.

In turn, this creates a transparency-driven pricing problem: if buyers cannot assess that progress, it isn’t reflected in property prices. That weakens incentives to invest time and effort in preparing future renovation measures. In the Netherlands, while buyers can see the energy label of a HOA apartment, they often have limited insight into what progress the association’s members have already made in preparing future renovation measures.

This is relevant given that HOAs differ widely in how actively and successfully they engage in this process – and it typically takes years. It’s precisely in this preparatory phase that the building blocks are put in place that already add value to the property. Examples include the buildup of financial reserves for maintenance and sustainability through the HOA and the development of a collective renovation plan that is supported by the majority of members.

When a broadly supported plan is already in place at the time of purchase, along with sufficient savings, this gives buyers greater confidence that the value of their property will rise in the near term due to an improved energy label. Buyers who expect their apartments to move to a higher energy label in the near term – and therefore increase in value – may already be willing to pay more today. However, good preparation only translates into higher property prices when buyers are able to accurately assess how far HOAs have progressed.

Barrier 1: Buyers lack insight into HOAs’ progress on sustainability preparation This lack of transparency weakens the link between sustainability efforts and property prices. In practice, many Dutch homebuyers often have an overly optimistic view of the condition of HOAs. This is partly due to a lack of relevant information, but also because existing information is not always easily accessible.

Many buyers also experience time pressure when making purchasing decisions, which limits the extent to which they thoroughly review documents about the HOA. A few observations: Missing insights : Factors such as member engagement, social cohesion, and the expertise of HOA boards are difficult to measure and are often unclear, even though they play a key role in determining the likelihood that an association will take collective renovation measures in the future. In addition, many multi-year maintenance plans of HOAs do not include renovation measures, nor do they always meet legal requirements.

Building inspections also typically only cover the private unit and not the condition of collective elements, such as the building envelope (e.g., the roof, walls and insulation). Accessibility : Relevant information can, in principle, be found in HOA documents that buyers receive before making a purchase decision (such as financial statements and a multi-year maintenance plan), but difficulty interpreting these documents can prove an obstacle for many buyers, especially those without a buying agent. It’s also worth noting that while HOA contribution is clearly visible in property listings, the portion allocated to savings and the current maintenance and sustainability reserves are usually not.

As a result, buyers tend to perceive the HOA contribution entirely as an additional cost, rather than partly as an investment. HOA members led to postpone collective sustainability measures As a result, HOAs face weaker incentives to prioritise efforts in preparing future renovation measures. As long as buyers have limited visibility on how far HOAs have progressed in preparing for collective sustainability, members are more likely to postpone such efforts.

HOAs that are frontrunners in this area find it difficult to distinguish themselves from those without renovation ambitions. This is particularly relevant for owners who expect to sell their properties in the near term, as they have an incentive to keep HOA contributions low. Sustainability requires time to build up savings – particularly in cases of low reserves or deferred maintenance.

In the run-up phase, HOA contributions and housing costs increase without immediate visible benefits at the point of sale. On the contrary, a higher contribution without tangible results may even depress the expected sales price, as buyers factor total HOA costs into their bids. Dutch apartments with good energy labels are demonstrably more valuable From a financial perspective, it is striking that the renovation of HOA apartments is not progressing more rapidly.

Recent analysis [1] by Brainbay (the data subsidiary of the Dutch real estate association NVM) shows that a one-step improvement in an apartment’s energy label (for example, from B to A) results in a price increase of around 2% to 3%. With multiple label improvements, this rises to approximately 9% to 10% for four steps. In percentage terms, the value increase per label step is even slightly higher than for Dutch single-family homes.

So, renovation measures in HOAs not only lead to energy savings and improved living comfort, but also to higher property values. While renovation measures increase property values, buyers often can't observe the progress HOAs have already made towards achieving those gains. In turn, preparation is less likely to be reflected in property prices, weakening investment incentives. [1] Brainbay examined how energy labels affect the value of apartments.

Using its valuation model, it estimated what each property with a precise NTA 8800 energy label would be worth under different label scenarios, while keeping all other property characteristics constant. This approach provides a clean estimate of the standalone effect of the energy label on property values. Other barriers also need to be addressed In addition to the lack of insight described above, differences in financial capacity and divergent interests among members are key barriers to the renovation of HOA homes.

Both make it more difficult to build sufficient support for collective sustainability measures. For collective measures – such as improvements to the building envelope, solar panels, or shared installations – approval from HOA members is required. Currently, a minimum of two-thirds to three-quarters of members typically need to agree before sustainability plans can proceed.

Combined with the fact that there are significant differences between members (particularly in terms of who benefits from sustainability measures), this often makes it more difficult to secure sufficient support for collective sustainability plans. To accelerate the sustainability of HOA apartments, the government is planning to lower this threshold to 50% + 1 in 2027. Barrier 2: Financially constrained households in HOA apartments In the Netherlands, HOAs in less energy-efficient buildings more often have lower financial reserves and are more likely to face deferred maintenance.

At the same time, owner-occupiers in these less sustainable HOA apartments more frequently have lower incomes. This limits the financial capacity of these associations to invest in sustainability. While limited financial resources appear to be a significant barrier in certain HOAs, this is not equally relevant across all HOAs.

For example, only 7% of owner-occupiers in HOA apartments have a financial buffer below €3,330, and just 17% fall into the lowest income group. Barrier 3: Diverging interests among HOA members Perspectives on home sustainability differ between landlords and owner-occupiers, and this creates additional challenges in HOAs with both rental and owner-occupied units. Differences within these groups are also substantial; the benefits of sustainability are not the same for everyone.

Each landlord, owner-occupier and tenant therefore weighs decisions differently, and in practice, this makes it difficult to secure sufficient support for sustainability plans. While the planned reduction of the approval threshold to 50% + 1 (from typically two-thirds or three-quarters) will make decision-making easier, support for renovation plans is still expected to fall short in some parts of HOAs. Landlords and owner-occupiers assess sustainability differently : In mixed HOAs, owner-occupiers primarily focus on expected energy savings and improved living comfort, while landlords tend to evaluate renovation plans based on their impact on expected rental income and future resale value.

As a result, their preferences regarding sustainability measures may diverge. Large differences in financial benefits among residents : The benefits of renovation measures can vary significantly between tenants and owner-occupiers within a single HOA. For example, households with higher energy consumption typically gain more financially from insulation measures.

The same applies to residents of top-floor, ground-floor, and corner apartments. Returns on sustainability differ between investors : Landlords of HOA properties also differ in how they assess the financial feasibility of sustainability investments. In less sought-after locations (often in peripheral regions), the additional rental income from sustainability measures is more likely to fall short of the investment costs.

The investment horizon plays an important role, too. Investors who sell rental homes upon tenant turnover (converting them into owner-occupied homes) tend to focus more on the impact of sustainability on future resale value, given their shorter rental horizon. Investors with a longer-term rental strategy, by contrast, place greater emphasis on the expected increase in rental income following sustainability improvements.

The level of support that can be achieved for collective sustainability plans therefore varies by HOA and depends partly on the (diverging) financial benefits for members and the added living comfort for owner-occupiers (and tenants). In addition, members differ in their intrinsic motivation to pursue sustainability. Some may place greater value on collective action due to climate concerns, even when the financial benefits are limited.

Three ways to stimulate sustainability in HOA apartments Accelerating sustainability in HOAs requires: 1. Better information on the renovation status of HOAs It’s important that homebuyers gain better insight into how far less energy-efficient HOAs have progressed in saving for and planning sustainability measures. This would enable them to better price in these aspects.

In practice, this remains difficult; many buyers struggle to interpret HOA documents and, due to time pressure, gather limited additional information. More accessible information – through property listings and the advisory role of real estate agents, for example – could help to better reflect future sustainability in prices. In turn, this would encourage HOA members to take action. 2.

Adequate support for HOAs with limited financial capacity Less energy-efficient HOA buildings are more often occupied by households with limited financial means. These are precisely the cases where additional support may be needed, such as subsidies and attractive loan options. At present, lower-income households in the Netherlands can already access an interest-free HOA loan with deferred repayment (via the Dutch National Heat Fund).

Further research is needed to determine to what extent current subsidies and financing options are sufficient. 3. More appropriate sustainability obligations Finally, accelerating renovation in HOAs requires more appropriate regulatory obligations. Better information and targeted financial support alone do not resolve the diverging interests within HOAs.

In some associations, it will likely remain difficult to secure a majority for sustainability plans, even with the planned reduction of the approval threshold. In a previous study on the renovation of the Dutch housing stock, we proposed introducing a renovation obligation at the point of property purchase. Still, such an obligation is less suitable for HOA apartments, as residents within a HOA building in general do not move at the same time.

For non-HOA homes, a move provides a natural moment to undertake sustainability improvements. For HOA buildings, it is more logical to link sustainability obligations to natural maintenance moments in long-term maintenance plans. This combination of better information, financial support, and appropriate obligations can structurally increase the pace of sustainability within HOAs. 19% of Dutch homes are part of an HOA At the beginning of 2024, there were over 1.5 million homes within HOAs, representing nearly 19% of the total housing stock.

Of these, 48% were owner-occupied, 32% private rentals, and 20% housing association properties. Approximately 67% are part of a mixed HOA. More than 41% of all privately rented homes are part of a homeowners’ association.

For owner-occupied homes, this share is just over 15%, and for housing association properties it is around 13%. Majority of HOA homes are part of a mixed association *HOAs consisting of rental and owner-occupied properties Source: Statistics Netherlands "> *HOAs consisting of rental and owner-occupied properties Source: Statistics Netherlands Dutch apartments in HOAs more often have low energy labels Apartments within HOAs more frequently have low energy labels than homes outside a HOA. At the start of 2023, 16% of HOA homes in the Netherlands had an energy label E, F, or G, compared with 14% among non-HOA homes.

The share of label E, F and G homes in HOAs’ combined rental and owner-occupied units – so-called mixed-HOAs – was 19%. Privately rented homes in HOAs and with poor energy labels are mostly found in mixed HOAs – nearly 70,000 homes in 2023. By comparison, around 16,000 belong to HOAs consisting solely of rental properties (both private rentals and housing association units).

So, with almost one in five Dutch homes belonging to an HOA, making sustainability preparation more visible could prove crucial in unlocking investment at scale. Rewarding well-prepared associations through house prices would strengthen incentives to start the lengthy process of collective renovation sooner rather than later. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.

The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author Mirjam Bani Sector Economist, Commercial Real Estate & Public Sector (Netherlands) Mirjam Bani is an economist at ING in Amsterdam. Before joining in 2017, she worked as a consultant at True Price and as a research analyst at McKinsey & Company.

Mirjam holds a master’s… In this article Preparation for renovation already adds value, but is not priced in Barrier 1: Buyers lack insight into HOAs’ progress on sustainability preparation Barrier 2: Financially constrained households in HOA apartments Barrier 3: Diverging interests among HOA members Three ways to stimulate sustainability in HOA apartments