Abstract
PurposeThe purpose of this paper is to investigate the role of distinct types of heating technology and their price impact in German residential real estate markets, considering a wide range of other housing market determinants. The authors aim to test and to verify specifically, whether the obsolescence of heating technology leads to a significant price discount and whether higher technological standards (and environmental friendliness) come with a price premium on the market.Design/methodology/approachThe authors create housing market models for rental and sales segments by constructing generalized additive models with explicit multi-layered spatial components. To elaborate a profound and contemporary answer using these models, the authors perform large-sample regression analyses based on more than 400,000 observations covering German residential properties in 2015.FindingsFirst and foremost, the heating system indeed shows significant explanatory importance for measuring housing rents and purchasing price. Second, the authors find that it makes a difference whether clean “green” technologies are implemented or whether “brown” systems with obsolete technology or fossil energy sources is on hand. Ultimately, the authors conclude that while low energy consumption indeed comes with a price premium, this needs to be interpreted together with the property’s heating type, as housing markets seem to outweigh the “green premium” by “brown discounts” if low energy consumption figures are powered by a certain type of heating technology system.Research limitations/implicationsAside of a possible omitted variable bias, the main research limitation is constituted by the integration of asking prices in the analysis, as actual transaction prices are not systematically transparent on national level in Germany. Limitations are discussed at the end of the paper.Practical implicationsThis work supports investors who face the challenge of making environmental- and energy-related decisions as well as appraisers who deliver financial fundamentals for such. Third, the paper supports both asset managers as well as investment strategists in argumentation pro-environmental investments beyond all ecological necessity.Social implicationsThis paper contributes to the current discussion on climate change and the eclectic role of real estate in this context. The authors deliver evidence on pricing effects as a measure of socioeconomic acceptance of progressive heating technology and environmental friendliness as an imperative of twenty-first century societies.Originality/valueThis is the first study on “green premiums” or “brown discounts” that includes heating technology as a potential and distinct driver of value and rents. It is a contemporary contribution and delivers original information on the quantitative impact of contemporary and anachronistic technology in heating to researchers as well as investors and appraisers.
Highlights
Over the last two decades, research on additional property values and rents, which were generated or empowered by a high standard of green features, has attracted increased research interest
This paper aims to extent evidence on these “green premiums” by: (1) performing a large-sample hedonic study on German residential real estate, incorporating more than 140,000 contemporary observations from the sales and 260,000 contemporary observations from the rental market; (2) implementing a logic for the identification of properties in urban centers to eventually account for the specific price situation arising from the lifestyle and image of urban centers in contrast to other areas; and
Our study finds that properties that were advertised as including “brown” heating technology were offered for sale at a discount of approximately 4.23 percent c.p. in comparison to those properties that were offered with heating technology that depends on Median 3rd quartile Max
Summary
Over the last two decades, research on additional property values and rents, which were generated or empowered by a high standard of green features, has attracted increased research interest. High energy efficiency or good scores from sustainability. © Jonas Hahn, Jens Hirsch and Sven Bienert. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
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