Rebuilding Neighborhoods

18 of August of 2011

Home refurbishment is an attractive and viable solution for overcoming the severe crisis in the construction industry. Legislators, government, builders and investors are in a position to provide solutions that will enable the refurbishment business to take off, providing indisputable benefits on the economic, social and environmental fronts.
Since our existing production model, which relies excessively on the traditional drivers of economic growth, has taken a beating, the future seems to lie in what are called “green industries”. The idea is that sectors such as renewable energy and environmental services should play a prominent role in the future and become the main sources of employment in the medium and long term.
However, “green industries” (i.e., strictly speaking: renewable energy, environmental services, etc.) appear to be incapable, on their own, of generating the jobs needed to offset the massive losses in other industries. For example, according to recent reports, the renewable energy industry created less than 90,000 jobs in Spain in the last few years. That pales in comparison with the 1.1 million construction jobs that have been lost since the beginning of 2008 (Spanish labor force survey).
Those numbers make it clear that “green industry” alone is incapable of generating the jobs required to haul our economy out of the current trough. Consequently, many experts advocate reorienting traditional industries towards more sustainable approaches to complement the job creation by the greener segments of the economy. Such a reorientation should be capable of generating quality jobs (i.e. jobs that are “sufficiently green”), particularly in the more labor-intensive segments of the economy. I can think of no industry more in need of this sort of reorientation than construction, which has long been one of the main drivers of economic growth and is particularly labor-intensive.
In this context, politicians have been pointing to home refurbishment in recent times as a sort of panacea of reviving the beleaguered construction industry. The expectations are actually supported by real numbers. If we could refurbish between 250,000 and 400,000 homes per year (the current figure is barely 30,000, and has been practically stagnant since 2008[1]), we could create between 140,000 and 230,000 direct jobs in construction each year, generating between 9 and 14.4 billion euro of business per year which would benefit not just the construction industry itself but also all the sectors in its supply chain.
But that’s not all: refurbishment that is energy efficient would also provide a significant reduction in GHG emissions. According to our calculations, refurbishing 400,000 homes would eliminate over 6 million tonnes of CO2 emissions in just five years, and that effect would increase steadily as the existing stock of homes was refurbished. If we consider refurbishment as a means of renewing and modernising the structure of cities, by improving residents’ living standards and the amenities available in their neighborhoods, it’s clear that it will have a major socio-economic impact on communities and local economies.
It may seem impossible to attain this level of refurbishment work, but the figure is not large if we compare it with the number of new homes that were built in Spain in the last few years. There is no shortage of potential candidates; there are about 5 million homes from the 1950s and 1960s which fail practically all of the quality and efficiency requirements set out in the current Building Code.
The question, therefore, is: can we refurbish 250,000 homes per year in the current situation? Unfortunately, the answer is “probably not”. What are the barriers to definitive expansion by the refurbishment business?
Though there will be interpretations and diagnoses to suit all tastes, I think that only a few are really relevant:

  1. Significant funding difficulties. To date, government covered 60%-75% of the cost of refurbishment through a range of subsidies. The remainder was covered by the home-owners. However, the prospects for the coming years have been altered by the crisis. Government subsidies for refurbishment will be greatly curtailed. It’s also clear that household’s debt-bearing capacity will also be very low for some time. The result is a funding gap which will further hamper the development of the refurbishment business unless a solution can be found.
  2. Starting up a project is costly and shrouded in uncertainty since, under current legislation, neighorhood renewal depends on the consent of all affected residents. If we want to attain 400,000 refurbishment jobs per year, we can’t depend on the individual decisions of 400,000 households.

So, we face a situation in which the viability of refurbishment projects hinges on a large number of individual decisions, often shaped by households’ financial difficulties, in a legal framework that fails to provide the necessary certainty to undertake projects.
Possible solutions
However, we believe we could overcome some of the main problems if private capital were given the opportunity to finance refurbishment projects. Since we can all agree that government cannot provide all the funding needed to develop more sustainable projects and services, why not let private investment participate in this area, filling the gap left by public funds and alleviating the financial burden on families?
We have conducted a detailed study of the viability of combining public and private funding for refurbishment and have identified the potential sources of returns on investment. Thanks to the vision and valiant initiative of some governments and public servants, we have also been working on a number of actual projects. We can make the numbers add up, but the current legal framework does not offer the certainty required to attract the necessary private capital. In the current situation, refurbishment is an uncertain process requiring the allocation of a large volume of resources to negotiate, home by home; this is unprofitable and, consequently, incapable of attracting private investment.
We need intelligent legislation that supports refurbishment on a large scale, above the level of individual decisions, as a matter of “national interest” (big words, but true nonetheless). Countries such as the USA (“Green jobs / Green homes)”, the United Kingdom (“The Green New Deal”) and Germany have kick-started a billion-dollar industry in this area through smart changes in the laws and institutions.

In my opinion, we are in a superb position to tackle this challenge. We have had strong funding support from government to date; we also have the right technical and technological framework. Moreover, Spain’s leading multinationals in this sector are world leaders in PPP and PFI projects. If we have been able to use this approach to develop transport infrastructure, hospitals and schools (cf. Ferrovial’s project in Bradford, UK), there is no reason why we could not design a profitable formula for home refurbishment and neighborhood renewal.
The Spanish government is currently drafting a law on cities; it would be ideal if the new legislation provided the necessary changes to ensure the sustainability and quality of refurbishment projects and the necessary certainty to ensure attractive returns on investment for private capital. This may be a unique opportunity.

[1] New construction project statistics from the Colegio de Arquitectos Técnicos (Obras de Edificación). Published at

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