Capitalising energy efficiency in housing markets : an investigation into the impact of Energy Performance Certificates (EPCs) on transaction prices in selected European countries

Abstract

This thesis investigates the current level of capitalisation of energy efficiency in housing markets in 12 European countries. Capitalisation is represented by the presence and magnitude of a price surplus in sales or rental transactions. The hedonic analysis method was used to estimate surpluses for each of the markets, with the energy performance rating given in Energy Performance Certificates (EPCs) being used as a proxy for energy efficiency. Two models were constructed: one characterising energy performance using a simple continuous variable and the other constructing a set of dummy variables for energy performance letter-ratings. The former gives an average surplus across the EPC scale and the latter allows for an analysis of how surpluses vary across the EPC scale. For the majority of analysed markets, statistically significant surpluses were observed across the scale. In addition, it was observed that surpluses were greater in the sales markets than in the rental markets, confirming the 'split incentive dilemma'. Statistically significant deficits were observed for the rental and sales markets in the Netherlands, as well as for the German rental market under the old EPC scheme. These unexpected results are likely caused by omitted variable bias, given the discrepancy between them and the other results in this thesis, as well as in the literature. The results demonstrate the fact that energy efficiency is currently incorporated into decision-making in the housing markets of the analysed countries. However, detailed analysis into the factors influencing surpluses would require more extensive datasets with quality and location variables. Such improvements would decrease the impact of omitted variable bias. In addition, it is recommended that regular hedonic analyses are carried out in order to evaluate the success of the EPC scheme in European countries in the future.