How does an increase in energy efficiency affect housing prices?: a case study of a renovation

Mclean, Alíz and Horváth, Áron and Kiss, Hubert János (2013) How does an increase in energy efficiency affect housing prices?: a case study of a renovation. In: Book of proceedings: 20th Annual Conference of the European Real Estate Society. ÖKK-Verlag, Vienna, pp. 39-55. ISBN 978-3-85437-323-0

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Abstract

Purpose- The purpose of the paper is to present a case study from Hungary of a renovation, in order to estimate the effect of greater energy efficiency on residential housing prices. Design/methodology/approach - The paper uses a dataset on real estate transactions. The sample consists of all transactions from 2003 to mid-2012 in a treatment and a control group in Budapest's third district. The paper uses a difference-in-differences framework to test whether prices in a large block of flats - the largest in Hungary - which underwent major energy-efficiency related renovation developed differently following the renovation than prices in comparable, neighbouring blocks. Findings - Our results show that the renovation resulted in prices 9.42% higher than they would have been absent the renovation, which amounts to over 1 million Hungarian forints on the average flat. This can be contrasted with around 70 thousand forints in yearly energy savings and the 1.3 million forint cost of the renovation per flat. The latter implies that outside funding may also be required to make investment into energy-efficient renovation worthwhile. Originality/value - The paper is the first empirical investigation into the effect of greater energy efficiency on residential housing prices in Hungary, and fits well with an emerging literature on the subject concerning other countries. It also has relevance in the ongoing debates about the possible need for government funding, and the consequences of making information on energy efficiency more transparent.

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