Electricity consumption and house values

Abstract

The study investigates whether electricity consumption could be a valuable data supplement in analysing house value variations within the city. Electricity consumption is a proxy for economic and citizen activity, wealth, population size, density, and to a certain extent habits of the residents. In general, electricity could substitute many factors that are essential in real estate markets. The study investigates real estate market in London by employing a panel of electricity consumption and house price data of 32 boroughs from 2003 to 2014. The data enables to examine cross-sectional and temporal links using several panel models. Additionally, robustness of outcomes are tested. The findings indicate that there is a negative correlation between domestic electricity consumption and average house values, suggesting that owners of more expensive houses consumes less electricity. On the other hand, boroughs that consume more non domestic electricity are positively related with the average house values in the area, suggesting that homes are more expensive in more active areas. Electricity consumption could supplement data used in real estate market analysis. The electricity consumption data is precise, rapidly obtained, and could be gathered frequently without high cost, contrary to population and economic activity statistics. At the same time electricity consumption may help analyse the characteristics of an area that are difficult to quantify and expensive to collect. To the authors’ knowledge, there is no other study that investigates interconnection between electricity consumption and real estate market. By using the electricity consumption, house price trends could be quantified more precisely, thus producing a city profile that paints a more realistic picture for the market participants.