Are tenants willing to pay for energy efficiency? Evidence from a small-scale spatial analysis in Germany

Inefficient markets for energy efficiency - Empirical evidence from the German rental housing market

“…Further, in a similar framework, Kholodilin et al [7] also find that energy efficiency is capitalized into rents in the Berlin housing market. In a more recent study, März et al [6] investigate the residential rental market in the German city of Wuppertal, using small-scale spatial data. Their results show a positive rental premium as well; however, it appears to be rather small especially in relation to other (visible) apartment characteristics.…”

“…P e further depends on the source of heating energy, and the EPS may vary according to the type of EPC. This equation implies that improved energy efficiency directly impacts the total costs and that their willingness to pay per unit of improvement of energy efficiency directly corresponds to the energy price 6 . Under this hypothesis, the landlord-tenant dilemma is absent at least on the market for new rentals, since an improvement in energy efficiency would translate into a corresponding increased willingness to pay on the net rent -other things being equivalent.…”

“…Yet this is relevant for about 5 % of all households in Germany. 6 In case of full information. To control for omitted variable bias, we add regional fixed effects 𝜏 𝑑 on NUTS3-level, which is equivalent to counties 7 in North Rhine-Westphalia, and seasonal (i.e., quarterly-year) fixed effects 𝜇 𝑡 to our model.…”

“…The newly introduced CO 2 pricing for heating might exacerbate this dilemma, as heating costs are usually borne entirely by tenants and landlords are not affected by higher energy bills. In addition, März et al [6] find a higher willingness-to-pay (WTP) of tenants for more visible features (e.g., guest toilet, fitted kitchen) compared to higher energy efficiency. Therefore, landlords with limited financial resources are more likely to invest in these visible improvements.…”

“…e.g. [6,7]) to use the term WTP for the estimated rental price effects of energy efficiency although we use offer data. Under the assumption of efficient information processing in the markets and in the absence of other market distortions, this may be justified.…”