Abstract
This study investigates the relationship between regional housing market fundamentals and energy consumption. We argue that dwellings, in particularly rental properties, are not only consumer goods, but also constitute financial market assets. Properties are spatially fixed and traded in regional contexts, where real estate market characteristics like vacancy, income levels, and expectations determine rent and prices, which in turn provide incentives to invest in housing quality. The level of housing quality (e.g. windows, building materials, or heating technology) in turn influences the level of energy consumption. While this view is established in the real estate and urban economics literature, it has only recently found its way into the energy debate. As a result, the relationship between regional housing market fundamentals and energy consumption has received little attention. This study provides a first attempt to address this paucity. Utilizing aggregate data on regional space-heating energy consumption from over 300,000 apartment buildings in 97 German planning regions, the study applies structural equation modeling to estimate the influence of housing market fundamentals on the level housing quality, and subsequently on regional energy consumption. Findings provide first evidence that regional differences in housing market conditions have a significant impact on housing quality and energy consumption. Specifically, the results suggest that carbon abatement programs in buildings should focus on regions with weak housing market fundamentals, as market incentives are unlikely to incentivize investors to invest in housing quality attributes. The authors conclude by highlighting important implications for energy research and avenues for further investigations.
Highlights
In markets with high rents investors are more likely to invest in higher quality housing attributes like building materials, windows or insulation, which result, intentionally or unintentionally, in higher levels of energy-efficiency. While this view is well established in real estate and urban economics, it has only recently found its way into the empirical literature around energy efficiency, which can partially be explained by a lack of adequate data (Eichholtz et al, 2010)
The results suggest that housing quality is, amongst other factors, determined by regional housing market fundamentals (Table 3), and that housing quality, in turn has a significant impact on energy consumption (Table 4)
The present study investigated the relationship between regional housing market fundamentals and energy consumption
Summary
Residential housing plays a vital role in meeting climate change and CO2-mitigation targets. Because properties are consumer goods, and capital assets, it is reasonable to assume that individuals optimize their investment decision in regard to expected rental income and anticipated changes in sales prices (Dipasquale and Wheaton, 1992; Leung, 2004) These investment decisions are likely to correspond with certain levels in housing quality, which in turn influences energy consumption. In markets with high rents investors are more likely to invest in higher quality housing attributes like building materials, windows or insulation, which result, intentionally or unintentionally, in higher levels of energy-efficiency While this view is well established in real estate and urban economics, it has only recently found its way into the empirical literature around energy efficiency, which can partially be explained by a lack of adequate data (Eichholtz et al, 2010).
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