Effective policy for greening the housing market
During the sale of a house, the buyer is generally not well informed about the energy consumption of the house. That is why the European Union made energy labels mandatory for residential property. The energy labels provide information about a dwelling's energy consumption and run from G (least energy-efficient) to A (most energy-efficient). This allows homebuyers to better factor in the expected energy consumption when buying a house. Green homes will then be sold with an added premium.
Such a premium should properly reflect the costs of the investment and the value of the expected energy savings. If the premium is too high, it may discourage homebuyers from purchasing green homes. Similarly, the premium must not be too low, because that may deter home-owners from investing in greening their houses.
Green homes trade against a significant premium
Microdata about the Dutch housing market was used to estimate the premium for “green” homes. The results in Figure 1 show that homes with an A, B or C label are sold at a premium compared to homes with a D label. Furthermore, houses with an E, F or G label are sold for significantly less than houses with a D label. For houses with a G label, this discount amounts to EUR 13,500 on average.
Figure 1: Estimated premiums per label set off against the investment costs and discounted energy savings
Figure 1 shows the absolute value of the estimated premium of the relevant label against label D (in black) for the entire sample. The figure also shows the investment costs required to attain a specific label (in yellow), taking label D as a starting point and the discounted value of the expected energy savings of the relevant label set off against a D label (in blue).