Tax shift for circular construction

Background

In practice, it appears that circular construction is at a disadvantage compared to traditional construction under the current fiscal system. This is primarily because the construction sector is labor‑intensive; after all, a large part of any construction project consists of labor costs. Circular construction is even more labor‑intensive, particularly because secondary building materials must be prepared for reuse. At the same time, circular building materials have to compete economically with linear materials whose prices do not reflect environmental costs (such as CO₂ emissions, depletion of natural resources, and other environmental impacts).

Research question

What is the added value of circular construction and demolition? How does the cost of circular construction and demolition compare to traditional construction and demolition methods? And what would a tax shift from labor to resources mean for the investment costs of circular construction and demolition?

Approach

This research is conducted using real‑world case studies. For these cases, a (theoretical) linear alternative is modelled, allowing a comparison between linear and circular approaches. For each case, we examine:

• the added value of circular construction, for example in terms of environmental impact, material use, and labour input;
• the investment costs of circular construction compared to linear construction.

Consequently, several scenarios are developed for the tax shift. In these scenarios, the effects of three (fictitious) fiscal shifts are calculated:

• an environmental levy, linked to environmental impact;
• a primary resources levy, linked to the use of primary raw materials;
• a reduction in labor taxes, linked to labor input.

Based on these tax‑shift scenarios, the change in investment costs for both the circular and linear variants is calculated.

Status

Two studies have now been completed:

• Circular construction: how do you make the numbers work? Published February 2022
• Building fair taxation. Published September 2023.”

Unfortunately both reports are only available in Dutch.

Results

Based on these two studies, we can share the following results:

• The investment costs of circular construction and demolition are higher than those of linear construction and demolition.
• The environmental impact of circular construction and demolition is lower than that of linear construction and demolition.
• Circular construction and demolition are more labor-intensive.
• A tax shift makes circular construction and demolition economically more competitive.