Residential Energy Use and Conservation: Economics, Demographics, and Standards

Abstract:     
The 2003 European Performance of Buildings Directive mandated all EU member states to enforce disclosure on the energy performance of residential and commercial properties. This is the first paper to analyse the introduction, adoption and market implications of energy labels (EPCs) in the housing market. We use a unique dataset on housing transactions in the Netherlands, including 194,000 transactions since the introduction of energy labels in January 2008. The results show that when energy performance certification is not mandatory, adoption rates are low and declining over time. Labels are clustered among post-war, single-family homes in more expensive, low-density neighbourhoods, where competition among buyers is low. This provides an indication that energy labels are adopted as a strategic tool in the transaction process. We also document that adoption rates of energy labels are highest in areas that have a high propensity of green voters during national elections, which implies that idealistic motives may also play a role in the decision to adopt an energy label. The energy label seems to carry a moderately powerful market signal. We analyse the impact of energy labels on the transaction process of homes and find that the label does not affect time on the market. However, within the sample of certified homes, we document a significant price premium for homes with an energy label that reflects high standards of energy efficiency. The size of the green increment is positively related to the underlying energy efficiency of a dwelling and this result holds while controlling for various detailed hedonic features, such as quality of insulation and the maintenance of the exterior. Even though the label adoption rate is declining over time, the label premium is relatively constant. The energy label seems to create transparency in energy consumption of dwellings and our analysis shows that consumers capitalize this information in the price of their prospective home.

JEL Classification: Q5

working papers series