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Regular version of the site

Book chapter

The Market Value of Energy Efficiency in Buildings and the Mode of Tenure

P. 1-33.
Michelsen C., Kholodilin K.

Growing scarcity of fossil fuels and climate protection targets require an increasing energy efficiency of the housing stock and substantial private investment. However, the incentives to raise energy efficiency may be different for owner-occupants and landlords; often named as the “landlord-tenant dilemma.” This is particularly important for countries with a large residential rental sector, like Germany. Nevertheless, previous literature largely focuses on the pay offs owneroccupants receive from energy efficiency investments leaving out the rental market. This paper addresses this gap by comparing the capitalization of energy efficiency in selling prices (rents) for both types of residences. For this purpose apartment prices and rents from the Berlin housing market are analyzed in hedonic regressions. The estimations reveal that energy efficiency is well capitalized in apartment prices and rents. The comparison of implicit prices and the net present value of energy cost savings/rents reveals that investors anticipate future energy and house price movements reasonably. However, in the rental segment, the value of future energy cost savings exceeds tenants’ implicit willingness to pay by factor 2.98. This can either be interpreted as a result of market power of tenants, uncertainty in the rental relationship, or the “landlord–tenant dilemma.”