Modelling the effect of energy performance certificate rating on property value in the Belfast housing market

Abstract

Purpose

This study aims to investigate the relationship between energy performance and property sale price in the Belfast housing market. How energy efficiency is contributes to sale price and thus appraisal value is of growing concern. The obligatory measurement of energy efficiency in private dwellings seeks to encourage improvements in energy performance. This may be capitalised into property value and may stimulate demand for energy-efficient buildings. However, the relationship between energy performance and property value remains nebulous, complex and under-researched – in part due to data limitations.

Design/methodology/approach

Using a hedonic pricing specification, this paper measures the effect of energy performance certificates (EPCs) on residential property value. It examines the relationship between 3,797 residential sales transactions across the Belfast housing market, showing the percentage effect on property value with respect to energy performance.

Findings

The results indicate a small but positive relationship between better energy performance and higher selling prices. Nonetheless, the findings point towards strong preference, demand tastes and a complex intra-relationship between EPCs and their capitalisation into property value. Pertinently, the findings point towards any energy-efficient-related price effect affect to be marginal alongside more “quality”-based market behaviours.

Research limitations/implications

Analogous with other studies, data deficiencies and a lack of incorporating price determining variables (missing determinants) such as heating type and glazing type introduces omitted variable bias and endogeneity problems within the model structure.

Originality/value

This paper contributes to emerging literature and policy debate surrounding the measurement and implementation of energy-efficiency certification through a greater understanding of energy performance characteristics in determining property value.

Citation

Davis, P.T., McCord, J.A., McCord, M. and Haran, M. (2015), "Modelling the effect of energy performance certificate rating on property value in the Belfast housing market", International Journal of Housing Markets and Analysis, Vol. 8 No. 3, pp. 292-317. https://doi.org/10.1108/IJHMA-09-2014-0035