This paper addresses the question of whether increased energy efficiency, as measured by the Energy Performance Certificate (EPC), has an impact on the transaction price of residential properties in Portugal. The investigation of the relationship between the EPC label and residential property prices is carried out through the econometric estimation of an hedonic price model, which has been used as the workhorse model of house prices.
Using a dataset of 256,000 residential property sales for Portugal, this paper estimates a price premium for energy efficiency. The average price premium is 13% for apartments and 5% to 6% for houses. Price premiums tend to increase from 2009 to 2013, a period in which the Portuguese housing market was depressed.
The paper constitutes the first large-scale assessment of the effect of EPC labels on residential transaction prices for a southern European country. The availability of an unusually large and rich dataset allows for the clarification of data issues associated with the use of the hedonic price model. Cross-country comparisons suggest that energy-efficiency price premiums are higher than those found for central and northern European markets. Illustrations on the effect of data issues show how the use of appraisal prices and explanatory variables with measurement errors may seriously bias energy efficiency partial effect estimates. In contrast, the omission of variables associated with the quality of the properties has not produced relevant distortions. Finally, it became apparent that the use of smaller datasets would have produced similar results, as no significance inflation was produced by the Portuguese large-scale dataset.
Click here to go to the paper by Rui Evangelista,Esmeralda A. Ramalho, and João Andrade e Silva.