The capitalization of energy efficiency: Evidence from the housing market

This paper investigates how private consumers capitalize energy efficiency in the housing market, and the extent to which the provision of an energy performance certificate (EPC) affects such capitalization. We explicitly address methodological lacunae in the literature, using an exhaustive battery of identification strategies. The results indicate that energy efficiency is indeed capitalized into home prices, with OLS estimates biased downwards. Using an IV approach, we find that as the level of energy efficiency increases by ten percent, the market value of the dwelling increases by around 2.2 percent - quite a precise reflection of both the required capital outlay and future energy savings. These results are confirmed in a repeat-sales analysis. Importantly, examining the role of energy performance certificates (EPCs), we document that the extent of capitalization of energy efficiency is not affected by information provision, questioning the continued need for government-imposed certification programs.