Who pays for decarbonizing homes?

Teresa Lackner () and Stefan Nabernegg ()
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Teresa Lackner: University of Graz, Austria
Stefan Nabernegg: University of Graz, Austria

No 2026-07, Graz Economics Papers from University of Graz, Department of Economics

Abstract: The decarbonization of the residential building sector requires large upfront investments in heating system replacement and thermal renovation that fall disproportionately on lower-income households. Faced with political constraints on carbon pricing and technology mandates, investment subsidies have become the main policy instrument. This paper analyzes the distributional effects and fiscal costs of this policy approach for Austria. We develop a microsimulation model that links household-level investment needs to landlord wealth distributions, allowing us to assign the incidence of subsidies and financial burden across homeowners and landlords within a unified empirical setting. We find total investment needs amount to 78-92 billion euros over the transition period to 2040 (approximately 1% of GDP annually), implying fiscal costs of 33-40 billion euros under the 2023 subsidy scheme. Despite a targeted low-income component, approximately 45% of subsidy outlays accrue to the top three income deciles. Net investment burdens remain strongly regressive when thermal renovation is required, exceeding three annual incomes for low-income single-family homeowners. We further document substantial horizontal disparities within income groups and show that Austrias fragmented housing law is a first-order determinant of investment feasibility in the multi-apartment (rental) sector. Addressing distributional and feasibility concerns under fiscal constraints may require a policy mix combining mandates, income-contingent transfers, liquidity-support instruments and housing law reform.

Keywords: residential building decarbonization; distributional effects; microsimulation; housing tenure; subsidy incidence; Austria (search for similar items in EconPapers)
JEL-codes: D31 H23 Q48 Q54 R21 (search for similar items in EconPapers)
Date: 2026-05
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