Structural Equation Modelling for Detecting Latent “Green” Attributes in Real Estate Pricing Processes

Abstract

The presence of latent factors in the residential real estate market emerges by measuring and evaluating the effects of energy performance on price changes. The effects of green attributes on the price formation process are particularly interesting to explore, being closely linked to the energy performance of buildings. This last is regulated by increasingly stringent energy and environmental policies both internationally and nationally, translated into a thorough regulatory framework which ranges from the Directive 2002/91/EC - Energy Performance of Buildings Directive (EPBD) up to the recent Communication EU - A Renovation Wave for Europe 2020. Thus, this work aims to propose Structural Equation Models (SEMs) as a suitable approach to the detection and estimation of the effects of “green” attributes on residential property prices. This work, therefore, presents a survey of SEMs methodology, highlighting its theoretical and operational principles and suggesting future insights and applications.