Do renters skimp on energy efficiency during economic recessions? Evidence from Northeast Scotland

Abstract

This paper investigates tenants' willingness to pay (WTP) for energy efficiency in the private rented housing sector. Using data from Aberdeen city and Shire in Scotland between the third quarter of 2013 and the second quarter of 2017, rent premiums of 2–11% associated with more energy efficient dwellings are found, and the magnitudes of these premiums are considerable compared to those of other physical attributes. Such premiums however, are significantly reduced during economic recession, suggesting that tenants' WTP for energy efficiency varies under different economic conditions. From a methodological perspective, the study uses a multilevel model, where the unobservable neighbourhood and age effects are approximated. Our results implicate that although tenants’ WTP for more energy efficient is present, there still might be a need for public strategy to facilitate the improvement of energy performance in the private rented sector.