Cold Homes, Hot Bills: Why Energy Poverty Is Really a Housing Trap

Energy poverty is usually explained through the interaction of low incomes and high energy prices. A new study adds a third, and often underexamined, factor: the physical efficiency of the dwelling itself.

The new working paper by Nazaria Solferino of Universitas Mercatorum argues that some households may remain energy-poor not because they cannot purchase enough energy, but because their homes are too inefficient to convert energy into adequate indoor comfort. In such cases, energy poverty becomes a structural condition rather than a temporary affordability problem.

The study thus shifts the policy debate from short-term bill relief toward targeted building renovation, arguing that energy-efficiency investments should be treated as a core anti-poverty instrument.

The Trap Starts in the Walls, Not the Wallet

The paper begins with a puzzle that has become increasingly visible across Europe: energy poverty persists even among households that are not income-poor. In the European Union, around 9% of people reported being unable to keep their homes adequately warm in 2024. In Italy, more than 2 million households are estimated to experience energy deprivation, with much higher rates in some southern regions.

The figures show that energy poverty does not map neatly onto income poverty. Two families with similar incomes can face very different living conditions depending on the quality of their homes. A household in a well-insulated apartment may need modest energy use to stay warm. A household in an old, leaky building may spend more and still remain cold.

Solferino's model captures this through a simple but powerful idea: indoor comfort depends on both energy input and dwelling efficiency. Energy alone is not enough. The home must be capable of turning that energy into usable warmth.

Below a certain efficiency threshold, the model shows that minimum comfort becomes unattainable. The household can spend more on heating, but the dwelling loses heat so fast that healthy indoor warmth cannot be reached. This is what the paper calls structural energy poverty. It is different from income-driven energy poverty, where a household could achieve comfort but lacks the money to buy enough energy. Structural energy poverty is harsher: the problem is embedded in the building itself.

Price Shocks Don't Hit Everyone Equally

Poorly insulated homes require more energy to reach the same level of comfort. When prices rise, the income needed to stay warm increases much faster for households in inefficient dwellings than for those in efficient homes. Families in bad housing are exposed twice: they need more energy before the shock, and they suffer more when each unit of energy becomes expensive. This helps explain why energy crises can rapidly push households into hardship even when their incomes have not changed.

The paper's framework also clarifies why universal price subsidies are an imperfect tool. They reduce the cost of energy, but they do not change the structure of demand. An inefficient home remains inefficient. A household may still need large amounts of energy to reach basic comfort. Worse, universal subsidies often benefit higher-consuming and higher-income households as well, creating fiscal leakage.

That said, emergency price relief is not useless. In a crisis, it can prevent immediate hardship. However, it is a defensive measure, not a cure. Once the subsidy ends or prices rise again, the same households remain vulnerable.

Subsidies Help, But Retrofits Change the Game

The paper compares three policy tools: price subsidies, income transfers and efficiency investments. Price subsidies lower energy costs and can help some households but are poorly targeted and do not reduce the physical inefficiency of homes. Income transfers are more direct and can lift some households above the affordability threshold but they still move people only financially, not structurally. A cash payment cannot make walls insulated, windows sealed or heating systems efficient.

Retrofits change the dwelling's efficiency. In the model, an efficiency upgrade can move a household across the critical threshold where minimum comfort becomes physically possible. For homes already above that threshold, retrofits reduce the amount of energy needed to stay warm, lowering future bills and exposure to price volatility.

The study ranks efficiency investments above transfers and subsidies in reducing energy poverty. Building improvements attack the root cause. They do not simply help households buy more energy; they reduce the need for energy in the first place. The most effective strategy, however, is not retrofits alone. The paper calls for a combined approach: targeted retrofits for the worst-performing homes, paired with temporary income support for vulnerable households during the transition.

On the whole, the study notes that emergency relief should be designed as a bridge to structural repair, not as a recurring substitute for it.

A Just Energy Transition Must Fix Buildings, Not Just Bills

Well-insulated homes protect households from price shocks and reduce demand on energy systems. They improve health, especially for children, older people and those with chronic illness. They also make decarbonization fairer by ensuring that vulnerable households are not trapped in inefficient buildings while energy systems shift toward cleaner but potentially costly technologies.

In colder regions, the structural trap appears as heating poverty. In hotter regions, a similar logic may apply to cooling poverty, where poor housing design makes it difficult or impossible to maintain safe indoor temperatures during heatwaves. For developing countries and Global South cities, the issue intersects with informal housing, weak building standards, insecure tenure and limited access to efficient appliances.

The paper is theoretical, so it does not estimate how many households are structurally energy-poor - a key limitation. Governments still need real-world data on housing quality, indoor temperatures, energy performance, income and tenure. The model also does not fully address landlord-tenant incentives, construction capacity, retrofit financing or the risk that renovated housing becomes more expensive and displaces low-income residents.

Future research should test the model with household microdata, energy performance certificates, smart meter data and indoor temperature measurements. Empirical work should estimate how many households fall below the structural threshold and how that varies by region, tenure, housing age and income group.

Policy research should compare the cost-effectiveness of shallow renovation, deep retrofits, appliance upgrades, heating-system replacement and combined income-support packages. Further studies should also examine implementation constraints: shortage of skilled labour, financing gaps, landlord incentives, tenant protection and public procurement capacity.