Is there a market value for energy performance in a local private housing market? An efficiency analysis approach

This paper aims to find evidence of a "green value" in a local housing market using notarial data on a small urban area in France. We use frontier functions, an original approach that departs from customary hedonistic regressions, to model housing market prices as a production set bordered by an efficiency frontier estimated by Data Envelopment Analysis (DEA). The paper tests if difference in prices (i.e. the distance from the frontier) can be explained by energy performance measured as a normalized categorical ascending kWh/m²/year grade (or Energy Performance Certificate -EPC). We show that there is significative evidence for energy performance's market value. The "Green Property Value" is estimated to range between 1% and 3% of the price for medium-high performance buildings. Our findings are robust to the specifications of the first (frontier estimation) and the second stage (residual analysis). We then propose a cost-benefit analysis to evaluate the return on retrofit investment a household would get from higher market value. We find that housing green property value accounts for a part, between 4.6% in houses and 6.6% in collective dwellings, of the real terms investment in energy retrofit. We interpret our findings with regard to spatial dependencies that affect the market and the heterogeneity between the private and the public social housing stocks.