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An exploratory investigation into the relationship between energy performance certificates and sales price: a polytomous universal model approach

Michael McCord (School of the Built Environment, University of Ulster, Belfast, UK)
Peadar Davis (School of the Built Environment, University of Ulster, Belfast, UK)
John McCord (School of the Built Environment, University of Ulster, Belfast, UK)
Martin Haran (School of the Built Environment, University of Ulster, Belfast, UK)
Karen Davison (School of the Built Environment, University of Ulster, Belfast, UK)

Journal of Financial Management of Property and Construction

ISSN: 1366-4387

Article publication date: 18 May 2020

Issue publication date: 16 July 2020

229

Abstract

Purpose

The role of energy efficiency and particularly energy performance certificates (EPCs) has emerged as a topical and important aspect of real estate markets. Various studies have been carried out investigating the perceived capitalisation effects of energy efficiency on property prices. There, however, remains divergence of opinion whether the capitalisation effect is truly in existence with extant research showing differing magnitudes of effects, if any. To date, no study (that the authors are aware of) has investigated the nature of the transition between EPC bands and price effects. The purpose of this study is to add to the research of the energy efficiency of housing to examine the nature of the likelihood of property characteristics being associated with higher EPC scores and value.

Design/methodology/approach

This research undertakes a suite of methodological tests to investigate the more latent relationships between EPC bands and pricing behaviour using 3,797 achieved sales prices within the Belfast housing market. Binary logit regression models are specified in conjunction with a Polytomous Universal Model to examine the likelihood of EPC bands falling within a particular property type and the likelihood of any pricing effects.

Findings

The findings show the differing property types to comprise very distinct and complex relationships in terms of price and EPC banding. The binary logit model estimations for both terrace properties and apartments reveal an increased likelihood to obtain higher EPC scores, with the semi-detached sector displaying a “mixed effect” with detached property revealing decreased probability of having superior energy performance and decreased likelihood of having poorer energy performance. The ordinal model estimations indicate that sales price comprises no relationship with energy performance, inferring that there is no increased probability of an increase in sales price with higher EPC rating.

Originality/value

This research offers new insights and focus on achieving a better understanding of the nexus between energy performance and property characteristics using alternative modelling approaches. This provides more exploratory insights into the complex relationships and offers awareness for policy discourse in terms of targeting properties which will tend to be poorer in energy efficiency.

Keywords

Citation

McCord, M., Davis, P., McCord, J., Haran, M. and Davison, K. (2020), "An exploratory investigation into the relationship between energy performance certificates and sales price: a polytomous universal model approach", Journal of Financial Management of Property and Construction, Vol. 25 No. 2, pp. 247-271. https://doi.org/10.1108/JFMPC-08-2019-0068

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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