The German Energy Performance of Buildings Directive requires sellers on the housing market to provide detailed information on expected yearly energy consumption per square meter (energy performance, EPS). This paper uses variation in local fuel prices and climate, fuel types, and building ages to analyse the relationship between expected energy cost savings from energy efficient building structure and house prices in a data set of listing prices from all regions of Germany. Results suggest that heating cost considerations are less relevant than previously thought.
This is a preview of subscription content, access via your institution.
Buy single article
Instant access to the full article PDF.
Tax calculation will be finalised during checkout.
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
Tax calculation will be finalised during checkout.
Table 9 in Busse et al. (2013, p. 245) exemplifies this dilemma. It displays a range of plausible assumptions about discount rates and demand elasticities. As interpreted by the authors, this table supports their conclusion that myopia are absent. Allcott and Wozny (2014, p. 782, Fn. 9) use the same table to show that their own results and the results of Busse et al. (2013) support the presence of myopia.
For instance, there is evidence of uninformed consumer choices in low-cost situations if part of the price information is visible and part of it is hidden ( see Chetty et al. 2009, inter alia).
It is not possible to decide whether there are statistically significant differences because the authors only report significance levels and also do not indicate the type of covariance matrix that was used in their calculation.
Lising prices could be seen as final transaction prices measured with error. Even if this measurement is unbiased, it potentially increases confidence intervals around coefficient estimates. The error is unobservable in our case.
For houses older than 3 years, a “consumption-based” EPS can be calculated which is based on energy use in the past 3 years.
The results are robust to the choice of alternative measures for local climate, such as average local winter or autumn and winter temperatures. These results are available from the author upon request.
In 2015, only 0.2% of private households’ energy use fell on air conditioning according to the German Federal Environmental Agency [Umweltbundesamt], see Ziesing (2016).
Figures reported by the German Association of Energy and Water Industries (BDEW), “Beheizungsstruktur des Wohnungsbestandes in Deutschland 2014”.
Note that a regression of log price per square metre on covariates including log living area is equivalent to the more common regression of log price on covariates including log living area.
Matching was done without replacement and inexact, using the Match function from R package Matching.
Income is not available at the level of postal codes from official statistics. Private data suppliers might rely on housing prices as a proxy for local income, so that using such data would contaminate the regression.
In the estimation, this was repeated 200 times. In each repetition, 50 draws were made from a normal distribution centered around the coefficient estimate, with a standard deviation equal to the estimated standard error. The reported coefficient estimates and standard errors in column (2) of Table 10 are the empirical means and standard errors of these \(200 \times 50\) draws.
Fuerst et al. (2015) report coefficient estimates for A or B rated buildings and find a premium over E-rated buildings of 5.7% for the full sample.
Allcott H, Greenstone M (2012) Is there an energy efficiency gap? J Econ Perspect 26(1):3–28
Allcott H, Mullainathan S (2010) Behavioral science and energy policy. Science 327(5970):1204–1205
Allcott H, Wozny N (2014) Gasoline prices, fuel economy, and the energy paradox. Rev Econ Stat 96(5):779–795
Brounen D, Kok N (2011) On the economics of energy labels in the housing market. J Environ Econ Manag 62(2):166–179
Busse MR, Knittel CR, Zettelmeyer F (2013) Are consumers myopic? Evidence from new and used car purchases. Am Econ Rev 103(1):220–256
Chetty R, Looney A, Kroft K (2009) Salience and taxation: theory and evidence. Am Econ Rev 99(4):1145–1177
Conrad K (2000) Energy tax and competition in energy efficiency: the case of consumer durables. Environ Resour Econ 15(2):159–177
Deng Y, Li Z, Quigley JM (2012) Economic returns to energy-efficient investments in the housing market: evidence from Singapore. Reg Sci Urban Econ 42(3):506–515
Dinan TM, Miranowski JA (1989) Estimating the implicit price of energy efficiency improvements in the residential housing market: a hedonic approach. J Urban Econ 25(1):52–67
Dinkel M, Kurzrock B-M (2012) Asking prices and sale prices of owner-occupied houses in rural regions of Germany. J Interdiscip Prop Res 2012(1):5–23
Eichholtz P, Kok N, Quigley JM (2010) Doing well by doing good? Green office buildings. Am Econ Rev 100(5):2492–2509
Eichholtz P, Kok N, Quigley JM (2013) The economics of green building. Rev Econ Stat 95(1):50–63
Fuerst F, McAllister P (2011) Green noise or green value? Measuring the effects of environmental certification on office values. Real Estate Econ 39(1):45–69
Fuerst F, McAllister P, Nanda A, Wyatt P (2015) Does energy efficiency matter to home-buyers? An investigation of EPC ratings and transaction prices in England. Energy Econ 48:145–156
Fuerst F, McAllister P, Nanda A, Wyatt P (2016) Energy performance ratings and house prices in wales: an empirical study. Energy Policy 92:20–33
Gabaix X, Laibson D (2006) Shrouded attributes, consumer myopia, and information suppression in competitive markets. Q J Econ 121(2):505–540
Gerarden TD, Newell RG, Stavins RN, Stowe RC (2015) An assessment of the energy-efficiency gap and its implications for climate-change policy. NBER Working paper 20905
Giulietti M, Price CW, Waterson M (2005) Consumer choice and competition policy: a study of UK energy markets. Econ J 115:949–968
Halvorsen R, Pollakowski HO (1981) The effects of fuel prices on house prices. Urban Stud 18(2):205–211
Harjunen O, Liski M (2014) Not so myopic consumers. Evidence on capitalization of energy technologies in a housing market. CESifo working paper no. 4989
Hausman JA (1979) Individual discount rates and the purchase and utilization of energy-using durables. Bell J Econ 10(1):33–54
Henger R, Voigtländer M (2014) Transaktions- und Angebotsdaten von Wohnimmobilien - eine Analyse für Hamburg. IW Trends 41(4):1–16
Högberg L (2013) The impact of energy performance on single-family home selling prices in Sweden. J Eur Real Estate Res 6(3):242–261
Hyland M, Lyons RC, Lyons S (2013) The value of domestic building energy efficiency—evidence from Ireland. Energy Econ 40:943–952
Jaffe AB, Stavins RN (1994) The energy paradox and the diffusion of conservation technology. Resour Energy Econ 16(2):91–122
Kahn M E, Kok N (2014) The capitalization of green labels in the California housing market. Reg Sci Urban Econ 47:25–34 sI: Tribute to John Quigley
Kholodilin KA, Mense A, Michelsen C (2014). The market value of energy efficiency in buildings and the mode of tenure. Urban Stud. doi:10.1177/0042098016669464
Knight JR (2002) Listing price, time on market, and ultimate selling price: causes and effects of listing price changes. Real Estate Econ 30(2):213–237. doi:10.1111/1540-6229.00038
Knight J R, Sirmans C, Turnbull G K (1994) List price signaling and buyer behavior in the housing market. J Real Estate Finance Econ 9(3):177–192. doi:10.1007/BF01099271
Malpezzi S (2003) Hedonic pricing models: a selective and applied review. In: Gibb K, O’Sullivan A (eds) Housing economics and public policy. Essays in honor of Duncan Maclennan. Blackwell Science, Oxford, pp 67–89
Merlo A, Ortalo-Magné F (2004) Bargaining over residential real estate: evidence from England. J Urban Econ 56(2):192–216. http://www.sciencedirect.com/science/article/pii/S00941%19004000609
Newell RG, Siikamäki J (2014) Nudging energy efficiency behavior: the role of information labels. J Assoc Environ Resour Econ 1(4):555–598
Newell RG, Siikamäki J (2015) Individual time preferences and energy efficiency. Am Econ Rev Pap Proc 105(5):196–200
Potepan MJ (1996) Explaining intermetropolitan variation in housing prices, rents and land prices. Real Estate Econ 24(2):219–245
Ramos A, Labandeira X, Löschel A (2016) Pro-environmental households and energy efficiency in Spain. Environ Resour Econ 63(2):367–393
Rosen S (1974) Hedonic prices and implicit markets: product differentiation in pure competition. J Polit Econ 82(1):34–55
Sallee JM (2014) Rational inattention and energy efficiency. J Law Econ 57(3):781–820
Sallee JM, West SE, Fan W (2015) Do consumers recognize the value of fuel economy? Evidence from used car prices and gasoline price fluctuations. NBER working paper 21441
Semeraro P, Fregonara E (2013) The impact of house characteristics on the bargaining outcome. J Eur Real Estate Res 6(3):262–278
Soriano F (2008) Energy efficiency rating and house price in the ACT. Modelling the relationship of energy efficiency attributes to house price: the case of detached houses sold in the Australian Capital Territory in 2005 and 2006. Technical report, Australian Bureau of Statistics, Department of Water, Heritage and the Arts, Canberra
Walls M, Palmer KL, Gerarden T (2013). Is energy efficiency capitalized into home prices? Evidence from three US cities. Resources for the future discussin paper no. 13-18
Willand N, Ridley I, Pears A (2016) Relationship of thermal performance rating, summer indoor temperatures and cooling energy use in 107 homes in Melbourne, Australia. Energy Build 113:159–168. http://www.sciencedirect.com/science/article/pii/S03787%78815304692
Ziesing HJ (2016) Anwendungsbilanzen für die endenergiesektoren in deutschland in den jahren 2013 bis 2015. Tech. rep., Arbeitsgemeinschaft Energiebilanzen e.V
About this article
Cite this article
Mense, A. The Value of Energy Efficiency and the Role of Expected Heating Costs. Environ Resource Econ 71, 671–701 (2018). https://doi.org/10.1007/s10640-017-0179-7
- Energy efficiency
- Heating fuel prices
- House price capitalisation