Is there an economic case for energy-efficient dwellings in the UK private rental market?

Abstract

The rented sector of the housing market is a key concern for policies trying to improve dwelling-level energy efficiency levels. Currently, stepping up energy efficiency levels in the residential sector is hindered by a number of uncertainties. For rental properties, this is complicated by the split incentive problem (i.e. landlords do not benefit directly from the savings arising from these investments). Instead, the benefits are enjoyed by the tenants of these upgraded properties via lower energy bills and/or enhanced thermal comfort. Hence, the only way to recoup the investments is typically for landlords to obtain higher rents. This study confirms that energy efficiency features, as measured by the Energy Performance Certificate rating, are positively associated with a small but significant influence on transaction prices and quoted rental prices. Conversely, there appears to be a price discount for dwellings in the lowest energy performance category. A model of time-on-market yields inconclusive results but there is some, albeit weak, evidence of a negative relationship between time-on-market and energy efficiency ratings as more energy efficient dwellings tend to lease up more quickly.