The effect of energy performance ratings over residential prices or how an insufficient control of architectural-quality may render spurious conclusions

Abstract

The European Union has relied upon information symmetry theory to foster decarbonization of existing buildings in cities under the hypothesis that efficient buildings receive a market premium. Hedonic analysis of housing prices across European cities suggests the existence of such a premium; while opinion-based research concludes that households pay scarce attention to energy performance when letting or buying a home. These approaches render inconclusive evidence regarding the role of energy-information symmetry as public policy in climate change mitigation through market prices. Since energy-efficiency attributes are contingent on the architectural quality of homes, poor control of the latter in hedonic models may bring biased conclusions regarding the former. The main contribution of this piece is to improve the control of these non-energy attributes using a visual inspection of listed apartments in Madrid and Barcelona. Results suggest that the energy-efficiency price premium completely disappears when other quality attributes are considered in full. This finding has large implications for energy and city policies.