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Do Homebuyers Value Energy Efficiency? Evidence From an Information Shock

Author

Listed:
  • Arpita Ghosh

    (Department of Economics, University of Exeter)

  • Brendon McConnell

    (Department of Economics, City University of London)

  • Jaime Millán-Quijano

    (Navarra Center for International Development, Universidad de Navarra)

Abstract
We study the housing market response to a country-wide policy that mandated the provision of energy efficiency information with all marketing material at the time of listing. Using the near universe of housing sales in England and Wales, we match in the energy efficiency status of the property from Energy Performance Certificates data. We develop a conceptual framework that makes clear the key channels through which the policy may impact house prices - an information-driven salience channel and a market valuation channel. We provide causal evidence of homebuyers' willingness to pay for a higher energy rated property, documenting a 1-3% premium to a higher energy efficiency rating at the national level, and a 3-6% premium in the London market. We explore a set of key margins along which homebuyers can respond, ruling out as explanations both a consumption channel and an information channel. We conclude that the elevated EPC-rating premiums are driven by a market valuation channel, a conclusion for which we provide empirical support. Such a conclusion is of key policy importance, as it suggests market-facing energy efficiency regulations can increase demand for more energy efficient housing, even in absence of any discernible demand-side consumption or information effects.

Suggested Citation

  • Arpita Ghosh & Brendon McConnell & Jaime Millán-Quijano, 2024. "Do Homebuyers Value Energy Efficiency? Evidence From an Information Shock," Discussion Papers 2402, University of Exeter, Department of Economics.
    • Handle: RePEc:exe:wpaper:2402
    as

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    File URL: https://exetereconomics.github.io/RePEc/dpapers/DP2402.pdf
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    References listed on IDEAS

    as
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    2. Fuerst, Franz & McAllister, Patrick & Nanda, Anupam & Wyatt, Peter, 2015. "Does energy efficiency matter to home-buyers? An investigation of EPC ratings and transaction prices in England," Energy Economics, Elsevier, vol. 48(C), pages 145-156.
    3. Kelly C. Bishop & Nicolai V. Kuminoff & H. Spencer Banzhaf & Kevin J. Boyle & Kathrine von Gravenitz & Jaren C. Pope & V. Kerry Smith & Christopher D. Timmins, 2020. "Best Practices for Using Hedonic Property Value Models to Measure Willingness to Pay for Environmental Quality," Review of Environmental Economics and Policy, University of Chicago Press, vol. 14(2), pages 260-281.
    4. Matteo Iacoviello & Stefano Neri, 2010. "Housing Market Spillovers: Evidence from an Estimated DSGE Model," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 125-164, April.
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    6. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect of Information on Product Quality: Evidence from Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(2), pages 409-451.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law

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