The impact of energy efficiency on the market value in the residential real estate market

This paper adds to the debate on the carbon footprint of the built environment by assessing the market capitalization of energy efficiency in the Dutch residential real estate market. This is a crucial component for owners that want to invest in more sustainable homes, as this gives them insight into the question whether this impacts its value. The study assesses the capitalization with different methods, among them the hedonic pricing model estimated by Ordinary Least Squares (OLS) method, the Repeat Sales model and the Instrumental Variable (IV) approach. The analysis indicates a potential for bias in these types of models. As the most advanced and elaborated IV method yields different coefficients, suggesting that there is a downwards endogeneity bias in the OLS. The IV approach finds per 10% increase in energy efficiency a price premium of approximately 0.7% on average. This is relatively low compared to the earlier findings of the literature, but an explanation for this could be the large explanatory value (R2 = 0.90) in this research and the more recent dataset (2009-2018). Moreover, this dataset contains data from after the mandatory inclusion of the Energy Performance Certificates (EPCs) in 2015. In prior research that only uses data before 2015 this may have caused a sample selection bias. At last, this research makes the results more tangible in four energy label transformation business cases. The findings of this research are relevant to public organizations and house owners as they present investment inefficiencies and therefore potential investment opportunities.