Essays on the Consequences of Residential Energy Efficiency on Urban Property Markets

This thesis combines both empirical and theoretical methods in three separate studies exploring the wider impacts of residential energy efficiency improvements on UK property markets. Data from Energy Performance Certificates (EPCs) are merged with property transactions to assess the drivers of such improvements and the response of property prices and household location decisions. I adopt spatial techniques to answer a set of policy relevant questions. From the Net Zero transition arises a set of ambitious goals. As cities worldwide adapt to these, there has never been a more important time to understand the impacts on urban property markets.

Chapter two employs a novel instrumental variable approach to explore how improvements are capitalised into property prices. An alternate measure of improvement is proposed that measures the difference between a property’s current and potential efficiency – termed as unrealised efficiency. Capturing the future benefits of improvements, I show that buyers value improvements undertaken by previous owners considerably more than undertaking their own.

Chapter three explores the role of neighbourhood effects in explaining why households
undertake improvements. Neighbourhood effects mechanise how households learn from
and imitate the behaviour of their neighbours. Leveraging a spatial regression discontinuity design, I assess whether buyers delineate between energy-efficient and inefficient neighbourhoods using information reported in property listing adverts. Buyers with preferences for energy efficiency select into these neighbourhoods. Using years of exposure to selecting households as an instrument, I show that the neighbourhood effect induces improvements among incumbent households.

Chapter four rationalises this with a theoretical model comprising two mutually exclusive
groups of households – movers and never movers. Neighbourhood effects increase
investment demand which increases property prices in equilibrium. Never movers take investment decisions on the back of investments made by movers, highlighting that neighbourhood effects arise exclusively in the most-efficient neighbourhoods.