Do Mandatory Energy Efficiency Upgrades Drive up Residential Rents?

Franz Fuerst

ERES from European Real Estate Society (ERES)

Abstract: The introduction of minimum energy efficiency standards (MEES) for buildings has been hailed as a milestone for improving the carbon footprints and energy consumption of the lowest performers in a number of countries. However, there is a concern that landlords will either pass on the additional costs to tenants via increased rents or withdraw non-compliant cheaper properties from the market altogether, thereby reducing supply in this market segment and driving up rents. As tenants in properties with lower energy efficiency performance tend to have lower incomes, the any direct or indirect rent increases stand to affect them disproportionately. This paper estimates the impact of the MEES policy on rents in the UK private rental market using a proprietary dataset of 3.6 million rental observations and property characteristics. It comprises a large set of control variables such as location, size, age and condition. The latter is particularly important as rental properties with lower energy efficiency levels are on average older and located in less attractive areas than their more energy efficient counterparts. To estimate the dynamic effects of the change in policy, we also apply a difference-in-difference (DID) estimation and a regression discontinuity design. This allows us to compare the rental price trajectory of a treatment group (EPC F/G rental properties) to one or several control groups (higher EPC bands and/or non-rental properties).

Keywords: Energy Efficiency; Housing Economics; Policy impact; Sustainability regulations (search for similar items in EconPapers)
JEL-codes: R3 (search for similar items in EconPapers)
Date: 2022-01-01
New Economics Papers: this item is included in nep-ene, nep-env and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:arz:wpaper:2022_216

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