Energy performance certificates and house prices: a quantile regression approach

Michael McCord (School of the Built Environment, University of Ulster, Newtownabbey, UK)
Martin Haran (School of the Built Environment, University of Ulster, Newtownabbey, UK)
Peadar Davis (School of the Built Environment, University of Ulster, Newtownabbey, UK)
John McCord (School of Law, University of Ulster, Newtownabbey, UK)

Journal of European Real Estate Research

ISSN: 1753-9269

Publication date: 31 August 2020

Abstract

Purpose

A number of studies have investigated the relationship between energy performance certificates (EPCs) and house prices. A majority of studies have tended to model energy performance pricing effects within a traditional hedonic conditional mean estimate model. There has been limited analysis that has accounted for the relationship between EPCs and the effects across the pricing distribution. Moreover, there has been limited research examining the “standard cost improvements EPC score”, or “potential score”. Therefore, this paper aims to quantify and measure the dynamic effects of EPCs on house prices across the price spectrum and account for standardised cost-effective retrofit improvements.

Design/methodology/approach

Existing EPC studies produce one coefficient for the entirety of the pricing distribution, culminating in a single marginal implicit price effect. The approach within this study applies a quantile regression approach to empirically estimate how quantiles of house prices respond differently to unitary changes in the proximal effects of EPCs and structural property characteristics across the conditional distribution of house prices. Using a data set of 1,476 achieved transaction prices, the quantile regression models apply both assessed EPC score and bands and further examine the potential EPC rating for improved energy performance based on an average energy cost improvement.

Findings

The findings show that EPCs are valued differently across the quantiles and that conditional quantiles are asymmetrical. Only property prices in the upper quantiles of the price distribution show significant capitalisation effects with energy performance, and only properties with higher EPC scores display positive significant effects at the higher end of the price distribution. There are also brown discount effects evident for lower-rated properties within F- and G-rated EPC properties at the higher end of the pricing distribution. Moreover, the potential energy efficiency rating (score) also shows increased effects with sales prices and appears to minimise any brown discount effects. The findings imply that energy performance is a complex feature that is not easily “averaged” for valuation effect purposes.

Originality/value

While numerous studies have investigated the pricing effects of EPCs, they have tended to provide a single estimate to determine the relationship with price. This paper extends the traditional analytical insights beyond the conditional mean estimate by examining the quantiles of the relationship between EPCs and house prices to enhance the understanding of this esoteric and complex issue. In addition, this research applies the assessed energy efficiency potential to establish whether effective cost improvements enhance the relationship with sales price and capitalisation effects.

Keywords

Citation

McCord, M., Haran, M., Davis, P. and McCord, J. (2020), "Energy performance certificates and house prices: a quantile regression approach", Journal of European Real Estate Research, Vol. 13 No. 3, pp. 409-434. https://doi.org/10.1108/JERER-06-2020-0033

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Publisher

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Emerald Publishing Limited

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