Energy Efficiency Improvements and Property Values: A Hedonic Analysis of Market Incentives in England and Wales

Increasing the energy efficiency of housing needs to be a key part of strategies to reach Net Zero carbon emissions by 2050. In this paper we measure the market incentives of owners to improve the energy efficiency of residential properties and how these incentives differ by location and property type. By linking sales records for England and Wales with their Energy Performance Certificates (EPCs), we create a merged micro-level dataset providing transaction price, physical and locational characteristics, energy performance, recommended energy efficiency improvements, and associated costs at the level of individual properties. We also construct a proxy for plot size using the exact geographic location and distances to neighbouring properties. We then estimate a hedonic model to predict the property price increases if all EPC recommendations were implemented. Our results reveal significant differences in market incentives across regions and property types. On average, we find that 84.4% of the costs of EPC-recommended energy efficiency improvements are capitalised in property prices for flats, as compared with 59.4% for semis/terraces and 59.3% for detached houses, although significant differences exist across regions. Subsidies targeted to regions and property types where market incentives are weakest could help reduce the cost of reaching Net Zero.