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Inefficient markets for energy efficiency? – The efficiency premium puzzle in the German rental housing market

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  • Sieger, Lisa
  • Weber, Christoph

Abstract

On the market where prospective renters meet dwelling offers, competitive forces and rational behavior on both sides would imply that the monthly basic rent should reflect differences in expected monthly heating costs – other things being equal. We test this hypothesis by specifying a hedonic price model reflecting a total-cost-of-renting perspective. Drawing on 844,229 apartment listings for rent from 2014 to 2020 on a small spatial scale, we find a premium for more energy-efficient apartments; however, it is rather small. If the energy performance score decreases by 10 kWh/m2a, the monthly basic rent increases, on average, by roughly €0.01 per square meter living area. The expected energy cost savings thereby exceed the premium by a factor of three to seven. Rather, we find discounts of up to 9.2 % if apartments use heating technologies that are known to be inefficient. We explore various explanations for these outcomes, considering both landlord and renter behavior.

Suggested Citation

  • Sieger, Lisa & Weber, Christoph, 2023. "Inefficient markets for energy efficiency? – The efficiency premium puzzle in the German rental housing market," Energy Policy, Elsevier, vol. 183(C).
    • Handle: RePEc:eee:enepol:v:183:y:2023:i:c:s0301421523004044
    DOI: 10.1016/j.enpol.2023.113819
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    More about this item

    Keywords

    Energy efficiency; Residential buildings; Rental market; Valuation gap; Hedonic analysis; Heating technology;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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