Does the market value energy efficiency within EPC-labels? An analysis of the residential real estate market in Flanders

Abstract

Purpose The current literature has not investigated the perceived value of energy efficiency by households, regardless of financial benefits. Furthermore, there is a severe lack of research that investigates the effectiveness of the current format of EPC-labels. Therefore, the purpose of this paper is twofold: to study how households value energy efficiency in the housing market, regardless of price effects. Design/methodology/approach This study uses multiple hedonic regression models to analyse 706,778 Flemish properties for sale or rent between 2019 and 2023. The data is provided by Immoweb – the largest online real estate platform in Belgium. Given that the selling market is driven by different mechanisms than the rental market, the data set was divided in sold (522,164 listings) and rented properties (184,614 listings). Findings The ambiguous results of the A-label in the selling market indicate that the “class evaluation effect” found in related markets which use labels (e.g. household appliances) is also present in the housing market. However, the results of the other (lower) labels clearly show that owners do value energy improvements within labels, and this effect becomes stronger as the EPC-label becomes better. The rental market shows the opposite results. Energy improvements are only valued if they translate into a financial benefit. Taking these findings into account, the second part of this research shows that rescaling the EPC-label creates an incentive for improvements within labels. Originality/value This paper provides novel insights by studying the perceived value of energy efficiency in the absence of financial benefits and critically studying the effectiveness of the EPC-labels in their current shape. By investigating both the sales and rental market, the authors are able to make a comparison which creates valuable insights for academia, governments and real estate professionals.