Do renters skimp on energy efficiency during economic recessions? Evidence from Northeast Scotland

Abstract

This paper investigates tenants' willingness to pay (WTP) for energy efficiency in the private rented housing sector. Using data from Aberdeen city and Shire in Scotland between the third quarter of 2013 and the second quarter of 2017, rent premiums of 2-11% associated with more energy efficient dwellings are found, and the magnitudes of these premiums are considerable compared to those of other physical attributes. Such premiums however, are significantly reduced during economic recession, suggesting that tenants' WTP for energy efficiency varies under different economic conditions. From a methodological perspective, the study uses a multilevel model, where the unobservable neighbourhood and age effects are approximated. Our results implicate that although tenants' WTP for more energy efficient is present, there still might be a need for public strategy to facilitate the improvement of energy performance in the private rented sector.

A Review of Willingness to Pay Studies for Climate Change Mitigation in the Energy Sector

“…It is important to note, that financial incentives and grants and their impact on WTP for energy efficiency improvement measures in households were examined in details by most studies dealing with WTP for energy renovation [61,138,140,143,145], however these studies revealed contradictory results especially in terms of the impacts of subsidies and loans on WTP for energy efficiency improvements in households. The size of the acceptable price premium, that potential homebuyers are willing to pay for green buildings, is likely to be affected negatively by short-term financial incentives proposed by the government.…”

“…Liu et al [138] investigated WTP during economic recessions for energy efficiency in the private rented housing sector. Results showed, that respondents are saving energy costs by different ways (such as heating one room rather than the whole property; or wearing more layers of clothing) rather than paying a premium for energy efficiency.…”

“…The most common is CE method, when the building renovation and energy saving appliances in households are being considered. Some scientists conducted studies using already existing data: Liu et al [138] used transaction data of private residential property, while Ferreira et al [142] used project together with case-studies provided. Also in the same Table 4, it can be seen that most of the studies were carried out in European countries, except for a few studies which were conducted in Hong Kong by Leung [143] and in Saint Lucia by Reynolds et al [126].…”

Do Consumers Care about the Energy Efficiency of Buildings? Understanding Residential Choice Based on Energy Performance Certificates

“…Hoffman and Henn (2008) [39] and Yau (2012) [40] demonstrate that consumers are affected by several factors when deciding to move into energy-efficient buildings, such as economic or/and psychological reasons. Encinas et al (2018) [42] and Liu et al (2018) [43] investigate the consumers' willingness to pay for energy efficient buildings, and both conclude that people tend to pay more for higher level of energy efficient buildings. Chau et al (2010) [20] apply discrete choice experiments to identify the factors affecting the preference for energy-efficient buildings in Hong Kong.…”

“…There are several methods to gather the stated preference data. One of approaches is contingent valuation method (CVM), which is directly asking the consumers their willingness to pay [42,44]. Although the CVM is a simple and easy to conduct, it presents a weakness by suggesting the existence of either overestimate or underestimate of the true values.…”