Energy performance certificates and house prices: a quantile regression approach

Abstract

Purpose A number of studies have investigated the relationship between energy performance certificates (EPCs) and house prices. A majority of studies have tended to model energy performance pricing effects within a traditional hedonic conditional mean estimate model. There has been limited analysis that has accounted for the relationship between EPCs and the effects across the pricing distribution. Moreover, there has been limited research examining the “standard cost improvements EPC score”, or “potential score”. Therefore, this paper aims to quantify and measure the dynamic effects of EPCs on house prices across the price spectrum and account for standardised cost-effective retrofit improvements. Design/methodology/approach Existing EPC studies produce one coefficient for the entirety of the pricing distribution, culminating in a single marginal implicit price effect. The approach within this study applies a quantile regression approach to empirically estimate how quantiles of house prices respond differently to unitary changes in the proximal effects of EPCs and structural property characteristics across the conditional distribution of house prices. Using a data set of 1,476 achieved transaction prices, the quantile regression models apply both assessed EPC score and bands and further examine the potential EPC rating for improved energy performance based on an average energy cost improvement. Findings The findings show that EPCs are valued differently across the quantiles and that conditional quantiles are asymmetrical. Only property prices in the upper quantiles of the price distribution show significant capitalisation effects with energy performance, and only properties with higher EPC scores display positive significant effects at the higher end of the price distribution. There are also brown discount effects evident for lower-rated properties within F- and G-rated EPC properties at the higher end of the pricing distribution. Moreover, the potential energy efficiency rating (score) also shows increased effects with sales prices and appears to minimise any brown discount effects. The findings imply that energy performance is a complex feature that is not easily “averaged” for valuation effect purposes. Originality/value While numerous studies have investigated the pricing effects of EPCs, they have tended to provide a single estimate to determine the relationship with price. This paper extends the traditional analytical insights beyond the conditional mean estimate by examining the quantiles of the relationship between EPCs and house prices to enhance the understanding of this esoteric and complex issue. In addition, this research applies the assessed energy efficiency potential to establish whether effective cost improvements enhance the relationship with sales price and capitalisation effects.

When Residential Energy Labeling Becomes Irrelevant: Sustainability vs. Profitability in the Liberalized Chilean Property Market

“…This can be explained by the fact that information asymmetry is just one of the many market failures that can arise around the energy efficiency of homes. As noted by different authors [52,57,89,90], mandatory labeling is a critical step, but to take advantage of its full potential for information and communication, it must be combined with instruments such as tax incentives and strategic subsidies to avoid producing a "brown discount" among populations with the lowest income-as found by McCord et al [91]-and to increase the possibility of attracting private capital using a "green finances" mechanism to foster energy-efficient buildings.…”

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

“…Additionally, several studies have examined the relationship between EPCs and transaction prices and rents, including works by Mudgal et al [7], McCord et al [52],…”

“…However, this literature review highlights the lack of consensus regarding the impact of EPCs on transaction prices and rents. While some authors suggest that EPCs lead to an increase in transaction prices and rents (e.g., Mudgal et al [7]; McCord et al [26]; Barreca et al [50]; Khazal and Sønstebø, [51]; Chegut et al [54]; Graaf, [56]; Cerin et al [57]; and Högberg [58]), others suggest that they have no effect (e.g., McCord et al [52]; Cespedes-Lopez et al [53]; Chegut et al [54]; Wilhelmsson [55]; and Fuerst and McAllister [59]).…”

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].…”