The value of energy efficiency in residential buildings – a matter of heterogeneity?!

(preference based) sorting equilibrium; Energy efficiency; Hedonic equilibrium; Heterogeneity of the willingness to pay; Market price premium; Prebound effect; Residential buildings; Scarcity premium; Market price; Preference-based; Price premiums; Residential building; Economics and Econometrics; Energy (all); Heterogeneity of the willingness to pay (preference based) sorting equilibrium; General Energy

Abstract :

[en] Energy efficiency ratings of residential buildings are intended to remove assessment errors from real estate markets to increase energy efficiency – the key to fully decarbonizing the building sector. Price premiums of rated buildings should reflect capitalized future energy savings, but instead are nonlinear (1), can exceed savings (2) and are correlated with buyer's characteristics (3). We explore these anomalies with a hedonic model of product differentiation, which is adapted to efficiency valuation in the housing market. The model implies that buyers with high willingness to pay for efficiency “sort” themselves to efficient buildings (and vice versa) and drive their premiums above average discounted energy expenditures - if the market share of the efficient buildings is below average. In this sense a non-linear scarcity premium explains findings (1) and (2). Furthermore, it is revealed that the results from (3) require average buyer's characteristics to vary spatially, but neither their variance nor the variance of buildings stocks efficiency – strong assumptions. The model explains measured premiums of the UK well and shows that as well as buyer heterogeneity and supply structure, the prebound effect - the overestimation of energy costs in inefficient buildings by ratings – also plays an important role in determining efficiency premiums.

Disciplines :

Special economic topics (health, labor, transportation...)

Author, co-author :

GESKE, Joachim ; University of Luxembourg > Interdisciplinary Centre for Security, Reliability and Trust (SNT) > FINATRAX ; Imperial College London, London, United Kingdom

External co-authors :

Language :

English

Title :

The value of energy efficiency in residential buildings – a matter of heterogeneity?!

Publication date :

September 2022

Journal title :

Energy Economics

ISSN :

0140-9883

eISSN :

1873-6181

Publisher :

Elsevier B.V.

Volume :

113

Pages :

106173

Peer reviewed :

Peer Reviewed verified by ORBi

Additional URL :

https://api.elsevier.com/content/article/PII:S0140988322003267?httpAccept=text/xml

Funding text :

This work is part of The Active Building Centre research program , supported by the Engineering and Physical Sciences Research Council , Grant EP/S016627/1 . I would like to thank Richard Green for his support as well as colleagues within the ABC research program and participants of the 1st IAEE Online Conference for helpful comments. The suggestions of three anonymous referees have greatly improved the paper, but I remain responsible for any errors.

Available on ORBilu :

since 27 November 2023

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