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The capitalization of energy efficiency: Evidence from the housing market

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  • Aydin, Erdal
  • Brounen, Dirk
  • Kok, Nils

Abstract

This paper investigates how private consumers capitalize energy efficiency in the housing market, and the extent to which the provision of an energy performance certificate (EPC) affects such capitalization. We explicitly address methodological lacunae in the literature, using an exhaustive battery of identification strategies. The results indicate that energy efficiency is indeed capitalized into home prices, with OLS estimates biased downwards. Using an IV approach, we find that as the level of energy efficiency increases by ten percent, the market value of the dwelling increases by around 2.2 percent – quite a precise reflection of both the required capital outlay and future energy savings. These results are confirmed in a repeat-sales analysis. Importantly, examining the role of energy performance certificates (EPCs), we document that the extent of capitalization of energy efficiency is not affected by information provision, questioning the continued need for government-imposed certification programs.

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  • Aydin, Erdal & Brounen, Dirk & Kok, Nils, 2020. "The capitalization of energy efficiency: Evidence from the housing market," Journal of Urban Economics, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:juecon:v:117:y:2020:i:c:s0094119020300140
    DOI: 10.1016/j.jue.2020.103243
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    2. Bishop, Kelly C. & Kiribrahim-Sarikaya, Ozgen, 2024. "Energy-efficient investments in housing," Regional Science and Urban Economics, Elsevier, vol. 107(C).
    3. Ou, Yunbei & Bailey, Nick & McArthur, David Philip & Zhao, Qunshan, 2024. "The Price Premium of Residential Energy Performance Certificates: A Scoping Review of the European Literature," OSF Preprints bm9xk, Center for Open Science.
    4. Germeshausen, Robert & von Graevenitz, Kathrine & Achtnicht, Martin, 2022. "Does the stick make the carrot more attractive? State mandates and uptake of renewable heating technologies," Regional Science and Urban Economics, Elsevier, vol. 92(C).
    5. Erica Myers & Steven L. Puller & Jeremy D. West, 2019. "Effects of Mandatory Energy Efficiency Disclosure in Housing Markets," NBER Working Papers 26436, National Bureau of Economic Research, Inc.
    6. Lionel Sopgoui, 2024. "Modeling the impact of Climate transition on real estate prices," Papers 2408.02339, arXiv.org.
    7. Geske, Joachim, 2022. "The value of energy efficiency in residential buildings – a matter of heterogeneity?!," Energy Economics, Elsevier, vol. 113(C).
    8. Maria-Francisca Cespedes-Lopez & Raul-Tomas Mora-Garcia, 2022. "Are Cave Houses a Sustainable Real Estate Alternative?," Land, MDPI, vol. 11(12), pages 1-17, December.
    9. Daniel Broxterman & Tingyu Zhou, 2023. "Information Frictions in Real Estate Markets: Recent Evidence and Issues," The Journal of Real Estate Finance and Economics, Springer, vol. 66(2), pages 203-298, February.
    10. Singhal, Puja & Sommer, Stephan & Kaestner, Kathrin & Pahle, Michael, 2023. "Split-incentives in energy efficiency investments? Evidence from rental housing," Ruhr Economic Papers 992, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    11. Constantin Kempf & Juerg Syz, 2022. "Why pay for sustainable housing? Decomposing the green premium of the residential property market in the Canton of Zurich, Switzerland," SN Business & Economics, Springer, vol. 2(11), pages 1-39, November.
    12. Luigi Abate & Valeria Lionetti & Valentina Michelangeli, 2024. "Is the Italian green mortgage market ready to take off?," Questioni di Economia e Finanza (Occasional Papers) 868, Bank of Italy, Economic Research and International Relations Area.
    13. Erica Myers & Steven L. Puller & Jeremy West, 2022. "Mandatory Energy Efficiency Disclosure in Housing Markets," American Economic Journal: Economic Policy, American Economic Association, vol. 14(4), pages 453-487, November.

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    More about this item

    Keywords

    Energy efficiency; Information asymmetry; House prices; Energy labels; Regression discontinuity;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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