An exploratory investigation into the relationship between energy performance certificates and sales price: a polytomous universal model approach

Abstract

Purpose The role of energy efficiency and particularly energy performance certificates (EPCs) has emerged as a topical and important aspect of real estate markets. Various studies have been carried out investigating the perceived capitalisation effects of energy efficiency on property prices. There, however, remains divergence of opinion whether the capitalisation effect is truly in existence with extant research showing differing magnitudes of effects, if any. To date, no study (that the authors are aware of) has investigated the nature of the transition between EPC bands and price effects. The purpose of this study is to add to the research of the energy efficiency of housing to examine the nature of the likelihood of property characteristics being associated with higher EPC scores and value. Design/methodology/approach This research undertakes a suite of methodological tests to investigate the more latent relationships between EPC bands and pricing behaviour using 3,797 achieved sales prices within the Belfast housing market. Binary logit regression models are specified in conjunction with a Polytomous Universal Model to examine the likelihood of EPC bands falling within a particular property type and the likelihood of any pricing effects. Findings The findings show the differing property types to comprise very distinct and complex relationships in terms of price and EPC banding. The binary logit model estimations for both terrace properties and apartments reveal an increased likelihood to obtain higher EPC scores, with the semi-detached sector displaying a “mixed effect” with detached property revealing decreased probability of having superior energy performance and decreased likelihood of having poorer energy performance. The ordinal model estimations indicate that sales price comprises no relationship with energy performance, inferring that there is no increased probability of an increase in sales price with higher EPC rating. Originality/value This research offers new insights and focus on achieving a better understanding of the nexus between energy performance and property characteristics using alternative modelling approaches. This provides more exploratory insights into the complex relationships and offers awareness for policy discourse in terms of targeting properties which will tend to be poorer in energy efficiency.

Assessing Energy Performance Certificates for Buildings: A Fuzzy Set Qualitative Comparative Analysis (fsQCA) of Portuguese Municipalities

“…Some authors, such as Lakić et al [23], Gómez-Román et al [24], and Trotta [25], indicated that social-economic aspects can promote energy efficiency initiatives. Moreover, others, such as McCord et al [26], argued that properties' characteristics determine specific energy efficiency levels.…”

EPC Labels and Building Features: Spatial Implications over Housing Prices

“…A significant part of housing economics literature is devoted to exploring the determinants of real estate prices. In general, the methods adopted by scholars to analyse the residential real estate prices include the following (notice that the quoted researches are referred specifically to the recent exploration of green attributes contribution on prices, but the methodologies illustrated are commonly used in real estate analysis): Hedonic Price Model (HPM) [14], Hedonic Price Model combined with spatial specification [15,16], regression and multivariate analysis [17], binary logit regression models in conjunction with a Polytomous Universal Model [18], quantile regression [19] and evolutionary polynomial regression [20]. Furthermore, the Structural Equation Models are explored as an alternative to the regression models for exploring the presence of latent variables [21][22][23].…”

Energy performance certificates and house prices: a quantile regression approach

“…Building on this idea, McCord et al (2020aMcCord et al ( , 2020b examined the nature of the transition between EPC bands and price effects and the likelihood of property characteristics being associated with higher EPC scores. Using a number of approaches, including logit and a polytomous universal framework, their findings illustrated that different property types comprise very distinct and complex relationships in terms of price and EPC band relationship.…”