Elsevier

Energy

Volume 165, Part A, 15 December 2018, Pages 164-175
Energy

Do renters skimp on energy efficiency during economic recessions? Evidence from Northeast Scotland

https://doi.org/10.1016/j.energy.2018.09.078Get rights and content

Highlights

  • Private tenants pay a premium for properties with higher energy performance.

  • The willingness to pay is considerable.

  • Such willingness to pay is significantly reduced during economic downturn.

  • The private housing sector may need public strategy to improve energy performance.

Abstract

This paper investigates tenants' willingness to pay (WTP) for energy efficiency in the private rented housing sector. Using data from Aberdeen city and Shire in Scotland between the third quarter of 2013 and the second quarter of 2017, rent premiums of 2–11% associated with more energy efficient dwellings are found, and the magnitudes of these premiums are considerable compared to those of other physical attributes. Such premiums however, are significantly reduced during economic recession, suggesting that tenants' WTP for energy efficiency varies under different economic conditions. From a methodological perspective, the study uses a multilevel model, where the unobservable neighbourhood and age effects are approximated. Our results implicate that although tenants’ WTP for more energy efficient is present, there still might be a need for public strategy to facilitate the improvement of energy performance in the private rented sector.

Section snippets

Background

Targets were set by the Climate Change (Scotland) Act 2009 to reduce greenhouse gas emissions substantially.1 As greenhouse gas emissions from the housing sector account for around a quarter of Scotland's total emissions [1], making homes more energy efficient has been a key focus of the government policy. While new housing constructions are subject to building standards, older buildings in the

Case study area

Located in the northeast of Scotland, Aberdeen city and Shire are the home to more than 400,000 residents. Due to its proximity to the North Sea oil fields, the region is also a hub for many large oil and gas companies and their supporting services, thus earns its name as the “Europe's oil capital”. The local economy is heavily reliant on the oil and gas sector: it accounts for more than 20% of the employment and more than half of the total turnover [39]. As a result of the recent turmoil in

Data

Transaction data of private residential property leases from the Aberdeen Solicitors Property Centre (ASPC) was obtained on the basis of a non-disclosure agreement between the University of Aberdeen and the ASPC. The datasets record properties marketed as “to let” in the housing market area defined by the local authorities in Aberdeen and Aberdeenshire (see Fig. 2) from 1985Q3 to date (2017Q3).

Due to the availability of EPC ratings (details see Section 3.2), lease data includes 13,197

Models

In line with existing studies [16,17,43], we use hedonic regressions to examine the relations between rents and energy performance. There are four specifications for the models used in this study. The first specification is a baseline log-linear hedonic model (Model 1) which is presented in Eq. (1):log(RENTi)=αi+βXi+γGeocodei+εi,where log(RENTi) is the natural logarithm of the realised annual rent for property i. Xi is a vector of the explanatory variables for the property attributes, including

Results

Table 3, Table 4, Table 5 show hedonic regression results for rents under each model specification. All models have an explanatory power of around 80%. The variation in number of transactions is due to missing values of variables related to EPC and postcodes. In Model 1, most of the estimated effects of house attributes on rent are as expected (for example, an additional public room, a bedroom, a cloak room or a bathroom yields significantly positive coefficients on annual rents), and the

Discussion and conclusion

Split-incentives have been perceived as one of the major hurdles of improving energy performance of dwellings in the PRS. While the existing studies tend to compare energy expenditure between tenants and owner-occupiers to indicate the presence of the issue, we argue that a more direct way to investigate the presence of split-incentive issue is through the study of tenants' WTP for more energy efficient homes. Such WTP could be in the form of rent premium. In the light of psychological studies,

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