Subsidies or Green Taxes? Evaluating the distributional effects of housing renovation policies among Dutch Households

In recent years, the Dutch government has implemented subsidies and low-interest loans to promote energy-efficient housing renovation. While researchers have examined the financial viability of renovation based on building conditions and occupants’ socio-economic characteristics, the distributional impacts of renovation incentives and the potential of fiscal policy for the redistribution of housing costs remain understudied. Dutch fiscal policy, favouring homeownership, provides a suitable context to evaluate how green property taxation can enhance renovation rates and decrease inequalities. This paper investigates the financial and distributional effects of housing renovation policies under different fiscal scenarios. We employ a model considering marginal costs and benefits of energy-efficient renovation, using property premiums from hedonic regression and a government dataset for costs. Additionally, we assess the distributional impacts of different policy scenarios by examining changes in user costs across income deciles. Our findings indicate that existing renovation subsidies exacerbate the regressive distributional impacts resulting from current housing taxation. However, incorporating energy-efficiency-linked property taxation shows higher redistributive potential. The introduction of a "green" dimension to fiscal policy aligns home ownership taxation closer to the tax-neutral benchmark. Ultimately, this research emphasizes the importance of balancing environmental and distributional objectives within housing renovation policies.