Green Performs Better: Energy Efficiency and Financial Return on Buildings

Abstract

This study investigates the effect of energy consumption on the financial performance of residential buildings in a large panel framework. Based on prior European studies regarding the use of energy performance certificates (EPCs), we analyse whether the responsible use of energy leads to a significant price differentiation between 2008 and 2010. Based on the IPD Databank and the German statistical office, our descriptive portfolio results show that energy efficient buildings have an up to 3.15% higher return and 0.76 €/m² higher rent prices than inefficient assets. Furthermore, (un-) conditional regression results provide evidence that one percent decline in energy consumption affects the total return of buildings positively by 0.015%, all else equal. The hedonic results additionally show that one percent energy conservation boosts rent prices by 0.08% and market value by 0.45%. Overall, our study presents alternative methodologies when describing and estimating hedonic data and offers the first empirical evidence of the energy price premium in German residential markets.

Keywords: energy efficiency, sustainability, EPC, German Residential Markets, quantile regression