Real Estate

Energy efficiency also capitalized in 2015 house prices

June 24, 2015

Also the new energy label leaves its green marks on Dutch house prices. The green premium has reduced in size, but due to the upswing in market uptake from 17% to 60%, these energy premiums are more present than ever before. A red G-label, reduces the average sale price by 14 thousand euro’s, while homes sold with  a green A-label sell at a premium of 7 thousand euro’s, both compared to the average D-labeled dwelling, see figure 2.

Researchers of TIAS Business School have been analyzing the price effects of the energy label within the Dutch housing market. Since January of 2015, this label has been succeeded by a new generation label that has immediately become more diffused within the market. The market share of labeled sales jumped to almost 60% during the first months of introduction. Since January 1st of this year, over 17.000 labels sales have been researched, and the results show that green energy labels increase the average sale price, also when controlling for the apparent variations in dwelling age and qualities.    

Figuur 2 Prijseffect per labelcategorie Q1 2015
Figure 2: price effects of label categories Q1 2015
Figuur 3: effect van groen (A en B) energielabel op verkooptijd
Figure 3: effects of green (A and B) energy labels on sale time 
Figuur 4: effect van groen (A en B-labels) energielabel op prijs
Figure 4: effects of green (A and B) energy labels on sale price
Figuur 1: marktaandeel gelabelde transacties sinds 2008
Figure 1: market share of label sales since 2008   

Besides these price premiums, the researchers also report that the sale time is reduced when labels are available. The average labeled dwelling sells 20 days quicker, than when the label is absent.  

“It is no surprise to find that energy efficiency is rewarded in sale prices. The label simply conveys this type of information regarding the future user costs, and warns buyers up front. This helps to make the housing market more aware of the existing variation in energy standards, and helps buyers to make informed choices”. Says prof.dr. Dirk Brounen, research leader of this project.  

The effects are small, compared to previous outcomes that date before 2015. The old label triggered green price premiums of 2.5%, on average (compared to 1.2% in 2015) and shortened the sale period by 82 (compared to 20 days in 2015), see figures 3 and 4.

“It appears that the depth of the information of the older energy label was recognized and appreciated by buyers”, says Brounen. “But it is also important to stress the difference in market penetration. Although the effects of the old labels were stronger on the individual dwellings, the labels lacked the market shares that were strived for. The old labels were used in only 17% of Dutch home sales, whereas the new labels have been part of almost 60% of the 2015 sales. In other words, the total effect of the new label may well be larger, since larger fractions of the market have been addressed (see figure 1)”.  

This quarterly analysis is based on the hedonic modeling that is described and validated by Brounen and Kok (2011) “On the economics of energy labels in the housing market” in the Journal of Environmental Economics and Management. In this analysis, they carefully control for the known price- and sale time effects of location, dwelling age and -quality. In order to update these 2011 results, the researchers repeat their analysis on a progressing window of data that combines housing data by the Dutch realtor association (NVM) and label information supplied by the Netherlands Enterprise Agency (RVO) . 

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