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Elisabetta Cornago, ECARES Print
Friday, 11 December 2015, 12:15 - 13:15

Elisabetta Cornago, ECARES

Energy Performance Certification and Housing Rents: Can Certificates Help to Overcome Split Incentives?

Abstract: Energy performance certification (EPC) is argued to provide a solution to information asymmetries between landlords and tenants with respect to the energy consumption of a building and to the current challenge of underinvestment in insulation of rented property.
Because EPC is compulsory in rental advertisements in the Region of Brussels since November 2011, we use a cross-sectional dataset of over 200000 residential dwellings advertised for rent in this region in 2010-2014 in order to assess the impact of EPC on the Brussels rental market.
We apply a hedonic price regression and estimate a Heckman selection model to determine the rent premium associated to a higher energy performance score if advertised.
Our preliminary results suggest that a certified and highly energy-efficient dwelling can earn a rent premium of up to 5.5-12% compared to a certified but energy-inefficient one.
These results are robust to different exclusion restrictions and indicate that policies of compulsory information disclosure can be appropriate tools to solve information asymmetries about energy performance in the building sector.
The rent premium resulting from an advertised higher energy performance score is expected to provide a direct incentive for landlords to invest in building insulation. In a final step of our analysis we will study whether the premium in Brussels is high enough to generate actual investment in energy efficiency measures.

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