How auctions could help build affordable, climate-friendly housing in Indonesia

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Housing is a basic need, but housing construction is not always climate friendly. Globally, the buildings and building construction sector generates around 40% of total direct and indirect CO2 emissions. Constructing “green” buildings that can save energy and are resource efficient will be the key to mitigating the climate impact of the housing sector. In addition, Resource-efficient green buildings can reduce water use and utility costs, a particular benefit for low-income households, who can spend up to 20% of their disposable income on utilities . However, the perception that such a construction is more expensive may slow it down.

A new World Bank research study analyzes how an auction system could encourage greater construction of low-income, climate-friendly housing in Indonesia, where demand in this area has increased significantly and is expected to increase steadily as the market increases. economic growth improves the well-being of many households. The Climate Auction Model is an innovative pay-for-performance mechanism piloted by the World Bank Group to stimulate investment in projects that reduce greenhouse gas emissions while maximizing the impact of public funds and mobilizing private sector funding.

It is possible to build more environmentally friendly social housing in Indonesia. Despite the green building criteria introduced by the Ministry of Public Works and Housing, there has been no increase in the construction of social housing that meets the EDGE (Excellence in Design for Greater Efficiency) green building certification. the International Finance Corporation, which calls for a 20% reduction in water, energy and energy embedded in materials, compared to a benchmark building. There has also been no change in regulations requiring that green construction be included in government housing subsidy programs.

Lower emissions, cheaper utilities

The delay in such a construction misses two important opportunities. First, government and family investments in housing fail to take advantage of the potential to reduce greenhouse gas emissions associated with the housing and construction sectors. Second, builders pass up the chance to reduce utility costs for low-income households.

For developers, the additional costs of building certified green housing are not substantial. Upgrades that include energy-saving lighting, low-flow faucets and reflective exterior paint to reduce heat, or other components to achieve 20 percent resource efficiency that meets EDGE standards add additional costs of 5 to 7 percent for fixed accommodation and 3 to 6 percent for apartments.

Research shows that real estate developers will always expect appropriate financial support and regulations as incentives for green building. Depending on the type and location of housing, the required incentives range from US $ 5.60 to US $ 21.80 (Rp 80,000 to 309,000 per m2 of EDGE certified low income housing.

For households, the arguments in favor of green housing are compelling. Based on calculations made in four cities (Jakarta, Bandung, Semarang and Balikpapan), each square meter of land housing with EDGE standard certification can save around 20 kWh of electricity, 1,000 liters of water and reduce emissions. of CO2 of 16 kg per year. This means that an average low-income household of 30 m2 could reduce their utility bills by up to US $ 63.50 (Rp 900,000) per year.

Big savings

The additional costs of building EDGE certified homes can be recouped through savings on utility bills within three years. However, low-income households that are unable to afford high upfront costs are less likely to be able to afford the higher expenses of an EDGE-certified home, as developers pass these costs on to homebuyers.


Figure: Benefits of an EDGE Standard certified home over a conventional home for a low-income family

From a macro and climate perspective, these savings could have a significant impact. The construction of 200,000 social housing units using construction cost assumptions in Bandung, West Java, could result in electricity savings of 122 GWh / year and 7 million m3 / year of water, which is equivalent to a Saving up to US $ 12.4 million (Rp 175.9 billion) on utility bills each year. To achieve these savings, the government would need to supplement construction costs of approximately $ 43.35 million (Rs 614.8 billion). In this scenario, each ton of CO2 reduction would cost around $ 17.4 (Rp 246,800).

To take full advantage of these savings opportunities, World Bank Group supports Indonesian government and explores cost-effective solutions to maximize impact of housing subsidy programs . The climate auction model is one way to encourage the construction of low-income green housing: developers can bid on price guarantees that will be offered to those who are able to provide housing that achieves a standard of housing. targeted economy or lowest certification standards. Cost.

While green policies, regulation and the promotion of green standards will remain essential to promote the construction of green buildings, innovative incentives such as the use of auctions or financial mechanisms such as carbon credits are also part of the solution. . While building eco-friendly homes for low-income families does not necessarily result in much higher construction costs, the government can also moderate developers’ perceptions of risk by offering incentives that show how construction Low-income housing to greener standards offers a win-win proposition for both homeowners. and the climate.



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