IDEAS home Printed from https://ideas.repec.org/p/hfa/wpaper/24-10.html
   My bibliography  Save this paper

European Energy Crisis: Did Electricity Prices Shock Real Estate Markets?

Author

Listed:
  • Becka Brolinson

    (Federal Housing Finance Agency)

  • William M. Doerner

    (Federal Housing Finance Agency)

  • Arne Johan Pollestad

    (Federal Housing Finance Agency)

  • Michael J. Seiler

    (Federal Housing Finance Agency)

Abstract

This paper investigates the impact of the 2021–2022 European energy crisis, a significant macro-financial shock, on homebuyer willingness-to-pay for energy-efficient homes in Norway. Leveraging the country’s electricity market---characterized by five distinct regions with varying exposure to European power prices---as a quasi-experiment, we analyze how energy price shocks influence housing market dynamics. Applying a triple differences regression framework to real estate transactions, we find that home prices in regions affected by the shock fell significantly relative to unaffected regions, with single-family dwellings outside major cities experiencing the largest declines. While energy-efficient homes appeared less vulnerable, this effect was only marginally significant. Moreover, the negative price effects persisted despite the introduction of electricity price subsidies. These findings highlight the complex relationship between energy costs, housing market valuations, and buyer preferences, offering generalizable insights into the resilience of housing markets to macro-financial shocks and the role of policy interventions in mitigating their effects.

Suggested Citation

  • Becka Brolinson & William M. Doerner & Arne Johan Pollestad & Michael J. Seiler, 2024. "European Energy Crisis: Did Electricity Prices Shock Real Estate Markets?," FHFA Staff Working Papers 24-10, Federal Housing Finance Agency.
    • Handle: RePEc:hfa:wpaper:24-10
    as

    Download full text from publisher

    File URL: https://www.fhfa.gov/document/wp2410.pdf
    Download Restriction: no
    File URL: https://www.fhfa.gov/research/papers/wp2410
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Aydin, Erdal & Brounen, Dirk & Kok, Nils, 2018. "Information provision and energy consumption: Evidence from a field experiment," Energy Economics, Elsevier, vol. 71(C), pages 403-410.
    2. Pástor, Ľuboš & Veronesi, Pietro, 2013. "Political uncertainty and risk premia," Journal of Financial Economics, Elsevier, vol. 110(3), pages 520-545.
    3. Katrina Jessoe & David Rapson, 2014. "Knowledge Is (Less) Power: Experimental Evidence from Residential Energy Use," American Economic Review, American Economic Association, vol. 104(4), pages 1417-1438, April.
    4. Koichiro Ito, 2014. "Do Consumers Respond to Marginal or Average Price? Evidence from Nonlinear Electricity Pricing," American Economic Review, American Economic Association, vol. 104(2), pages 537-563, February.
    5. Dora L. Costa & Matthew E. Kahn, 2011. "Electricity Consumption and Durable Housing: Understanding Cohort Effects," American Economic Review, American Economic Association, vol. 101(3), pages 88-92, May.
    6. Fan, Ying, 2022. "Demand shocks and price stickiness in housing market dynamics," Economic Modelling, Elsevier, vol. 110(C).
    7. Jon Olaf Olaussen & Are Oust & Ole Jakob Sønstebø, 2018. "Bidding Behavior in the Housing Market under Different Market Regimes," JRFM, MDPI, vol. 11(3), pages 1-13, July.
    8. Laura A Bakkensen & Lint Barrage, 2022. "Going Underwater? Flood Risk Belief Heterogeneity and Coastal Home Price Dynamics," The Review of Financial Studies, Society for Financial Studies, vol. 35(8), pages 3666-3709.
    9. Wu, JunJie & Sexton, Steven & Zilberman, David, 2019. "Energy price shocks, household location patterns and housing crises: Theory and implications," Energy Economics, Elsevier, vol. 80(C), pages 691-706.
    10. Blake Shaffer, 2020. "Misunderstanding Nonlinear Prices: Evidence from a Natural Experiment on Residential Electricity Demand," American Economic Journal: Economic Policy, American Economic Association, vol. 12(3), pages 433-461, August.
    11. Paige Ouimet & Geoffrey Tate, 2020. "Attention for the Inattentive: Positive Effects of Negative Financial Shocks," Review of Finance, European Finance Association, vol. 24(3), pages 615-646.
    12. Zhuo Chen & Andrea Lu, 2018. "Seeing the Unobservable from the Invisible: The Role of CO2 in Measuring Consumption Risk," Review of Finance, European Finance Association, vol. 22(3), pages 977-1009.
    13. Darwin Choi & Zhenyu Gao & Wenxi Jiang, 2020. "Attention to Global Warming," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1112-1145.
    14. Allcott, Hunt, 2011. "Social norms and energy conservation," Journal of Public Economics, Elsevier, vol. 95(9-10), pages 1082-1095, October.
    15. Markus Baldauf & Lorenzo Garlappi & Constantine Yannelis & José Scheinkman, 2020. "Does Climate Change Affect Real Estate Prices? Only If You Believe In It," The Review of Financial Studies, Society for Financial Studies, vol. 33(3), pages 1256-1295.
    16. Bartram, Söhnke M. & Hou, Kewei & Kim, Sehoon, 2022. "Real effects of climate policy: Financial constraints and spillovers," Journal of Financial Economics, Elsevier, vol. 143(2), pages 668-696.
    17. 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).
    18. Allcott, Hunt, 2011. "Social norms and energy conservation," Journal of Public Economics, Elsevier, vol. 95(9), pages 1082-1095.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Todd D. Gerarden & Richard G. Newell & Robert N. Stavins, 2017. "Assessing the Energy-Efficiency Gap," Journal of Economic Literature, American Economic Association, vol. 55(4), pages 1486-1525, December.
    2. Laura Abrardi, 2019. "Behavioral barriers and the energy efficiency gap: a survey of the literature," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(1), pages 25-43, March.
    3. Bernard, René & Tzamourani, Panagiota & Weber, Michael, 2022. "Climate change and individual behavior," Discussion Papers 01/2022, Deutsche Bundesbank.
    4. Kahn, Matthew E. & Walsh, Randall, 2015. "Cities and the Environment," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 405-465, Elsevier.
    5. Kahn, Matthew E. & Kok, Nils & Quigley, John M., 2014. "Carbon emissions from the commercial building sector: The role of climate, quality, and incentives," Journal of Public Economics, Elsevier, vol. 113(C), pages 1-12.
    6. Andor, Mark Andreas & Götte, Lorenz & Price, Michael Keith & Schulze Tilling, Anna & Tomberg, Lukas, 2023. "Differences in how and why social comparisons and real-time feedback impact resource use: Evidence from a field experiment," Ruhr Economic Papers 1059, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Gilbert, Ben & Graff Zivin, Joshua, 2014. "Dynamic salience with intermittent billing: Evidence from smart electricity meters," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 176-190.
    8. Tonke, Sebastian, 2020. "Imperfect Procedural Knowledge: Evidence from a Field Experiment to Encourage Water Conservation," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224536, Verein für Socialpolitik / German Economic Association.
    9. Manuel Frondel and Gerhard Kussel, 2019. "Switching on Electricity Demand Response: Evidence for German Households," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    10. Somasundaram, Jeeva & Koch, Ingrid & Lim, Noah, 2023. "Raising the AC temperature in the tropics, one degree at a time," Energy Economics, Elsevier, vol. 128(C).
    11. Brent, Daniel A. & Ward, Michael B., 2019. "Price perceptions in water demand," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    12. Jessoe, Katrina & Rapson, David & Smith, Jeremy B., 2014. "Towards understanding the role of price in residential electricity choices: Evidence from a natural experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 191-208.
    13. Wichman, Casey J., 2017. "Information provision and consumer behavior: A natural experiment in billing frequency," Journal of Public Economics, Elsevier, vol. 152(C), pages 13-33.
    14. Vesterberg, Mattias, 2017. "Heterogeneity in price responsiveness of electricity: Contract choice and the role of media coverage," Umeå Economic Studies 940, Umeå University, Department of Economics.
    15. Asensio, Omar Isaac & Delmas, Magali A., 2016. "The dynamics of behavior change: Evidence from energy conservation," Journal of Economic Behavior & Organization, Elsevier, vol. 126(PA), pages 196-212.
    16. Sudarshan, Anant, 2017. "Nudges in the marketplace: The response of household electricity consumption to information and monetary incentives," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 320-335.
    17. Katrina Jessoe & Gabriel E. Lade & Frank Loge & Edward Spang, 2021. "Spillovers from Behavioral Interventions: Experimental Evidence from Water and Energy Use," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 8(2), pages 315-346.
    18. Brent, Daniel A. & Friesen, Lana & Gangadharan, Lata & Leibbrandt, Andreas, 2017. "Behavioral Insights from Field Experiments in Environmental Economics," International Review of Environmental and Resource Economics, now publishers, vol. 10(2), pages 95-143, May.
    19. Agarwal, Sumit & Rengarajan, Satyanarain & Sing, Tien Foo & Yang, Yang, 2017. "Nudges from school children and electricity conservation: Evidence from the “Project Carbon Zero” campaign in Singapore," Energy Economics, Elsevier, vol. 61(C), pages 29-41.
    20. Iztok Podbregar & Sanja Filipović & Mirjana Radovanović & Olga Mirković Isaeva & Polona Šprajc, 2021. "Electricity Prices and Consumer Behavior, Case Study Serbia—Randomized Control Trials Method," Energies, MDPI, vol. 14(3), pages 1-12, January.

    More about this item

    Keywords

    energy price shock; housing market; energy efficiency; energy performance certificate; government subsidy; macro-financial shocks;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • P18 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Energy; Environment
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • R2 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hfa:wpaper:24-10. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: William Doerner (email available below). General contact details of provider: https://edirc.repec.org/data/fhfaaus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.