Energy Efficiency Improvements and Property Values: A Hedonic Analysis of Energy Performance Certificates and Market Incentives in England and Wales
AbstractIncreasing the energy efficiency of housing needs to be a key part of government 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 residential 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 for the 2014-2022 period 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 between across regions. Subsidies targeted to regions and property types where market incentives are weakest could help reduce the cost of reaching Net Zero carbon emissions by 2050.
Robert Hill is Professor of Macroeconomics at University of Graz, Austria. Prior to that he was Professor of Economics at University of New South Wales in Australia. He obtained his PhD in Economics in 1995 from University of British Columbia in Canada under the supervision of Erwin Diewert. He is a Fellow of the Academy of the Social Sciences of Australia, and of the Society for Economic Measurement, and a member of the Conference on Research in Income and Wealth (CRIW) at the NBER. He has served on the Technical Advisory Group of the International Comparisons Program at the World Bank, on the Expert Advisory Group of the Review of UK Consumer Price Statistics led by Paul Johnson, and as a member of the Expert Team advising Eurostat on the treatment of owner-occupied housing in the HICP. From 2008 to 2014 he was Managing Editor of the Review of Income and Wealth. He has published in many leading international academic journals on issues relating to economic measurement, including in American Economic Review, International Economic Review, Review of Economics and Statistics, Journal of Econometrics, Journal of Business and Economic Statistics, European Economic Review, Journal of Public Economics, Economic Inquiry, Regional Science and Urban Economics, Macroeconomic Dynamics, Review of Income and Wealth, and Journal of Housing Economics.